Termination Rights, Royalty Distributions, Ownership Transfers, Disputes, and the Music Modernization Act, 56586-56617 [2024-14609]

Download as PDF 56586 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations LIBRARY OF CONGRESS Copyright Office 37 CFR Part 210 [Docket No. 2022–5] Termination Rights, Royalty Distributions, Ownership Transfers, Disputes, and the Music Modernization Act U.S. Copyright Office, Library of Congress. ACTION: Final rule. AGENCY: The U.S. Copyright Office is issuing a final rule regarding how the Copyright Act’s derivative works exception to termination rights applies to the statutory mechanical blanket license established by the Music Modernization Act. The final rule also addresses other matters relevant to identifying the proper payee to whom the mechanical licensing collective must distribute royalties. Among other things, the Office is adopting regulations addressing the mechanical licensing collective’s distribution of matched historical royalties and administration of ownership transfers, other royalty payee changes, and related disputes. DATES: This rule is effective August 8, 2024. However, compliance by the mechanical licensing collective, other than with respect to §§ 210.27(g)(2)(ii)(B)(1), 210.29(b)(4)(i)(C), 210.29(k), and 210.30(c)(1)(i)(B), is not required until the first distribution of royalties based on the first payee snapshot taken after October 7, 2024. The Copyright Office may, upon request, extend the compliance deadlines in its discretion by providing public notice through its website. SUMMARY: FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the General Counsel, by email at meft@ copyright.gov or telephone at 202–707– 8350. SUPPLEMENTARY INFORMATION: lotter on DSK11XQN23PROD with RULES3 I. Background The Copyright Office (‘‘Office’’) issues this final rule subsequent to a supplemental notice of proposed rulemaking (‘‘SNPRM’’), published in the Federal Register on September 26, 2023,1 and a notice of proposed rulemaking (‘‘NPRM’’), published in the Federal Register on October 25, 2022.2 This final rule assumes familiarity with the NPRM and SNPRM, as well as the 1 88 2 87 FR 65908 (Sept. 26, 2023). FR 64405 (Oct. 25, 2022). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 public comments received in response to those notices.3 While the final rule retains many elements from the SNPRM, it also adopts a number of changes in response to the public comments, including a scaling back of certain proposals. We have adopted a number of commenter suggestions where reasonable, and have striven to establish a fair and balanced approach to the issues presented in this proceeding. In particular, the Office has endeavored to find solutions to the practical and administrative concerns that were raised by commenters. We are thankful for their participation in this process. This document first summarizes the Office’s earlier proposals and the public comments. It next addresses questions raised regarding our rulemaking authority. Finally, it discusses the different parts of the final rule: termination and the derivative works exception; the copyright owner entitled to blanket license royalties; matched historical royalties; ownership transfers and royalty payee changes; disputes; the corrective royalty adjustment; and the rule’s effective date and compliance deadline. A. The NPRM The Office commenced this proceeding after the Mechanical Licensing Collective (‘‘MLC’’) 4 adopted a termination dispute policy (‘‘Termination Policy’’) that conflicted with prior Office guidance and was based on an erroneous interpretation of how the Copyright Act’s derivative works exception (‘‘Exception’’) to 3 The NPRM stemmed from a previous rulemaking, discussed in detail in the NPRM, that involved multiple rounds of public comments through a notification of inquiry, 84 FR 49966 (Sept. 24, 2019), a notice of proposed rulemaking, 85 FR 22518 (Apr. 22, 2020), and an ex parte communications process. Guidelines for ex parte communications, along with records of such communications, including those referenced herein, are available at https://www.copyright.gov/ rulemaking/mma-implementation/ex-partecommunications.html. All rulemaking activity, including public comments, as well as educational material regarding the MMA, can currently be accessed via navigation from https:// www.copyright.gov/music-modernization. Comments received in response to the NPRM and SNPRM are available at https://copyright.gov/ rulemaking/mma-termination/. References to the public comments are by party name (abbreviated where appropriate), followed by ‘‘NPRM Initial Comments,’’ ‘‘NPRM Reply Comments,’’ ‘‘SNPRM Initial Comments,’’ ‘‘SNPRM Reply Comments,’’ or ‘‘Ex Parte Letter,’’ as appropriate. 4 The preamble uses the terms ‘‘Mechanical Licensing Collective’’ or ‘‘MLC’’ to refer to the currently designated mechanical licensing collective. The regulatory text uses the lowercase statutory term ‘‘mechanical licensing collective,’’ as the regulations apply to any designated mechanical licensing collective, including the current or any future designee. PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 termination rights applies to the statutory mechanical blanket license (‘‘blanket license’’) established by the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (‘‘MMA’’).5 The Office concluded it was necessary to address the legal issues more directly, including how termination law and the Exception intersect with the blanket license.6 In the NPRM, it explained that clarifying the issues ‘‘would provide much needed business certainty to music publishers and songwriters’’ and ‘‘would enable the MLC to appropriately operationalize the distribution of posttermination royalties in accordance with existing law.’’ 7 The NPRM contained a detailed discussion of the procedural background leading to this rulemaking,8 the Office’s regulatory authority,9 and legal background about the Copyright Act’s termination provisions and the Exception.10 The Office then analyzed the application of the Exception in the context of the blanket license and preliminarily concluded that the MLC’s Termination Policy was ‘‘inconsistent with the law.’’ 11 We explained that ‘‘[w]hether or not the Exception applies to a [digital music provider’s (‘‘DMP’s’’)] blanket license (and the Office concludes that the Exception does not), the statute entitles the current copyright owner to the royalties under the blanket license, whether pre- or posttermination.’’ 12 This means that ‘‘the post-termination copyright owner (i.e., the author, the author’s heirs, or their successors, such as a subsequent publisher grantee) is due the posttermination royalties paid by the DMP to the MLC.’’ 13 The Office proposed a rule to recognize the payee under the blanket license who is legally entitled to royalties following a statutory termination.14 We also proposed to require the MLC to immediately repeal its Termination Policy in full after concluding that it was ‘‘contrary to the Office’s interpretation of current law.’’ 15 We further proposed to require the MLC to adjust any royalties distributed under the policy within 90 5 87 FR 64405, 64407. 6 Id. 7 Id. (‘‘Moreover, without the uniformity in application that a regulatory approach brings, the Office is concerned that the MLC’s ability to distribute post-termination royalties efficiently would be negatively impacted.’’). 8 Id. at 64406–07. 9 Id. at 64407–08. 10 Id. at 64408–10. 11 Id. at 64410–11. 12 Id. at 64411. 13 Id. 14 Id. at 64411–12. 15 Id. at 64412. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations days to make copyright owners whole for any distributions it made based on ‘‘an erroneous understanding and application of current law.’’ 16 After the NPRM was published, the MLC said that it voluntarily ‘‘suspended [its Termination Policy] pending the outcome of the [Office’s] rulemaking proceeding’’ and will ‘‘hold[ ] all royalties for uses of musical works that are subject to statutory termination claims beginning with the royalties for the October 2022 usage period, which would have been initially distributed in January 2023.’’ 17 To the Office’s knowledge, the MLC continues to hold such royalties. B. The NPRM Comments The Office received over 40 public comments in response to the NPRM. These comments reflected the views of hundreds of interested parties, including songwriters, music publishers and administrators, record companies, public interest groups, academics, and practitioners. Most commenters, including multiple music publishers and administrators, generally supported the NPRM.18 While some commenters raised concerns with certain aspects of the NPRM,19 the National Music Publishers’ Association (‘‘NMPA’’) was the only commenter to oppose the proposed rule more broadly, though it supported the NPRM’s goal of ‘‘ensuring that royalties for uses under the Section 115(d) blanket license . . . are paid to the proper copyright owner.’’ 20 Several commenters, including the MLC, sought additional guidance from the Office on various related issues not directly addressed by the NPRM. Examples include the following: 16 Id. lotter on DSK11XQN23PROD with RULES3 17 The MLC, Policies, https://www.themlc.com/ dispute-policy (last visited June 14, 2024). 18 See, e.g., Authors All. et al. NPRM Initial Comments at 1–3; BMG Rights Mgmt. NPRM Initial Comments at 1–2; BMG Rights Mgmt. NPRM Reply Comments at 1; ClearBox Rights NPRM Initial Comments at 2, 6–8; Fishman & Garcia NPRM Initial Comments at 1–4; Gates NPRM Reply Comments; Howard NPRM Initial Comments at 1– 2; Howard NPRM Reply Comments at 2–3; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments; Landmann NPRM Initial Comments; Miller NPRM Initial Comments; North Music Grp. NPRM Reply Comments at 2–3; NSAI NPRM Initial Comments at 3; Promopub NPRM Initial Comments at 1–2; Promopub NPRM Reply Comments at 1–2; Recording Academy NPRM Reply Comments at 2– 3; Rights Recapture NPRM Initial Comments; SGA et al. NPRM Initial Comments at 1–2, 5; SONA et al. NPRM Initial Comments at 2–3; SONA et al. NPRM Reply Comments at 3; Songwriters NPRM Reply Comments at 1; Wixen Music Publ’g NPRM Initial Comments at 1–2. 19 See, e.g., CMPA NPRM Initial Comments at 1– 2; A2IM & RIAA NPRM Reply Comments at 1–2; MPA NPRM Reply Comments at 2–5. 20 See generally NMPA NPRM Initial Comments; NMPA Ex Parte Letter (Feb. 6, 2023). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 • Application of the Exception to other types of statutory mechanical licenses; 21 • Application of the Exception to voluntary licenses; 22 • Procedures for carrying out the proposed corrective royalty adjustment to remedy prior distributions by the MLC based on an erroneous understanding and application of the Exception; 23 • Procedures concerning notice, documentation, timing, and other matters relating to the MLC’s implementation of a termination notification; 24 and • Procedures concerning termination disputes and related confidential information.25 The MLC emphasized the importance of the Office providing guidance regarding its termination-related procedures, explaining that rules addressing these procedures are ‘‘essential to processing royalties in connection with statutory termination claims’’ and ‘‘would provide important guidance to parties involved in termination claims.’’ 26 C. The SNPRM After considering the requests for further guidance and other comments received, the Office issued an SNPRM modifying the NPRM, providing additional detail, and expanding the NPRM’s scope. In addition to addressing the Exception, the SNPRM addressed and sought comments on other matters relevant to identifying the proper payee to whom the MLC must distribute royalties. Such matters included issues related to the MLC’s distribution of matched historical royalties and 21 See, e.g., MLC NPRM Initial Comments at 6; MLC NPRM Reply Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments. 22 See, e.g., MLC NPRM Initial Comments at 4– 6; MLC NPRM Reply Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; Rights Recapture NPRM Initial Comments. 23 See, e.g., MLC NPRM Initial Comments at 6– 8; ClearBox Rights NPRM Reply Comments at 3–4; ClearBox Rights Ex Parte Letter at 2–4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North Music Grp. NPRM Reply Comments at 2. 24 See, e.g., MLC NPRM Initial Comments at 10– 11; ClearBox Rights NPRM Initial Comments at 8; ClearBox Rights NPRM Reply Comments at 5–6; Howard NPRM Initial Comments at 3–5; Howard NPRM Reply Comments at 2–3; SGA et al. NPRM Initial Comments at 2, 6–8. 25 See, e.g., MLC NPRM Initial Comments at 11– 14; ClearBox Rights NPRM Reply Comments at 6. 26 MLC NPRM Initial Comments at 9–10; see also MLC NPRM Reply Comments at 2. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 56587 administration of ownership transfers, other royalty payee changes, and related disputes. While requests for additional guidance largely pertained to termination-related issues, those requests and other comments suggested that more comprehensive regulations would be beneficial to the MLC, publishers, songwriters, and the wider music industry. As the SNPRM explained, ‘‘[t]he accurate distribution of royalties is a core objective of the MLC’’ and ‘‘[a]dopting the [supplemental proposed rule] would establish standards and settle expectations for all parties with respect to such distributions.’’ 27 At a high level, the SNPRM provided the following views and proposals beyond those in the NPRM: • The Office’s preliminary views on the application of the Exception to matched historical royalties,28 pre-2021 statutory mechanical licenses, individual download licenses, and voluntary licenses.29 • Additional discussion relating to the Office’s preliminary view in the NPRM that the owner at the time of the use is entitled to distributions of blanket license royalties absent an agreement to the contrary, and a related proposal to accommodate and give effect to contractual payment arrangements that may require a different result.30 • A proposal that the MLC report and distribute matched historical royalties in the same manner and subject to the same requirements that apply to the reporting and distribution of blanket license royalties.31 • A proposal regarding how the MLC should be notified about an ownership transfer or other royalty payee change, with detailed provisions covering different types of changes, such as those relating to contractual assignments, statutory terminations, and other changes (e.g., when parties direct the MLC to pay an alternative designated payee).32 • A proposal regarding how the MLC should implement and give effect to such payee changes.33 • A proposal regarding the process and documentation for termination27 88 FR 65908, 65909. defined in the SNPRM—e.g., ‘‘historical unmatched royalties,’’ ‘‘matched historical royalties,’’ ‘‘the owner at the time of the use,’’ and ‘‘the owner at the time of the payment’’— have the same meaning here. See id. at 65909–10, 65912–13. 29 Id. at 65910–12. 30 Id. at 65912–14. 31 Id. at 65914. 32 Id. at 65914–65917. 33 Id. at 65917–18. 28 Phrases E:\FR\FM\09JYR3.SGM 09JYR3 56588 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations related disputes initiated with the MLC.34 • A proposal regarding the resolution of all types of disputes initiated with the MLC.35 • A proposal regarding certain disclosures to be made by the MLC in connection with disputes and other royalty holds.36 • A proposal regarding how the MLC should administer a corrective royalty adjustment to cure any distributions it previously made under its sincesuspended Termination Policy.37 also took issue with the Office’s proposed expansion of the rule beyond the NPRM, with some commenters requesting that those new issues be removed from consideration.40 The MLC provided a regulatory proposal that shared many similarities with the SNPRM and was ‘‘aimed at implementing certain proposals of the Office concerning statutory terminations, while omitting language concerning’’ various other issues that, in its view, ‘‘do not need further regulation.’’ 41 D. The SNPRM Comments The Office received over 50 public comments in response to the SNPRM from a wide variety of interested parties across the music industry. Some parties supported aspects of the SNPRM,38 while others were critical of certain provisions. The primary criticism addressed the question of whether the owner at the time of the use or the owner at the time of the payment should receive distributions of blanket license royalties from the MLC.39 Commenters II. Rulemaking Authority 34 Id. at 65919. at 65919–20. 36 Id. at 65919. 37 Id. at 65920–21. 38 See, e.g., MAC et al. SNPRM Initial Comments at 2, 4 (‘‘The Copyright Office’s proposed rules, both initially and as altered here, accurately, clearly, concisely, and properly addresses the implementation of the MMA while maintaining and supporting the significant advances made by the MLC. We continue to enthusiastically support this proposed rule and remain thankful to the Copyright Office for addressing this area of great need by utilizing its oversight and governance authority.’’); Howard SNPRM Initial Comments at 1 (‘‘I support the supplemental rulemaking and directives proposed by the Office.’’). 39 See, e.g., MLC SNPRM Initial Comments at 1– 16; NMPA SNPRM Initial Comments at 2–13; NMPA Ex Parte Letter at 1–2 (Jan. 24, 2024); AIMP SNPRM Initial Comments at 1–4; Combustion Music SNPRM Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1–2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1–2; Boom Music SNPRM Initial Comments; Jonas Grp. Publ’g SNPRM Initial Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music SNPRM Initial Comments at 1–2; Big Machine Music SNPRM Initial Comments at 1–2; Legacyworks SNPRM Initial Comments; Me Gusta Music SNPRM Initial Comments at 1–2; Relative Music Grp. SNPRM Initial Comments at 1–2; Harding SNPRM Initial Comments; Moore SNPRM Initial Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 2–5; Big Yellow Dog SNPRM Initial Comments; Reservoir Media Mgmt. SNPRM Initial Comments at 1–2; SMACKSongs SNPRM Initial Comments; Sony Music Publ’g SNPRM Initial Comments at 1–5; Spirit Music Grp. SNPRM Initial Comments at 1– 3; Turner SNPRM Initial Comments at 1–2; Wiatr & Assocs. SNPRM Initial Comments; Jody Williams Songs SNPRM Initial Comments at 1; Concord Music Publ’g SNPRM Initial Comments at 1–3; ClearBox Rights SNPRM Reply Comments at 4–5; Creative Nation SNPRM Reply Comments at 1–2; The Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply Comments at 2; Recording Academy SNPRM Reply Comments at 3; lotter on DSK11XQN23PROD with RULES3 35 Id. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 Having considered all relevant comments, the Office concludes that we have appropriate statutory authority to adopt the final rule for the reasons explained in the NPRM and SNPRM, as well as the additional reasons discussed below.42 As previously explained, section 702 of the Copyright Act specifically grants the Office the authority to ‘‘establish regulations not inconsistent with law for the administration of the functions and duties made the responsibility of the Register under [title 17].’’ 43 Implementation of the MMA is one of those ‘‘functions and duties’’ that Congress made the Office’s responsibility. Specifically, the Office has been granted the authority to ‘‘conduct such proceedings and adopt such regulations as may be necessary or appropriate to effectuate the provisions of [the MMA pertaining to the blanket license.]’’ 44 Several commenters explicitly supported the Office’s general SONA SNPRM Reply Comments at 2–5; Universal Music Publ’g Grp. SNPRM Reply Comments at 1– 5; Warner Chappell Music SNPRM Reply Comments at 3–8; DLC SNPRM Reply Comments at 2–4. 40 See, e.g., MLC SNPRM Initial Comments at 17– 20; NMPA SNPRM Initial Comments at 3–4; NMPA Ex Parte Letter at 2–3 (Jan. 24, 2024); Kobalt Music SNPRM Initial Comments at 3; Big Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1–2; North Music Grp. SNRPM Initial Comments at 1, 3–4; MAC et al. SNPRM Reply Comments at 2–3; MAC Ex Parte Letter at 1–2 (Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1–2; Warner Chappell Music SNPRM Reply Comments at 2–3; ClearBox Rights SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5; DLC SNPRM Reply Comments at 1. 41 MLC SNPRM Reply Comments at 2 & App. A; MLC SNPRM Initial Comments at 17 (stating that ‘‘the Office’s procedural guidance on notice and transfer procedures in the terminations context is helpful’’ and that ‘‘much of the proposal with respect to terminations generally addresses a regulatory need’’); see also NMPA Ex Parte Letter at 3 (Jan. 24, 2024) (conveying ‘‘its desire for the Office to provide any guidance the MLC has requested’’). 42 87 FR 64405, 64407–08; 88 FR 65908, 65910. 43 17 U.S.C. 702. 44 Id. at 115(d)(12)(A). PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 rulemaking authority.45 The only commenter to question the Office’s authority was NMPA, which offered various arguments for why the Office lacks authority to issue this rule.46 None are persuasive. NMPA first argued that the Office has no authority under section 702 of the Copyright Act or the MMA to promulgate rules that involve substantive questions of copyright law.47 This is clearly incorrect. The Office ‘‘has statutory authority to issue regulations necessary to administer the Copyright Act’’ and ‘‘to interpret the Copyright Act.’’ 48 As the NPRM detailed, ‘‘[t]he Office’s authority to interpret title 17 in the context of statutory licenses in particular has long been recognized.’’ 49 Indeed, as the Office has previously explained, ‘‘[t]he Office exercises its authority under section 702 when it is necessary ‘to interpret the statute in accordance with Congress’[s] intentions and framework.’ ’’ 50 That is what the Office is doing here, just as we have done on numerous previous occasions, for example to determine that satellite carriers are not ‘‘cable systems’’ within the meaning of section 111 and therefore do not qualify for that statutory license,51 to state the meaning of ‘‘digital phonorecord delivery’’ under 45 See, e.g., ClearBox Rights NPRM Initial Comments at 2; SONA et al. NPRM Initial Comments at 2; SGA et al. NPRM Initial Comments at 2; Howard NPRM Reply Comments at 3; Recording Academy NPRM Reply Comments at 2; Promopub NPRM Reply Comments at 2; MCNA et al. Ex Parte Letter at 2 (Mar. 15, 2024). 46 NMPA NPRM Initial Comments at 7–10. Despite its previous objections, NMPA’s SNPRM comments appear to signal a change in its position on the Office’s general rulemaking authority, though this is not entirely clear. See NMPA SNPRM Initial Comments at 2 & n.2 (stating that ‘‘[t]here is clear industry consensus on the [proposed rule requiring that all post-termination royalties under the blanket license be paid to the post-termination copyright owner], and the [Office] should adopt it immediately,’’ but then also noting some of its previous concerns). 47 See NMPA NPRM Initial Comments at 7–8. 48 Motion Picture Ass’n of Am., Inc. v. Oman, 750 F. Supp. 3, 6 (D.D.C. 1990), aff’d, 969 F.2d 1154 (D.C. Cir. 1992); see also, e.g., Fox Tel. Stations, Inc. v. Aereokiller, LLC, 851 F.3d 1002, 1011 (9th Cir. 2017) (recognizing that ‘‘the Copyright Office has a much more intimate relationship with Congress [than the courts] and is institutionally better equipped than we are to sift through and to make sense of the vast and heterogeneous expanse that is the Act’s legislative history’’); Satellite Broad. & Commc’ns Ass’n of Am. v. Oman, 17 F.3d 344, 345, 347–48 (11th Cir. 1994), cert. denied, 513 U.S. 823 (1994) (recognizing the Copyright Office’s authority to issue regulations and ‘‘statutory authority to interpret the provisions of the compulsory licensing scheme’’ found in 17 U.S.C. 111). 49 87 FR 64405, 64408. 50 73 FR 40802, 40806 (July 16, 2008) (quoting 57 FR 3284, 3292 (Jan. 29, 1992)). 51 57 FR 3284, 3290–92, 3296; see Satellite Broad. & Commc’ns Ass’n of Am., 17 F.3d 344. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations the section 115 statutory license,52 and to determine that internet streaming of AM/FM broadcast signals are not exempted ‘‘broadcast transmissions’’ within the meaning of section 114.53 The Office has done this in the termination context as well, adopting a rule addressing the meaning of ‘‘executed’’ under section 203 in the context of gap grants.54 Regarding the Office’s specific authority under the MMA, we have issued several rules that required analyzing substantive provisions of the statute. For example, the Office determined what constitutes ‘‘the due date for payment’’ under section 115(d)(8)(B)(i),55 how the endorsement criterion for designating the MLC is to be evaluated under section 115(d)(3)(A)(ii),56 the meaning of ‘‘producer’’ under section 115(d)(4)(A)(ii)(I)(aa),57 and what constitutes minimum ‘‘good-faith, commercially reasonable efforts’’ under section 115(d)(4)(B).58 NMPA also made a series of arguments based on the premise that any rulemaking authority the Office may have with respect to section 115 or other statutory licenses does not extend to other areas of the Copyright Act, like those dealing with termination.59 These arguments, and their underlying premise, are similarly unsupported by 52 73 FR 66173, 66174–75 (Nov. 7, 2008). FR 77292, 77293–95 (Dec. 11, 2000); see Bonneville Int’l Corp. v. Peters, 347 F.3d 485 (3d Cir. 2003). 54 76 FR 32316, 32316–20 (June 6, 2011). While the Office has express authority to regulate the content of notices of termination, we also referred to our authority under section 702 in adopting the rule and stated that the focus of the rulemaking was our recordation practices. Id. at 32319–20. Moreover, the rulemaking required the Office to opine on a substantive area of copyright law, namely whether or how the statute’s termination provisions apply to gap grants. Id. at 32316–17; see U.S. Copyright Office, Analysis of Gap Grants under the Termination Provisions of Title 17 (2010), https://www.copyright.gov/reports/gap-grantanalysis.pdf. At least one court appears to have followed the Office’s interpretation. See Mtume v. Sony Music Ent., 408 F. Supp. 3d 471, 475–76 (S.D.N.Y. 2019). 55 88 FR 60587, 60590–91 (Sept. 5, 2023). 56 84 FR 32274, 32280–84 (July 8, 2019). 57 85 FR 22518, 22532. 58 85 FR 58114, 58119 (Sept. 17, 2020). We also note that, in addition to the specific authority granted in section 115 and general authority granted in section 702, Congress gave the Office the responsibility to interpret title 17 when questions of law arise in proceedings before the Copyright Royalty Judges. 17 U.S.C. 802(f)(1)(B)(i), (f)(1)(D) (granting the Office the ability to ‘‘resolve’’ any ‘‘novel material question of substantive law concerning an interpretation of those provisions of [title 17] that are the subject of [a] proceeding’’ before the Copyright Royalty Judges and to review the Judges’ final determinations for ‘‘legal error . . . of a material question of substantive law under [title 17]’’). 59 NMPA NPRM Initial Comments at 8–10. lotter on DSK11XQN23PROD with RULES3 53 65 VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 title 17. The MMA and section 702 provide the Office with ample authority to interpret sections 203 and 304, as well as other provisions of the Copyright Act, in the context of the blanket license and the MLC’s operations.60 As explained in the NPRM, despite its focus on termination issues, ‘‘this rulemaking ultimately reflects the Office’s oversight and governance of the MLC’s reporting and payment obligations to copyright owners.’’ 61 The Office has exercised its authority in this area before. As discussed in the NPRM, the Office previously issued regulations regarding the MLC’s reporting and distribution of royalties to copyright owners with ‘‘no dispute regarding the propriety or authority of the Office to promulgate [them].’’ 62 In that prior proceeding, we concluded that we have ‘‘the authority to promulgate these rules under the general rulemaking authority in the MMA.’’ 63 The final rule in this proceeding is no different. It governs how the MLC is to report and distribute royalties to copyright owners, including with respect to identifying the proper royalty payee. The fact that the final rule addresses that core MLC function in a context that raises substantive questions of copyright law (like termination)—and thus requires analysis of various points of substantive copyright law (such as termination and the Exception)—does not deprive the Office of its authority to regulate how the MLC reports and pays royalties. Nor does the fact that parts of the Office’s analysis or reasoning could potentially be applied by others in contexts outside the scope of this proceeding.64 60 See 17 U.S.C. 115(d)(12)(A), 702; see also, e.g., Motion Picture Ass’n of Am., Inc., 750 F. Supp. at 6; Aereokiller, LLC, 851 F.3d at 1011; Satellite Broad. & Commc’ns Ass’n of Am., 17 F.3d at 345, 347–48. 61 87 FR 64405, 64408. 62 Id. at 64408 & n.39 (quoting 85 FR 22549, 22550–52 (Apr. 22, 2020)). 63 85 FR 22549, 22551 (quoting 17 U.S.C. 115(d)(12)) (observing that ‘‘Congress provided general authority to the Register of Copyrights to ‘conduct such proceedings and adopt such regulations as may be necessary or appropriate to effectuate the provisions of this subsection’ ’’). 64 At a minimum, this proceeding has demonstrated that it is ‘‘necessary or appropriate’’ to ‘‘adopt . . . regulations’’ ‘‘to effectuate’’ section 115(d)(3)(G)(i)(II), requiring the MLC to ‘‘distribute royalties to copyright owners in accordance with . . . the ownership and other information contained in the records of the [MLC].’’ 17 U.S.C. 115(d)(3)(G)(i)(II), (12)(A); see also, e.g., 87 FR 64405, 64407 (discussing need to revisit the termination issue more directly, including ‘‘how termination law intersects with the blanket license’’); 88 FR 65908, 65909–10 (explaining that the MLC sought additional regulatory guidance ‘‘necessary’’ and ‘‘essential’’ to its operations). Thus, the current rulemaking ‘‘is consistent with PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 56589 The flaw in NMPA’s argument is highlighted by considering its consequences. If the Office’s authority is as limited as NMPA suggested, it would mean that the MLC would be the one (in the absence of a lawsuit) to determine the meaning of any questioned statutory provisions. The Office’s oversight of the MLC through regulatory action cannot be frustrated when such oversight may involve addressing substantive issues of copyright law. Concluding otherwise would be contrary to the statute’s logic and Congress’s intent. Congress intentionally invested the Office with ‘‘broad regulatory authority’’ under the MMA, in part to oversee the MLC, such as by ‘‘thoroughly review[ing]’’ MLC policies ‘‘to ensure the fair treatment of interested parties.’’ 65 NMPA also specifically challenged the Office’s authority to adopt the corrective royalty adjustment, arguing that it is an impermissible retroactive rule and an unconstitutional taking.66 We disagree with this characterization and address this topic in Part III.F., below. III. Final Rule Having reviewed and considered all comments, the Office has weighed the relevant legal, business, and practical implications and equities raised, and pursuant to its authority under 17 U.S.C. 115 and 702 is adopting a final rule regarding MLC royalty distributions. The Office finds it reasonable to adopt much of the SNPRM as final regulations, but with some significant modifications. As discussed in more detail below, the Office is adopting a final rule that is a scaleddown version of the SNPRM and applies a different solution to the issue of identifying the payee to whom the MLC must distribute royalties. Specifically, in response to the comments that the SNPRM was too broad 67 and the MLC’s own regulatory the Office’s practice of promulgating regulations to construe statutory terms that are critical to the administration of a statutory license administered by the Office.’’ 73 FR 66173, 66175. 65 H.R. Rep. No. 115–651, at 5–6 (2018); S. Rep. No. 115–339, at 5 (2018); Report and Section-bySection Analysis of H.R. 1551 by the Chairmen and Ranking Members of Senate and House Judiciary Committees 4 (2018) (‘‘Conf. Rep.’’), https:// www.copyright.gov/legislation/mma_conference_ report.pdf. 66 NMPA NPRM Initial Comments at 4–6, 12–13; NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2; see also CMPA NPRM Initial Comments at 1–2 (arguing against retroactivity); Warner Chappell Music SNPRM Reply Comments at 2–3 (same). 67 See, e.g., Kobalt Music SNPRM Initial Comments at 3; Big Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1–2; North Music Grp. SNRPM Initial Comments at E:\FR\FM\09JYR3.SGM Continued 09JYR3 56590 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES3 proposal,68 the Office has narrowed the scope of the rule to provide the guidance the MLC sought without expanding the rule to other areas that do not appear to need regulation at this time based on the current record.69 While some commenters would prefer that the Office not address any issues beyond those raised in the original NPRM, the Office disagrees. As discussed above, the MLC and several other commenters had requested additional guidance from the Office on various related topics. Consequently, the Office issued the SNPRM seeking public comments on a supplemental proposed rule focused on providing such guidance. When the MLC requests guidance from the Office, we will generally provide it given the oversight role we play under the MMA. The Office finds that it is reasonable and appropriate to provide such guidance here. To the extent some commenters suggested that the Office is moving too quickly on some of these issues or has not engaged in a sufficient administrative process, the Office disagrees.70 The Office issued the SNPRM precisely to solicit substantive comments from interested parties about these expanded topics. In doing so, the Office provided for both initial and reply comment periods as well as deadline extensions, ultimately providing parties with over two months to submit written comments. The Office also made itself available for ex parte meetings for several months after the period for written comments ended. Given this ample opportunity to engage with the Office on these issues, we see no reason to delay providing the MLC with the guidance it needs to operate. As always, the Office will continue to monitor the effect of the rule, and if there are any unforeseen consequences or should anything not operate as intended, we can consider amending the rule in the future. Where parties have objected to certain aspects of the SNPRM, the Office has considered those comments and addressed these issues, as discussed 1, 3–4; MAC et al. SNPRM Reply Comments at 2– 3; MAC Ex Parte Letter at 1–2 (Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1– 2; Warner Chappell Music SNPRM Reply Comments at 2–3; ClearBox Rights SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5. 68 MLC SNPRM Reply Comments at App. A. 69 To be clear, the Office reserves the right to regulate these other areas in the future should it become necessary or appropriate to do so. 70 See, e.g., North Music Grp. SNRPM Initial Comments at 1, 3–4; Recording Academy SNPRM Reply Comments at 1–2; ClearBox Rights SNPRM Reply Comments at 3, 10. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 below. If not otherwise discussed, the Office has concluded that the relevant proposed provision should be adopted for the reasons stated in the NPRM or SNPRM. A. Termination and the Exception In the NPRM, the Office engaged in an extensive preliminary analysis that concluded that ‘‘[w]hether or not the Exception applies to a DMP’s blanket license (and the Office concludes that the Exception does not), the statute entitles the current copyright owner to the royalties under the blanket license, whether pre- or post-termination.’’ 71 We explained that this means that ‘‘the post-termination copyright owner (i.e., the author, the author’s heirs, or their successors, such as a subsequent publisher grantee) is due the posttermination royalties paid by the DMP to the MLC.’’ 72 Based on the MLC’s and other commenters’ requests for additional guidance,73 the SNPRM contained additional analysis and made further preliminary conclusions, including that: (1) the Exception does not apply to matched historical royalties; 74 (2) with respect to covered activities, record companies’ pre-2021 individual download licenses and the authority obtained from them by DMPs are the only pre-2021 statutory mechanical licenses to have continued in effect after the license availability date; 75 (3) the Exception does not apply to individual download licenses; 76 and (4) the Exception may apply to some voluntary licenses, but not others.77 Most comments addressing the Office’s termination analysis were in response to the NPRM, as parties largely did not comment on the additional analysis from the SNPRM. While many commenters agreed with the Office’s analysis,78 others raised some concerns.79 Several commenters, even FR 64405, 64410–11. at 64411. 73 88 FR 65908, 65909–10. 74 Id. at 65910–11. 75 Id. at 65911. 76 Id. 77 Id. at 65911–12. 78 See, e.g., A2IM & RIAA NPRM Reply Comments at 2; Authors All. et al. NPRM Initial Comments at 2–3; BMG Rights Mgmt. NPRM Initial Comments at 2; ClearBox Rights NPRM Initial Comments at 6–7; Fishman & Garcia NPRM Initial Comments at 1–4; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments; North Music Grp. NPRM Reply Comments at 2; Recording Academy NPRM Reply Comments at 2; SGA et al. NPRM Initial Comments at 2, 5; SONA et al. NPRM Initial Comments at 2–3; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments. 79 See NMPA NPRM Initial Comments at 2–3; NMPA Ex Parte Letter at 2–3 (Feb. 6, 2023); MPA NPRM Reply Comments at 2–5; see also A2IM & PO 00000 71 87 72 Id. Frm 00006 Fmt 4701 Sfmt 4700 some who raised concerns with the Office’s analysis, supported its end result that the post-termination copyright owner is entitled to posttermination royalties under the blanket license.80 Having considered all relevant comments, the Office is adopting the termination-related aspects of the SNPRM’s proposal as final for the reasons discussed below, as well as the reasoning in the NPRM and SNPRM in relevant part. 1. Blanket Licenses i. Background In the NPRM, the Office thoroughly analyzed the Exception in the context of the blanket license. In that analysis, the Office made two overarching conclusions that: (1) the Exception does not apply to blanket licenses; and (2) even if the Exception did apply, under the terms of the blanket license (i.e., the applicable text of section 115 and related regulations), a terminated publisher still would not be entitled to post-termination blanket license royalties.81 In concluding that the Exception does not apply, the Office made three further overall conclusions. First, the Office concluded that ‘‘[t]o be subject to termination, a grant must be executed by the author or the author’s heirs,’’ and that, ‘‘[a]s a type of statutory license, the blanket license is ‘self-executing,’ such that it cannot be terminated’’ under section 203 or 304.82 The Office explained that ‘‘[i]f a blanket license cannot be terminated, then it cannot be subject to an exception to termination; the license simply continues in effect according to its terms.’’ 83 Second, the Office concluded that ‘‘[s]ection 115’s blanket licensing regime is premised on the assumption that DMPs are not preparing derivative works pursuant to their blanket licenses,’’ and that ‘‘where no sound recording derivative is prepared pursuant to a DMP’s blanket license, RIAA NPRM Reply Comments at 2; A2IM & RIAA SNPRM Initial Comments at 1–4; Fishman & Garcia NPRM Initial Comments at 4; NMPA SNPRM Initial Comments at 2 n.2. 80 See, e.g., NMPA SNPRM Initial Comments at 1– 2 (‘‘NMPA supported and continues to support the bright-line rule that the [Office] proposed to establish in the NPRM, requiring that all posttermination royalties under the Blanket License be paid to the post-termination copyright owner.’’); Universal Music Publ’g Grp. SNPRM Reply Comments at 5 n.4; Warner Chappell Music SNPRM Reply Comments at 2; Kobalt Music SNPRM Initial Comments at 1; NSAI SNPRM Initial Comments at 2; Promopub SNPRM Initial Comments at 2. 81 87 FR 64405, 64410–11. 82 Id. at 64410. 83 Id. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations that blanket license is not part of any preserved grants that make the Exception applicable.’’ 84 The Office explained that ‘‘[i]f no derivative work is prepared ‘under authority of the grant,’ then the Exception cannot apply,’’ but recognized that ‘‘[p]roponents of the Exception’s application to the blanket license might argue that the blanket license should be construed as being included within a socalled ‘panoply’ of grants pursuant to which a pre-termination derivative work of the musical work was prepared.’’ 85 The Office observed that the ‘‘only panoply to which the blanket license could theoretically belong would be the grant (or chain of successive grants) emanating from the songwriter and extending to the record company (or other person) who prepared the sound recording derivative licensed to the DMP.’’ 86 After analyzing that possibility, the Office concluded that ‘‘[t]he Exception, as interpreted by [the Supreme Court in Mills Music, Inc. v. Snyder],87 should not be read as freezing other grants related to, but outside of, the direct chain of successive grants providing authority to utilize the sound recording derivative, such as the musical work licenses obtained by DMPs,’’ and the Office discussed several reasons explaining why.88 Third, the Office concluded that applying the Exception to the blanket license in the manner the MLC had done previously, whereby the payee would be frozen in time, would lead to an ‘‘extreme result’’ because it would also freeze all other aspects of the license in time.89 For example, ‘‘it would freeze in time everything from DMP reporting requirements and MLC royalty statement requirements to the rates and terms of royalty payments for using the license set by the [Copyright Royalty Judges].’’ 90 The SNPRM addressed this analysis as well.91 There, the Office described the NPRM’s conclusions about the Exception as ‘‘preliminary,’’ making clear that we ‘‘welcome[d] further comments and legal discussion.’’ 92 The Office has considered all comments, including those raising concerns with aspects of this analysis. For the reasons discussed below, we find those concerns unpersuasive. Therefore, the Office is adopting the termination lotter on DSK11XQN23PROD with RULES3 84 Id. at 64410–11. analysis from the NPRM and SNPRM as final for the reasons discussed in the NPRM and SNPRM, subject to the further discussion below. ii. Comments and Discussion The principal critics of the NPRM’s analysis were NMPA and the Motion Picture Association (‘‘MPA’’). NMPA asserted that ‘‘[t]he Exception has historically been interpreted by many industry stakeholders to permit the pretermination musical composition copyright owner to continue to receive mechanical royalties post-termination for uses of those compositions in derivative sound recordings, including in interactive streaming, provided that the mechanical license was issued pretermination and the recording was prepared pre-termination.’’ 93 NMPA said that ‘‘[t]his interpretation was based on, inter alia, the Supreme Court’s decision in Mills Music, Inc. v. Snyder, and the Second Circuit’s decision in Woods v. Bourne Co.,’’ 94 and that ‘‘[b]ased on this interpretation, before the MMA was enacted, [DMPs], along with other Section 115 statutory licensees, continued to pay mechanical royalties to the pre-termination rights owner for uses of recordings prepared pre-termination pursuant to pretermination mechanical licenses.’’ 95 NMPA stated that it ‘‘never understood the MMA to change or resolve the law of statutory termination or to provide a new or different rule applicable to Blanket Licenses.’’ 96 It explained its view that ‘‘the MMA addresses the termination issue in Section 115(d)(9)(A),’’ which was intended to ‘‘preserve the status quo.’’ 97 After a full review and analysis, the Office is not persuaded by NMPA’s argument. We do not dispute NMPA’s assertion that certain publishers may have adopted a different approach to termination, but this approach is not supported by the law in the context of the blanket license. As discussed further below in Part III.F., the Office is not adopting a new position, or changing the law as it relates to termination or the Exception. Nor are we contending that the MMA or blanket license altered the law as it relates to the Exception. The Office is merely stating what the law is and has always been. In support of its approach, NMPA suggested that its view of the Exception was universally relied on as the status 85 Id. 86 Id. 93 NMPA NPRM Initial Comments at 2–3; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023). 94 60 F.3d 978 (2d Cir. 1995). 95 NMPA NPRM Initial Comments at 3; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023). 96 NMPA NPRM Initial Comments at 3. 97 Id. at 3 n.5. 87 469 U.S. 153 (1985). 88 87 FR 64405, 64410–11. 89 Id. at 64411. 90 Id. 91 88 FR 65908, 65910. 92 Id. at 65912 n.69. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 56591 quo. The comments, however, reveal otherwise. For example, ClearBox Rights said that ‘‘there has not been consistency in the history of how these royalties have been paid [with respect to the Exception], so such past practices should not be interpreted as any kind of precedent or guidance into how they should be paid in the future, or adjusted for any given period of time.’’ 98 NMPA even described its views with qualifying language, stating that its interpretation of Mills Music has been followed by ‘‘some’’ copyright owners and that ‘‘legal interpretations of this holding and views as to the applicability of the [Exception] to the [blanket license] may differ.’’ 99 Further, NMPA’s claim that section 115(d)(9)(A) supports its position is misplaced. That provision does not speak to the Exception or the preservation of any pre-MMA status quo (outside the narrow context of individual download licenses). As explained in the SNPRM, that provision, read together with section 115(d)(9)(B), provides, with respect to covered activities, that ‘‘only record companies’ pre-2021 individual download licenses and the authority obtained from them by DMPs survived the license availability date.’’ 100 The Office explained that ‘‘[b]ecause all other pre-2021 statutory mechanical licenses to engage in covered activities are no longer in effect pursuant to their own terms (i.e., the statutory text), any application the Exception may or may not have had while they were in force seems to have no bearing on the MLC’s distribution of royalties for post-2021 usage.’’ 101 The statute plainly states that the blanket license was ‘‘automatically substituted for and supersede[d] any existing compulsory license previously obtained under [section 115].’’ 102 The 98 ClearBox Rights NPRM Reply Comments at 1– 2 (further stating that performing rights organizations ‘‘fairly consistently pass through to the post-termination rights holder the performance side of these very same [DMP] interactive streams’’); see also, e.g., King, Holmes, Paterno & Soriano LLP NPRM Initial Comments at 1 (‘‘We have been concerned for years about some music publishers’ claims that the [Exception] entitles the original publisher of a composition to continue to collect indefinitely on mechanical licenses issued pursuant to the compulsory license provisions of the U.S. Copyright Act. Such claims do not comport with the language of the [Exception] itself or the legislative history surrounding it.’’); McAnally & North Ex Parte Letter at 2 (Mar. 14, 2023) (asserting that views like NMPA’s are ‘‘inconsistent with our understanding of how terminations have been treated in the industry regarding payments of mechanical royalties under Section 115’’). 99 NMPA Ex Parte Letter at 2 (Feb. 6, 2023). 100 88 FR 65908, 65911. 101 Id. 102 See 17 U.S.C. 115(d)(9)(A). E:\FR\FM\09JYR3.SGM 09JYR3 56592 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations language NMPA highlighted—that this substitution happened ‘‘without any interruption in license authority enjoyed by [a DMP]’’—simply means that the substitution did not cause there to be any gap in a DMP’s licensing authority, between the old pre-2021 statutory license and the new blanket license, that could potentially subject the DMP to an infringement claim.103 If this language meant that all previous licensing authority remains intact indefinitely after the license availability date, then it would render the rest of the provision superfluous. There would be no need to have the blanket license substitute for and supersede the pre2021 license because the authority provided by the pre-2021 license would continue in effect. It would also directly contradict section 115(d)(9)(B), which states that ‘‘licenses other than individual download licenses obtained under [section 115] for covered activities prior to the license availability date shall no longer continue in effect.’’ 104 Thus, the Office disagrees with NMPA’s reading of the statute.105 NMPA next argued that ‘‘the phrase ‘terminated grant’ in the statutory text appears to refer to the original grant from the author to the publisher that is being terminated, and not to subsequent grants made by the publisher under the authority of that original grant.’’ 106 It asserted that ‘‘[s]ubsequent grants of the right to prepare and use derivative works made by the publisher are not the terminated grant under Sections 203 and 304 and are instead part of the ‘panoply’ of licenses preserved by the [Exception].’’ 107 Thus, in NMPA’s view, ‘‘the terminable grant that must be executed by the author is the original license from author to publisher; therefore, whether Section 115 licenses are ‘self-executing’ would be inapposite to the relevant analysis’’ because ‘‘[t]he subsequent grants of the right to prepare derivative works are in virtually all cases not ‘executed by the author or the author’s heirs.’ ’’ 108 The Office disagrees. The phrase ‘‘terminated grant’’ in the statutory text is not limited solely to the original grant from the songwriter to the publisher. In Mills Music, the Supreme Court 103 See id. id. at 115(d)(9)(B). 105 See also 85 FR 58114, 58118 (discussing how ‘‘the statutory provisions regarding notices of [blanket] license and the transition to the blanket license must be read together, such that DMPs transitioning to the blanket license must still submit notices of license to the MLC’’). 106 NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA NPRM Initial Comments at 11 n.27. 107 NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA NPRM Initial Comments at 11 n.27. 108 NMPA NPRM Initial Comments at 11 n.27. lotter on DSK11XQN23PROD with RULES3 104 See VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 concluded that all three references to the word ‘‘grant’’ in the text of the Exception should be given a ‘‘consistent meaning,’’ and that each reference encompasses both the original grant and subsequent grants.109 That lack of distinction between the original grant and subsequent grants was central to the Court’s holding that the Exception preserved ‘‘the total contractual relationship.’’ 110 The cornerstone of the Court’s opinion was its conclusion that the successive grants were connected to each other in such a way that they both needed to be preserved under the Exception in the context at issue.111 In asserting that the NPRM’s conclusions about the application of the Exception to the blanket license must be wrong because the subsequent grants of the right to prepare derivative works are almost always not executed by the author or the author’s heirs, NMPA misapprehends how the subsequent grants are connected to the original grant. Outside the context of a statutory license, where a songwriter makes a grant to a publisher and the publisher then makes subsequent grants to third parties (e.g., to a record company to prepare a sound recording derivative, to a DMP to make and distribute phonorecords, or an assignment of the full copyright to a different publisher), each of those subsequent grants, despite 109 Mills Music, 469 U.S. at 164–67 (concluding that the phrase ‘‘under the terms of the grant after its termination’’ ‘‘as applied to any particular licensee would necessarily encompass both the 1940 grant [from the songwriter to the publisher] and the individual license [from the publisher to the record company to prepare a sound recording derivative] executed pursuant thereto’’); see id. at 164 (explaining that the Exception is ‘‘defined by reference to the scope of the privilege that had been authorized under the terminated grant and by reference to the time the derivative works were prepared’’) (emphasis added); id. at 173 (explaining that ‘‘[p]retermination derivative works—those prepared under the authority of the terminated grant—may continue to be utilized under the terms of the terminated grant’’) (emphasis added); see also Howard B. Abrams & Tyler T. Ochoa, 2 The Law of Copyright sec. 12:44 (2023) (‘‘[T]he term ‘‘grant’’ is read to include the entire chain of authority for the preparation of a derivative work.’’). 110 Mills Music, 469 U.S. at 163–69 (‘‘We are not persuaded that Congress intended to draw a distinction between authorizations to prepare derivative works that are based on a single direct grant and those that are based on successive grants.’’). 111 Id. at 166–69 (explaining that, with respect to the particular facts in the case, defining the relevant ‘‘terms of the grant’’ as ‘‘the entire set of documents that created and defined each licensee’s right to prepare and distribute derivative works’’ meant preserving not only the record companies’ right to prepare and distribute the derivative works, but also their corresponding duty to pay the publisher any due royalties and the publisher’s duty to pay the songwriter’s heirs any due royalties, and that if it were otherwise, then there would be no contractual or statutory obligation on the publisher or record companies to pay the songwriter’s heirs any royalties). PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 not being executed by the songwriter or the songwriter’s heirs, can still be terminated. This is because the authority for each of those subsequent grants derives from and is dependent upon the authority conveyed by the original grant from the songwriter to the publisher. Thus, when the original grant is terminated, it also terminates the subsequent grants (subject to the possible preservation of certain contractual terms governing the utilization of pre-termination derivative works under the Exception).112 It is a foundational legal principle that one cannot give what one does not have.113 In this context, what the publisher possesses with respect to the original grant, and can therefore subsequently convey to third parties, is encumbered by the songwriter’s termination rights.114 This concept is plainly embodied in the statute, which makes reference not only to ‘‘the grantee,’’ but also ‘‘the grantee’s successor in title.’’ 115 The blanket license, however, operates differently. Unlike voluntary licenses, the authority a DMP has to make and distribute phonorecords of musical works under a blanket license does not derive from and is not dependent upon any authority granted by a songwriter or publisher. The blanket license is self-executing,116 and a DMP’s authority under it is established by Congress.117 Therefore, if the original grant from the songwriter to the publisher is terminated, it has no effect on the DMP’s blanket license 112 Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02[C][2] (2023) (‘‘When A terminates the original grant to B, it follows that B’s license to C will also terminate.’’). 113 Legal Maxims, Black’s Law Dictionary (11th ed. 2019) (‘‘Nemo dat quod non habet. No one gives what he does not have; no one transfers (a right) that he does not possess.’’). 114 Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02[A][4][b] (2023) (‘‘If the original grant from A to B had by its terms provided for a reversion to A thirty-five years after execution, B would lack the power to convey rights to C beyond such thirty-five-year period. The fact that reversion from B to A occurs by operation of law rather than by the express terms of the grant to B does not enlarge the rights that B can convey to C.’’); see also Int’l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 325 NE2d 137, 139 (N.Y. 1975) (‘‘It is elementary ancient law that an assignee never stands in any better position than his assignor. He is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.’’). 115 See 17 U.S.C. 203(a)(4), (b)(4); id at 304(c)(4), (6)(D). 116 Mills Music, 469 U.S. at 168 n.36; see Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02 n.121 (2023); Paul Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d ed. 2023). 117 See also Mills Music, 469 U.S. at 168 n.36 (referring to section 115 statutory licenses as ‘‘a statutory right’’ belonging to the licensee) (emphasis added). E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations (other than the transfer of copyright ownership causing the royalty payee to change). Unlike a voluntary license, the grant of authority provided to the DMP under its blanket license was never encumbered by the songwriter’s termination rights, so exercising those rights has no impact on the continuation of the DMP’s authority. As a blanket license cannot be terminated under section 203 or 304, whether directly or indirectly, ‘‘it cannot be subject to an exception to termination; the license simply continues in effect according to its terms.’’ 118 MPA’s criticism of the NPRM focused on a different issue, namely its concerns that the Office’s legal analysis ‘‘could be read as narrowing the holdings [of Mills Music and Woods] by injecting a ‘direct chain’ limitation on the pre-termination grants preserved under the [Exception].’’ 119 MPA argued that: To the extent that the Office’s discussion of Mills [Music] could be read to limit the [Exception] solely to a ‘‘direct chain’’ of grants, such a reading would appear to be in tension not only with the [Exception]— which provides that a derivative work prepared under authority of a grant ‘‘may continue to be used under the terms of the grant,’’ . . .—but also the Supreme Court’s interpretation of that language in Mills [Music], as well as the Second Circuit’s further explication of the [Exception] in Woods v. Bourne. Mills [Music] held that, as used in the [Exception], ‘‘the terms of the grant’’ means the ‘‘entire set of documents that created and defined each licensee’s right to prepare and distribute derivative works.’’ 469 U.S. at 167. The [Exception] thus encompasses the original grant from author to publisher, as well as the succeeding grants derived therefrom, potentially involving multiple licensees. See id. at 165–67 (emphasis added).120 lotter on DSK11XQN23PROD with RULES3 MPA further said that ‘‘[i]n some cases, an initial grant by an author to a movie studio or music publisher, and that entity’s subsequent grants to third parties to for the use and distribution of derivative works, will generate ‘branches’ of licensing authority rather than a simple linear chain.’’ 121 According to MPA, ‘‘[t]here is nothing in the [Exception] or Mills [Music] . . . to suggest that a pre-termination publisher is entitled to royalties only if the pre-termination license falls within a single ‘direct chain’ to the party that prepared the derivative.’’ 122 118 87 FR 64405, 64410. As noted in the NPRM, this ‘‘does not mean that entitlement to royalties is fixed. It travels with ownership of the copyright.’’ Id. at 64410 n.70. 119 MPA NPRM Reply Comments at 2. 120 Id. at 4 (citing 17 U.S.C. 203(b)(1), 304(c)(6)(A)). 121 Id. 122 Id. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 MPA then pointed to Woods for confirmation that ‘‘Mills [Music] is not so limited.’’ 123 It stated that ‘‘[a]s further explicated in Woods, the Supreme Court’s holding in Mills [Music] established that ‘where multiple levels of licenses govern use of a derivative work, the ‘‘terms of the grant’’ encompass the original grant from author to publisher and each subsequent grant necessary to enable the particular use at issue,’ ’’ and that ‘‘[t]he effect of Mills [Music] is to preserve during the post-termination period the panoply of contractual obligations that governed pretermination uses of derivative works by derivative work owners or their licensees.’’ 124 MPA asserted that ‘‘[c]onsistent with its understanding of Mills [Music], the Woods court upheld the pre-termination publisher’s right to collect public performance royalties from [the performing rights organization,] ASCAP for posttermination performances in movies and television programs even though ASCAP’s licensing relationship was outside of the ‘direct chain’ of authority by which the original publisher had granted synch rights to the producers of those shows.’’ 125 MPA highlighted that the Second Circuit said that ‘‘the ‘terms of the grant’ included ‘the provisions of the grants from [the publisher] to ASCAP and from ASCAP to the television stations’ in place at the time of termination,’’ and that ‘‘ ‘[t]he fact that the performance right in the Song [was] conveyed separately through ASCAP [was] simply an accommodation’ that did not negate the applicability of the [Exception].’’ 126 It concluded that ‘‘[n]either the [Exception], nor Mills [Music] or Woods, limits post-termination utilization of a derivative based on the particular configuration of the relevant pretermination grants’’ and that ‘‘[i]n considering the applicability of the [Exception], the correct question is not whether the user prepared the derivative pursuant to some ‘direct chain’ of authority, but whether the use is permitted under the entire ‘set’ or ‘panoply’ of grants emanating from the original grant by the author.’’ 127 The Office disagrees with these assertions to the extent they relate to the blanket license. The blanket license is not part of any so-called ‘‘panoply,’’ regardless of whether a panoply is at 4–5. (quoting Woods, 60 F.3d at 987). 125 Id. at 5 (citing Woods, 60 F.3d at 984). 126 Id. (all alterations, except the last one, in original) (quoting Woods, 60 F.3d at 987–88). 127 Id. PO 00000 123 Id. 124 Id. Frm 00009 Fmt 4701 Sfmt 4700 56593 limited to a ‘‘direct chain’’ of successive grants or can include ‘‘branches’’ of related grants outside of that chain. As discussed above, the blanket license, as a type of statutory license, is fundamentally different from voluntary licenses. Because the authority provided by a blanket license is supplied by law and is divorced from any authority deriving from an author or any terminated grant, it is an intervening grant. It sits outside of any potential panoply of grants authorized by the author and the author’s successors, assignees, licensees, and the like that form the overall transaction involving the relevant derivative work and which is subject to termination and possibly the Exception. The blanket license simply is not part of that contractual transaction.128 Neither Mills Music nor Woods holds otherwise, as neither involved a statutory license. In both cases, all of the grants at issue were contractual and emanated from a songwriter’s copyright and the authority initially conveyed by the original grant from the songwriter to a publisher.129 Thus, neither case’s holding is directly applicable to the operation of the Exception to a noncontractual intervening grant, like the blanket license. The Supreme Court, in Mills Music, noted that statutory licenses are different and were not at issue in the case.130 And key language in Woods specifically refers to ‘‘the panoply of contractual obligations.’’ 131 The Office’s conclusions about the Exception are fully consistent with Mills Music, both as described here and in the NPRM. Neither MPA nor any other commenter addressed the specific points made in the NPRM regarding how the Exception operates with respect to panoplies of grants,132 other than to assert that the overall conclusion was at odds with Mills Music and Woods. Relying on a single out-of-context quote, MPA argued that, because Mills Music said that ‘‘ ‘the terms of the grant’ means the ‘entire set of documents that created and defined each licensee’s right to prepare and distribute derivative works,’ ’’ it must mean that the 128 See also 17 U.S.C. 115(d)(2) (explaining how a DMP may obtain a blanket license based on its unilateral actions). 129 Mills Music, 469 U.S. at 154–58; Woods, 60 F.3d at 981–84, 987–88. 130 Mills Music, 469 U.S. at 168 n.36; see also id. at 185 n.12 (White, J. dissenting). 131 Woods, 60 F.3d at 987 (emphasis added). 132 See 87 FR 64405, 64410 (‘‘The Exception, as interpreted by Mills Music, should not be read as freezing other grants related to, but outside of, the direct chain of successive grants providing authority to utilize the sound recording derivative, such as the musical work licenses obtained by DMPs.’’). E:\FR\FM\09JYR3.SGM 09JYR3 56594 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES3 Exception ‘‘thus encompasses the original grant from author to publisher, as well as the succeeding grants derived therefrom, potentially involving multiple licensees.’’ 133 The Office is not persuaded. Read in its proper context, the Court’s reference to ‘‘each licensee’’ is not referring to multiple licensees across different branches of grants involved in the preparation and utilization of a single derivative work. Rather, it is plainly referring to a single licensee for each derivative work; specifically, each record company that prepared one of the sound recording derivatives at issue in the case (which involved over 400 voluntary mechanical licenses and the preparation of over 400 sound recording derivatives).134 This conclusion is apparent not only from reading the opinion as a whole, but from the sentence immediately preceding the one quoted by MPA, which states that ‘‘a fair construction of the phrase ‘under the terms of the grant’ as applied to any particular licensee would necessarily encompass both the 1940 grant [from the songwriter to the publisher] and the individual [voluntary mechanical] license [from the publisher to the record company] executed pursuant thereto.’’ 135 Other language in the Court’s opinion similarly reflects that it was only addressing direct chains of successive grants providing authority to prepare derivative works.136 For example, the Court was ‘‘not persuaded that Congress intended to draw a distinction between authorizations to prepare derivative works that are based on a single direct grant and those that are based on successive grants.’’ 137 The Court found it to be ‘‘a matter of indifference . . . whether the authority to prepare the work had been received in a direct license from an author, or in a series of licenses and sublicenses.’’ 138 According to the Court, ‘‘Congress saw no reason to draw a distinction between a direct grant by an author to a party that produces derivative works itself and a situation in which a middleman is given authority to make subsequent grants to 133 MPA NPRM Reply Comments at 4 (quoting Mills Music, 469 U.S. at 165–67). 134 See Mills Music, 469 U.S. at 158, 167, 168 n.36. 135 See id. at 166–67 (emphasis added). 136 See Howard B. Abrams & Tyler T. Ochoa, 2 The Law of Copyright sec. 12:44 (2023) (explaining that ‘‘the Supreme Court seemed to be using the concept that the series of documents running from the author to the ultimate preparer of the derivative work should best be treated as a single transaction although it was spread over several documents executed at different times’’). 137 Mills Music, 469 U.S. at 163–64 (emphasis added). 138 Id. at 173–74 (emphasis added). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 such producers.’’ 139 It makes sense that the Court’s opinion was limited to discussing a direct chain of successive grants because that is what was at issue in the case. We continue to believe that our reading of the statute and Mills Music, as well as our analysis and conclusions regarding panoplies and direct chains of successive grants, are correct.140 With respect to Woods, even if the discussion in that case could be read in the broad manner that MPA suggested, it is not clear that the court’s reasoning was correct or involved the same circumstances at issue here. Among other concerns, Woods did not speak to all the issues identified in the NPRM.141 For example, nothing in Woods appears to address the fact that if the word ‘‘grant’’ is given a consistent meaning within the text of the Exception— which, according to Mills Music, it should—it cannot be referring to a grant that did not provide authority to prepare the derivative work at issue.142 The Woods court did not engage in this level of textual analysis. Instead, it reviewed Mills Music and cited a law review article for the proposition that the Exception applies to ‘‘each subsequent grant necessary to enable the particular use at issue.’’ 143 As discussed above, the Office does not believe Mills Music is so expansive. Nor does the cited law review article appear to support such a broad reading.144 In any event, we emphasize that because Woods is distinguishable with respect to section 115 statutory licenses, it is not necessary for the Office to resolve these disagreements to adopt the final rule. Lastly, Professors Fishman and Garcia, while supportive of most of the Office’s analysis, believed that the NPRM overestimated what would at 172 (emphasis added). 87 FR 64405, 64410–11; see also, e.g., Fishman & Garcia NPRM Initial Comments at 1–4 (agreeing with the Office’s analysis and conclusions); SONA et al. NPRM Initial Comments at 2–3 (same). 141 See 87 FR 64405, 64410–11. 142 See id. at 64411 (explaining that because ‘‘[t]he Exception’s first use of ‘grant’ is to a ‘derivative work prepared under authority of the grant,’ ’’ it ‘‘cannot be referring to the DMP’s musical work licenses pursuant to which no derivative work was prepared’’). 143 See Woods, 60 F.3d at 986–88 (emphasis added). 144 Woods quotes from a law review article ‘‘describing [the] holding in Mills Music as ‘preserving the entire paper chain that defines the entire transaction.’ ’’ Woods, 60 F.3d at 987 (quoting Howard B. Abrams, Who’s Sorry Now? Termination Rights and the Derivative Works Exception, 62 U. Det. L. Rev. 181, 234–35 (1985) (‘‘Abrams’’)). But a few sentences earlier, that article explained that the ‘‘transaction’’ being referred to was the ‘‘set of transfers and licenses that ran from the author to a record company.’’ Abrams at 234. PO 00000 139 Id. 140 See Frm 00010 Fmt 4701 Sfmt 4700 happen if the Exception did apply to blanket licenses.145 They said that the NPRM’s suggestion that all of the blanket license’s terms ‘‘would be frozen indefinitely’’ under the Exception, such as ‘‘the royalty rate to be paid,’’ ‘‘would contradict the plain terms established in [section] 115, which explicitly contemplate a variable rate to be determined by the [Copyright Royalty Judges].’’ 146 They explained that ‘‘[t]hat variability is a term of the grant,’’ and that to conclude otherwise ‘‘would read into the terms of the blanket license a permanently fixed royalty rate that does not exist.’’ 147 The professors then noted that the NPRM ‘‘correctly rejected the possibility of freezing the payee on the same basis.’’ 148 Considering this comment, the Office wishes to clarify this point from the NPRM. We meant to illustrate the problems with the MLC’s previous view of how the Exception would apply—that the Exception would freeze the royalty payee.149 This portion of the NPRM was intended to explain that if the MLC were correct that the Exception applied in such a manner as to freeze the royalty payee, then the Exception would have to freeze everything else too, which would lead to the ‘‘extreme result.’’ 150 2. Individual Download Licenses The Office received few comments responding to the SNPRM’s analysis regarding individual download licenses. The American Association of Independent Music and the Recording Industry Association of America (‘‘A2IM & RIAA’’) sought ‘‘to clarify ambiguity in [the sections of the proposed rule about individual download licenses and voluntary licenses] and to ensure that the proposed rule will not affect the status quo as it applies to record companies’ mechanical licensing and payment practices.’’ 151 They stated that ‘‘the broadened scope of the current SNPRM in fact could have unintended consequences for record company practices in ways that are contrary to both the law and established industry practice, and in a manner that is not 145 Fishman & Garcia NPRM Initial Comments at 4. 146 Id. 147 Id. 148 Id. 149 See 87 FR 64405, 64411 (premising the discussion on the observation that if the Exception applies to the blanket license, ‘‘then it is not clear why it would only apply to the payee, as the MLC’s prior rulemaking comments seem to suggest’’) (emphasis added). 150 See id. 151 A2IM & RIAA SNPRM Initial Comments at 1. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations necessary to the Office’s regulation of the [MLC].’’ 152 Regarding individual download licenses, A2IM & RIAA agreed with parts of the Office’s legal analysis of the Exception, but said that ‘‘in a regulation about the MLC’s recognition of deductions from royalties that would otherwise be due under the blanket license, [the] proposed language is opaque and potentially confusing.’’ 153 They said that: [T]he main point is that a termination pursuant to Section 203 or 304 does not affect an individual download license, so a blanket license royalty deduction for usage pursuant to an individual download license that was appropriate prior to termination remains so after termination. The regulations should state that plainly, rather than the language that is currently proposed. In any event, it should be clear that [this provision] does not mean that a record company that relied on an individual download license for the creation of a sound recording cannot continue to rely on that license for distribution of the recording (in download form or otherwise) after termination of the author’s publishing agreement.154 The Office disagrees that the language is confusing. The provision clearly provides that the Exception does not apply to an individual download license, and further states that, for avoidance of doubt, no one may be understood to be the copyright owner or royalty payee of a work used under an individual download license based on an interpretation or application of the Exception. A2IM & RIAA’s statement that a termination ‘‘does not affect an individual download license’’ is accurate.155 But it is important to recognize that, as explained in the NPRM and SNPRM, even though ‘‘the license simply continues in effect according to its terms,’’ under those terms, ‘‘entitlement to royalties . . . travels with ownership of the copyright.’’ 156 ‘‘[W]henever a change is effectuated, whether via a contractual assignment or by operation of a statutory termination, the new owner becomes the proper payee entitled to royalties under the [individual download] license.’’ 157 This provision is meant to clarify the Exception’s correct operation in light of the MLC’s prior views.158 3. Voluntary Licenses The Office also received few comments regarding the SNPRM’s discussion of voluntary licenses. A2IM & RIAA agreed with the SNPRM’s description of the complexities involved, noting that ‘‘record companies regularly obtain voluntary mechanical licenses rather than compulsory licenses, and generally pass through download rights to DMPs.’’ 159 They asserted that the ‘‘[r]ights that the record company obtains from the pretermination copyright owner are clearly preserved by the [Exception] when the record company relies on its voluntary mechanical license for the creation of either a first use recording or a cover.’’ 160 Based on this, A2IM & RIAA ‘‘question the treatment of voluntary licenses in the proposed rule.’’ 161 They said that ‘‘[n]either the pre-termination nor post-termination copyright owner would be motivated to provide the required notice, when the effect of failing to give notice is that the DMP would in effect pay twice—once to the pre-termination copyright owner through the record company and once to the post-termination copyright owner through the MLC.’’ 162 They believed that ‘‘[r]oyalty payments would more often be handled appropriately if the default assumption were that the [Exception] will apply to rights obtained by a record company under a voluntary license and passed through to a DMP.’’ 163 The Digital Licensee Coordinator (‘‘DLC’’) raised similar concerns about potentially paying twice, stating that ‘‘in no event can DMPs be in the position of double-paying the royalties at issue, potentially being subject to late fees as a result of any delay in payment to the correct rightsholder.’’ 164 In the DLC’s view, ‘‘the most sensible approach’’ to dealing with disputes over the application of the Exception to voluntary licenses ‘‘would be to not require any payment from the DMP to the MLC until the dispute is resolved.’’ 165 In subsequent comments, the DLC clarified that its ‘‘concern arises with respect to the MLC’s ability to demand payment when there is a dispute related to termination that involves one or more voluntary licensors.’’ 166 It explained that ‘‘the circumstances where a lotter on DSK11XQN23PROD with RULES3 152 Id. 153 Id. 159 A2IM 154 Id. 160 Id. at 2–3. at 3. 155 See id. 156 87 FR 64405, 64410–11 & n.70; 88 FR 65908, 65911 & n.67. 157 87 FR 64405, 64411; 88 FR 65908, 65911 & n.67. 158 See 87 FR 64405, 64406–07. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 PO 00000 voluntary license partner has a right to demand royalties notwithstanding who the MLC’s records show is entitled to payment is ultimately a matter of private contract between the parties, and there is no industry standard approach to that issue.’’ 167 The DLC also said that it did not believe the statute requires the MLC to hold royalties pending the resolution of disputes over the application of the Exception to voluntary licenses because such disputes are not ownership disputes within the meaning of the statute.168 Based on these comments, the DLC does not appear to take issue with the possibility of double payments under the proposed rule where no dispute is initiated with the MLC. The Office does not believe that these comments warrant any substantive changes to the provision governing voluntary licenses. First, this provision does not embody a presumption or a default rule about the Exception as A2IM & RIAA suggested. Rather, it is a regulatory application of legal precedent establishing that the pre-termination copyright owner bears the burden of proving that the Exception applies.169 The Office continues to believe that ‘‘it would not be prudent to attempt to craft a rule trying to account for how the Exception may or may not apply in every possible situation’’ and that ‘‘the MLC should not exercise independent judgment regarding the application of the Exception to a voluntary license or its underlying grant of authority.’’ 170 If the Office were to adopt the default assumption A2IM & RIAA requested, it would open the door to default assumptions in other voluntary license contexts. Moreover, doing so would require the MLC to determine, at minimum, whether the licenses at issue were indeed relied upon ‘‘for the creation of either a first use recording or a cover.’’ 171 That is precisely the type of fact-finding and independent judgment the Office does not believe the MLC should be required to undertake in this context. Second, given that the DLC does not appear to share A2IM & RIAA’s concern about DMPs potentially double paying, the Office does not believe that any change to this aspect of the rule is warranted. The DLC made clear that this issue is one of private contract between the relevant parties.172 Even if that were & RIAA SNPRM Initial Comments at 3. 167 Id. 161 Id. 162 Id. 56595 168 Id. at 4. 169 88 163 Id. 170 Id. 164 DLC SNPRM Initial Comments at 3–4. 165 Id. at 4. 166 DLC Ex Parte Letter at 2 (Mar. 4, 2024). Frm 00011 at 2–3. FR 65908, 65912. Fmt 4701 Sfmt 4700 171 See A2IM & RIAA SNPRM Initial Comments at 3–4. 172 DLC Ex Parte Letter at 2 (Mar. 4, 2024). E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 56596 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations not the case, the possibility of making double payments in this context does not appear to be any different than in other contexts where a DMP may be caught in the middle of a dispute between purported copyright owners. Any time someone claims to be the owner of a copyright purportedly licensed to a DMP by someone else, it will need to decide which party to pay. Depending on the relevant contract’s terms, the DMP may well decide to pay both parties to limit its potential liability for failing to pay the party who ultimately prevails in the dispute. Thus, the situation that could arise under the rule does not appear to be a special one necessitating a regulatory solution. With respect to the DLC’s request that DMPs not be required to pay royalties to the MLC to be held pending the resolution of a dispute initiated with the MLC, the Office disagrees. As the Office explained in the SNPRM, even though ‘‘a dispute as to the application of the Exception is not a dispute over ownership,’’ ‘‘a pre-termination copyright owner [should] be able to initiate a dispute with the MLC over the application of the Exception to a particular voluntary license or its underlying grant of authority, and . . . the MLC should hold applicable royalties pending resolution of such a dispute.’’ 173 Even if such a royalty hold is not required by the statute, the Office nevertheless finds it to be a reasonable and prudent approach to the administration of such disputes, as it ensures that the relevant funds will be available upon the resolution of the dispute. As between allowing a DMP to hold the relevant royalties versus the MLC, the more appropriate approach is for them to be held by the MLC, rather than a DMP with whom the purported copyright owner may have no relationship. Moreover, even if the Office did not require this, a DMP would risk late fees, or even default and termination of its blanket license, if it declined to pay the applicable royalties to the MLC and the voluntary licensor does not prevail in the dispute. Thus, the final rule has been clarified to state that the MLC shall invoice the relevant DMP for the applicable royalties. The DLC asked that if the Office adopts this approach, we ‘‘provide guidance on how any interest accrued by the MLC during the pendency of a termination dispute is handled.’’ 174 Specifically, it requested that ‘‘where resolution of the dispute results in a service paying the voluntary licensor, the interest should be paid back to the service (with any requirement to pay that interest onto the voluntary licensor dictated by the terms of the voluntary license).’’ 175 The DLC further said that ‘‘where resolution of the dispute results in payment being made by the MLC to a blanket licensor, then any interest earned should be used to offset the MLC’s administrative costs.’’ 176 The Office had proposed that royalties held in connection with these kinds of disputes accrue interest, but did not elaborate further.177 Our intent was for the MLC to hold royalties in the same manner as any other held royalties under section 115(d)(3)(H)(ii).178 The final rule makes three clarifications regarding the funds held due to a termination-related dispute involving a voluntary license. First, the applicable funds shall be held by the MLC in the same manner and at the same interest rate as any other held funds. Second, where the resolution of the dispute results in payment being made by the MLC pursuant to a blanket license, that payment must include accrued interest. In that situation, the Office sees no reason why the MLC or DMPs (through an offsetting of the MLC’s costs) should profit from the fact that there was a dispute. Third, where the resolution of the dispute results in a DMP paying royalties to a voluntary licensor, the MLC must promptly return the held funds, including accrued interest, to the DMP, who then may or may not be required to pass that interest on to the voluntary licensor depending on the terms of their agreement. The Office disagrees with the MLC that ‘‘under the explicit language of [section 115(d)(3)(H)], interest earned . . . can only be for the benefit of copyright owners,’’ such that ‘‘such accrued interest cannot be transmitted to [DMPs] for their own benefit (or to be disposed of in their discretion), even where royalties are ultimately refunded to [DMPs] as associated with voluntary licenses.’’ 179 Section 115(d)(3)(H) does not apply in the context of funds held during disputes over the application of the Exception to voluntary licenses. First, section 115(d)(3)(H) provides requirements for the holding of royalties and accrual of interest with respect to ‘‘unmatched’’ works.180 As discussed above, disputes over the application of the Exception are not ownership 175 Id. at 3 n.10. 176 Id. 177 88 FR 65908, 65926. U.S.C. 115(d)(3)(H)(ii)(I). 179 MLC Ex Parte Letter at 5–6 (Mar. 22, 2024). 180 See 17 U.S.C. 115(d)(3)(H). 178 17 173 88 FR 65908, 65919. Ex Parte Letter at 3 (Mar. 4, 2024). 174 DLC VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 disputes.181 Since ownership is not in question, and the owner would need to already be registered with the MLC for there to even be a dispute of this kind, the works at issue in such a dispute would not be ‘‘unmatched’’ within the meaning of the statute.182 Second, section 115(d)(3)(H) does not apply through section 115(d)(3)(G)(i)(III)(bb), which provides that the MLC shall ‘‘deposit into an interest-bearing account, as provided in subparagraph (H)(ii), royalties that cannot be distributed due to . . . a pending dispute before the dispute resolution committee of the [MLC].’’ 183 Such disputes are described in section 115(d)(3)(K)(i) as ‘‘disputes relating to ownership interests in musical works licensed under this section.’’ 184 The Office reiterates that a dispute over the application of the Exception is not an ownership dispute. It is a dispute over the legal effect of a valid termination.185 For these reasons, the Office is regulating how the MLC should handle these types of disputes and the associated royalties and interest. With respect to the interest issue, we believe the most equitable approach is for the MLC to pay the interest along with the royalties, regardless of to whom such royalties are paid. The reason for requiring the accrual of interest is to make the applicable party whole for the time-value of money while the dispute is pending resolution. The Office is requiring the interest rate to be the same as for funds held under section 115(d)(3)(H)(ii) because that is a rate that Congress, by enacting it as part of the MMA, has found to be reasonable. Where there is a voluntary license at issue, whether the DMP or the voluntary licensor is to be made whole is up to the relevant agreement. Therefore, depending on the terms of the agreement, either the DMP will be permitted to retain the interest for itself or will be required to pay it through to the voluntary licensor. A voluntary licensor should not gain a benefit beyond the terms of its agreement simply because the Office is requiring the disputed funds to be held at the MLC rather than at the DMP. 181 88 FR 65908, 65919. 17 U.S.C. 115(e)(35) (‘‘The term ‘unmatched’, as applied to a musical work (or share thereof), means that the copyright owner of such work (or share thereof) has not been identified or located.’’). 183 See id. at 115(d)(3)(G)(i)(III)(bb). 184 Id. at 115(d)(3)(K)(i). 185 88 FR 65908, 65919. 182 See E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES3 B. The Copyright Owner at the Time of the Use Versus the Copyright Owner at the Time of the Payment In both the NPRM and SNPRM, the Office proposed that the copyright owner at the time of the use is legally entitled to royalty distributions from the MLC unless the MLC is directed otherwise. In response to the SNPRM, the Office received numerous comments from publishers, songwriters, and other industry stakeholders expressing concern with that approach. As discussed below, their concerns related to whether the Office’s understanding of the law conflicted with current music industry royalty administration practices or would cause administrative challenges for the MLC. In this final rule, the Office is adopting our earlier proposal with some modifications to address these operational concerns. 1. Background In addressing whether the owner at the time of the use or the owner at the time of the payment is entitled to blanket license royalties, the NPRM stated that a copyright owner is entitled to blanket license royalties at the moment in time when the use of the relevant musical work by a DMP occurs.186 The Office refers to this understanding as the ‘‘owner at the time of the use’’ approach. The SNPRM provided further analysis of this approach, concluding that ‘‘it appears that, absent an agreement to the contrary, the copyright owner who can sue a DMP for infringement due to nonpayment of royalties under the blanket license is the copyright owner at the time the infringement was committed— i.e., at the time of the use. It, therefore, seems reasonable to the Office for that owner to be the one to whom such royalties are paid by the MLC.’’ 187 The Office’s conclusion that the owner at the time of the use is entitled to the royalty distribution was based on both the MMA and broader copyright law principles.188 The SNPRM proposed regulatory text identifying the owner at the time of the use as the legally entitled party. The Office, recognizing the importance of giving effect to private contracts that may call for different payment arrangements, also proposed that the rule ‘‘would only establish the owner at the time of the use as the default payee—i.e., the proper payee to whom the MLC must distribute royalties and any other related amounts under 186 87 FR 64405, 64412. FR 65908, 65913. 188 See id. at 65912 (reflecting the Office’s statutory analysis). 187 88 VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 the blanket license in the absence of an agreement to the contrary.’’ 189 We then proposed additional provisions to govern notification of the MLC about alternative payee designations, such as through letters of direction, ‘‘to accommodate and give effect to contractual payment arrangements that deviate from this default rule.’’ 190 Finally, the NPRM also proposed that the MLC should use the last day of the relevant monthly reporting period to identify the proper copyright owner for that month’s royalty distribution. The Office suggested that doing so would be in line with the monthly reporting and royalty distribution process created by the MMA and our regulations and would make the rule reasonably administrable for the MLC, compared to requiring the MLC to identify the copyright owner entitled to royalties on a day-to-day basis.191 The Office sought comments on this proposed approach, including whether some other point in time might be appropriate.192 2. Comments Comments from publishers, songwriters, and other industry stakeholders expressed concern with the owner at the time of the use approach.193 Many of these parties favored an approach where royalties at 65913. at 65913–14, 65916–17. 191 87 FR 64405, 64412. 192 Id. 193 See, e.g., MLC SNPRM Initial Comments at 1– 16; NMPA SNPRM Initial Comments at 2–13; NMPA Ex Parte Letter at 1–2 (Jan. 24, 2024); AIMP SNPRM Initial Comments at 1–4; Combustion Music SNPRM Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1–2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1–2; Boom Music SNPRM Initial Comments; Jonas Grp. Publ’g SNPRM Initial Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music SNPRM Initial Comments at 1–2; Big Machine Music SNPRM Initial Comments at 1–2; Legacyworks SNPRM Initial Comments; Me Gusta Music SNPRM Initial Comments at 1–2; Relative Music Grp. SNPRM Initial Comments at 1–2; Harding SNPRM Initial Comments; Moore SNPRM Initial Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 2–5; Big Yellow Dog SNPRM Initial Comments; Reservoir Media Mgmt. SNPRM Initial Comments at 1–2; SMACKSongs SNPRM Initial Comments; Sony Music Publ’g SNPRM Initial Comments at 1–5; Spirit Music Grp. SNPRM Initial Comments at 1– 3; Turner SNPRM Initial Comments at 1–2; Wiatr & Assocs. SNPRM Initial Comments; Jody Williams Songs SNPRM Initial Comments at 1–2; Concord Music Publ’g SNPRM Initial Comments at 1–3; ClearBox Rights SNPRM Reply Comments at 4–5; Creative Nation SNPRM Reply Comments at 1–2; The Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA SNPRM Reply Comments at 2–5; Universal Music Publ’g Grp. SNPRM Reply Comments at 1– 5; Warner Chappell Music SNPRM Reply Comments at 3–8; DLC SNPRM Reply Comments at 2–4. PO 00000 189 Id. 190 Id. Frm 00013 Fmt 4701 Sfmt 4700 56597 would be distributed to the copyright owner identified in the MLC’s records as of the date of each monthly royalty distribution. The Office refers to this as ‘‘the owner at the time of the payment’’ approach. At a high level, commenters’ primary concerns with the owner at the time of the use approach were practical ones. Specifically, they asserted that this approach is not a standard practice in the music industry and is contrary to how industry contracts generally work, that it will be burdensome and disruptive across the industry (including to the MLC), and that it will result in inaccurate and delayed payments (including to songwriters).194 A few commenters supported the Office’s legal conclusions regarding the proper copyright owner who is entitled to blanket license royalties.195 Others suggested a bifurcated approach to addressing the issue. For example, the Music Artists Coalition (‘‘MAC’’) said that, in the termination context, the payee should be the owner at the time of the use, but for everything else, it should be the owner at the time of the payment.196 Similarly, NMPA, as a ‘‘compromise,’’ proposed regulatory text based on the NPRM that ‘‘applies a time of use rule solely in the termination context.’’ 197 It argued, however, ‘‘that a rule providing for payment to the owner at the time of distribution in all contexts is the more appropriate one.’’ 198 3. Legal Entitlement to Blanket License Royalties Despite the lack of support from commenters, few addressed the 194 Examples of other issues raised by the comments include that: it may upset commercial expectations and cause problems with financial modeling and reporting; it may lead to an increase in fraudulent claims; implementation would require the development of new data and processing systems and new reporting formats and standards across the entire industry that will be costly and time-consuming to create; once a publisher’s or administrator’s rights period expires, they should not be burdened with the expense and liability of needing to ensure that any future income they receive flows through to the current owner to whom rights have been transferred; former publishers and administrators are not set up to distribute royalties to former songwriter partners, and practically would not have current contact or banking information available to make such distributions to their former songwriters; the choice of songwriters to change publishers or administrators should be honored, and they should not be forced to continue a relationship with their former representative with respect to these royalties that may be inefficient or lack transparency and accountability; it will lead to lower match rates and more unmatched royalties at the MLC, especially for pre-2021 periods. 195 See, e.g., Howard SNPRM Initial Comments at 1–2; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments. 196 MAC Ex Parte Letter at 2 (Dec. 29, 2023). 197 NMPA Ex Parte Letter at 2 (Jan. 24, 2024). 198 Id. E:\FR\FM\09JYR3.SGM 09JYR3 56598 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations statutory text or the Office’s legal analysis. Only NMPA and the MLC provided substantive arguments that the MMA’s statutory language and legislative history support the MLC distributing royalties to the owner at the time of the payment.199 NMPA conceded that the Office’s proposal ‘‘is not based on an unreasonable legal interpretation.’’ At the same time, it asserted that ‘‘unless the statute is clear, a legal interpretation of relevant statutory provisions should not cause disruption in a private, functioning market.’’ 200 It also disagreed with the Office’s statutory analysis and proposed a different reading. NMPA’s statutory arguments referred to sections 115(d)(3)(G)(i)(II) and 115(d)(3)(J)(i) (provisions governing royalty distributions), stating that they must be read together with sections 115(d)(3)(E)(i) and 115(d)(3)(E)(ii)(II)– (III) (provisions governing the MLC’s ownership database). Relying on those provisions, NMPA stated: The MLC is . . . not directed by statute to maintain . . . historical copyright ownership or chain of title information within its musical works database. Because the MLC does not maintain in the musical works database records that would enable it to identify the ‘‘copyright owner’’ at the precise time of use, and the ‘‘copyright owner’’ as identified in the musical works database is always the then-current copyright owner (and not the owner at the time of use or at some other prior time), the direction to pay ‘‘copyright owners in accordance with . . . the ownership and other information contained in the records of [the MLC]’’ should be read as a direction to pay the owner at the time of payment.201 lotter on DSK11XQN23PROD with RULES3 NMPA then referred to section 115(d)(3)(I), asserting that ‘‘once a match is made, all the accrued royalties with respect to such previously unmatched work are paid to the thencurrent copyright owner to which the work has been matched. There is no requirement for the MLC to determine which portion of those royalties may relate to uses made at a time when a 199 NMPA SNPRM Initial Comments at 11–13; MLC SNPRM Initial Comments at 4–11. NMPA also made an argument based on language used by the Office in the NPRM’s analysis of the Exception which stated that the ‘‘current copyright owner’’ is entitled to blanket license royalties, that owner ‘‘can change over time’’ and, after such a change, ‘‘the new owner becomes the proper payee.’’ NMPA SNPRM Initial Comments at 11 (citing 87 FR 64405, 64411; 88 FR 65908, 65912). To clarify, the Office’s use of the term ‘‘current’’ was intended to identify that the proper payee is the copyright owner concurrent with the time the work was used. While the last copyright owner in time may be the proper payee, we were not suggesting that this is necessarily always the case. 200 NMPA SNPRM Initial Comments at 11. 201 Id. at 12 (second and third alterations in original). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 different (potentially not yet identified) copyright owner owned the work.’’ 202 NMPA concluded by stating that it ‘‘does not believe that the sections referred to by the [Office] support a different conclusion,’’ as those provisions ‘‘do not address the issue of who has the statutory right to receive Blanket License royalty payments.’’ 203 The MLC made similar statutory arguments, referencing some of the MMA’s same sections,204 as well as its legislative history.205 Similar to NMPA, the MLC asserted that ‘‘[t]he MMA directive to distribute royalties based on the ‘information in [its] records’ is most appropriately read to mean that The MLC is to distribute royalties to the copyright owners’ current registered payee.’’ 206 The Office acknowledges the practical consequences of our analysis in the SNPRM. However, those practicalities do not create legal entitlements or change the terms of title 17, absent contractual or other arrangements. While sections 115(d)(3)(G)(i)(II) and 115(d)(3)(I) provide the ‘‘copyright owner’’ with legal entitlement to the royalties, neither they nor the other cited provisions speak to which copyright owner possesses such entitlement between the owner at the time of the use or the owner at the time of the payment.207 That is why the Office engaged in the analysis it did in the NPRM and SNPRM.208 at 12–13. at 13. 204 MLC SNPRM Initial Comments at 4–7 (referencing 17 U.S.C. 115(d)(3)(G)(i)(II), 115(d)(3)(J)(i), 115(d)(3)(E)(i)–(ii), and 115(d)(3)(I)). 205 Id. at 4–11. Regarding legislative history, the MLC primarily pointed to there being ‘‘no mention or contemplation of the creation of a database that includes temporal histories of past ownership’’ and that a description of the provisions concerning market share-based distributions of unclaimed royalties ‘‘conveys an understanding that royalties would be paid to the entities that currently represent songwriters, not to an entity that may have represented the songwriter in the past but is no longer authorized to do so.’’ Id. at 8–9 (citing H.R. Rep. No. 115–651, at 7–9, 13 and S. Rep. No. 115–339, at 8–9, 14). 206 Id. at 5–6. 207 Nor do these provisions necessarily require that there be only a single payee contained in the MLC’s records for each work (or share). At best, these provisions are silent on that issue. The MLC’s reliance on legislative history is similarly misplaced, as their cited references also do not appear to directly speak to this issue. In particular, market share-based distributions of unclaimed royalties are a unique feature of the MMA, and whatever the meaning of the specific provisions governing that special type of distribution—which is a matter beyond the scope of this proceeding— they do not speak to the legal entitlement to or distribution requirements for blanket license royalties that have not yet become ‘‘unclaimed’’ within the meaning of the statute. See 17 U.S.C. 115(d)(3)(J), (e)(34). 208 88 FR 65908, 65912 (explaining that the analysis regarding the owner at the time of the use PO 00000 202 Id. 203 Id. Frm 00014 Fmt 4701 Sfmt 4700 The MMA’s references to the MLC’s records do not resolve this issue. They merely provide instructions as to how the MLC shall distribute royalties to legally entitled copyright owners. Such distributions must be made to such copyright owners ‘‘in accordance with . . . the ownership and other information contained in the records of the [MLC].’’ 209 Those records contain important information about how to make the distribution, including contact, banking, and other information about the owner, as well as whether payment is to be made to an administrator or other representative or designee.210 Of course, the statute’s direction to the MLC to make distributions based on the information in its records does not resolve any underlying dispute regarding who is entitled to the royalty distribution. Clearly, the MLC can only distribute royalties based on known information. But what the MLC ‘‘knows,’’ based on its records, could turn out to be wrong, for example, if an imposter managed to successfully register a fraudulent ownership claim, or a legitimate copyright owner accidentally but erroneously claimed a work in good faith. If the statute is understood to confer entitlement to the royalties on whomever is identified in the MLC’s records, it creates a conflict with the rest of the statutory text that confers this entitlement on the copyright owner. Moreover, such a reading would provide perverse incentives for parties to race to submit as many fraudulent claims to the MLC as possible in the hope of gaining such legal entitlement. Congress did not intend to create such an absurd scheme, whereby claimants who may be intentionally lying can obtain legal entitlement to royalties for uses of copyrighted works instead of the actual copyright owners. Thus, while the individual or entity legally entitled to the royalties and the individual or entity actually receiving the distribution from the MLC will, in most cases, be the same, this will not always be the case. If they are not the same, being identified in the MLC’s records alone will not alter or prejudice the true copyright owner’s legal entitlement to those royalties. The Office concludes that this is the only reasonable way to read the MMA’s versus the owner at the time of the payment issue concerned the Office’s proposal ‘‘[t]o codify its preliminary conclusion that the statute entitles the ‘current copyright owner’ to the royalties under the blanket license’’). 209 See 17 U.S.C. 115(d)(3)(G)(i)(II). 210 See, e.g., 37 CFR 210.31(b)(1)(iii), (b)(1)(v)(D). E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations instructions to the MLC regarding distributions. With respect to the Office’s further analysis contained in the NPRM and SNPRM, to the extent NMPA or the MLC is suggesting that Congress meant to establish a special exception regarding copyright ownership or royalty entitlement in connection with the blanket license, the Office disagrees. As explained in the SNPRM, reading section 501(b) in conjunction with section 115(d)(4)(E)(ii)(II) (which directly references section 501), ‘‘it appears that, absent an agreement to the contrary, the copyright owner who can sue a DMP for infringement due to nonpayment of royalties under the blanket license is the copyright owner at the time the infringement was committed— i.e., at the time of the use.’’ 211 This is the best reading of the statute: that Congress expected the party who is legally entitled to the royalties and the party who is legally permitted to sue a DMP for infringement for the nonpayment of such royalties to be one and the same. That understanding is best reflected in section 115(d)(4)(E)(ii)(II)’s cross reference to section 501. If Congress had intended an exception to the operation of section 501(b) for infringement cases related to the blanket license, it would have articulated one. The Office recognizes that legal entitlements can be varied by contract, but that variation is not relevant to understanding how the statute works absent any such agreement’s terms. Some commenters suggested to the Office that potential concerns over the time of use approach are addressed through contract.212 But contract terms stating that acquiring publishers will be paid royalties for pre-acquisition uses of musical works imply agreement with the Office’s conclusions about default royalty entitlement in the absence of a relevant agreement. Additionally, most of the comments addressing the time of use approach focused on concerns related to business practices (e.g., paperwork, royalty processing, data tracking) rather than the law. While such concerns are relevant to the practical administrability of the rule, and support certain changes the Office ultimately made to the final rule (which 211 88 FR 65908, 65913. e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM Initial Comments at 4–5 & n.4, 10; Kobalt Music SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 1; Sony Music Publ’g SNPRM Initial Comments at 1–2; Spirit Music Grp. SNPRM Initial Comments at 1; Concord Music Publ’g SNPRM Initial Comments at 2; Universal Music Publ’g Grp. SNPRM Reply Comments at 2. lotter on DSK11XQN23PROD with RULES3 212 See, VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 are discussed below), they have no bearing on the statutory analysis discussed above or in the NPRM or SNPRM. Based on the foregoing, as well as the relevant discussion in the NPRM and SNPRM, the Office is adopting the owner at the time of the use rule as final, but only with respect to identifying who is legally entitled to blanket license royalties under the statute as a default matter. Unlike the SNPRM, the final rule does not mandate that the MLC may only make distributions to either the owner at the time of the use or an alternative payee specifically designated by such owner.213 Rather, it contains a new provision (detailed in the section below) governing how the MLC is to make royalty distributions based on the information in its records. As discussed above, the MLC’s records are not determinative with respect to who is legally entitled to royalties. At the same time, the Office agrees with NMPA and the MLC that section 115(d)(3)(G)(i)(II) directs the MLC to make distributions in accordance with the information in its records.214 The Office has therefore decided to adopt two provisions—one that describes who is legally entitled to the royalties and another that directs to whom the MLC shall distribute royalties. The two provisions avoid confusion, making clear that the MLC’s distribution does not mean that the recipient is legally entitled to those royalties, but instructing the MLC regarding the distributions that it should make. Adopting regulations directing the MLC to act, unaccompanied by regulations identifying who is legally entitled to the royalties, could create a misunderstanding regarding proper application of the law. But, as discussed below, aligning the legal entitlement with the directive to the MLC in all cases would be administratively infeasible. The new distribution provision instead enables the MLC to make royalty distributions to the owner at the time of the payment in accordance with the standard industry 213 Despite this change, the final rule still provides that the relevant owner is the owner as of the last day of the monthly reporting period in which the work is used pursuant to a blanket license. While the Office’s original reasoning for that was partially based on concerns about requiring the MLC to manage day-to-day ownership changes occurring mid-month, it also rested on the fact that the MMA established a monthly-based reporting scheme for DMPs. 87 FR 64405, 64412. The Office relies on the latter in adopting the final rule. See 17 U.S.C. 115(d)(4)(A). 214 17 U.S.C. 115(d)(3)(G)(i)(II). PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 56599 practice for which commenters expressed virtually universal support. Some commenters continued to voice concerns with the Office articulating who is legally entitled to the royalties as a default matter, even when coupled with the new distribution provision discussed below.215 The Office has considered these concerns, but declines to remove the entitlement provision from the final rule. Especially considering the new distribution provision discussed below, the Office believes it is important to provide a clear statement of the party who is legally entitled to blanket license royalties as a default matter. First, the Office is always mindful of potential unintended consequences that may stem from its rules. To the extent the Office’s legal conclusions may differ from the practices of certain industry participants, those differences seem to be based on expectations arising out of contracts or business norms, not title 17. Moreover, failure to explain that entitlement to royalties is based on the time of the use could lead to confusion and the mistaken impression that the MLC’s royalty distributions, which are based on information in its records at the time of the payment—principally for administrative convenience—reflects a determination of entitlement. On balance, the best way to minimize confusion is for the Office to articulate our interpretation of the statute. Second, the Office disagrees with the argument that the rule is unnecessary because private agreements will govern anyway. That argument presupposes that every private agreement will speak to this issue. Nothing in the record indicates that this is universally true, indicating there is at least some subset of contracts as to which this provision will be applicable.216 Moreover, this argument presupposes that all transfers are contractual, which is incorrect. Finally, the Office disagrees that the existence of non-contractual transfers, like intestate succession or bankruptcy, weigh against this rule, as their existence does not change the statutory analysis discussed above and in the SNPRM. The Office has, however, clarified in the final rule that the entitlement to royalties can be 215 See NMPA Ex Parte Letter at 1–2 (Jan. 24, 2024); MLC Ex Parte Letter at 3 (Feb. 5, 2024); MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024). 216 The Office, of course, does not mean to suggest that this provision should in any way override the intent of contracting parties if an agreement is ambiguous. If the parties disagree as to whether an agreement conveyed the entitlement to the applicable royalties, the usual standards under applicable state law for construing private contracts would still apply. The MLC should treat any such disagreement like an ownership dispute. E:\FR\FM\09JYR3.SGM 09JYR3 56600 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations transferred and that the default royalty entitlement provided for is subject to any such transfer. 4. The MLC’s Distribution of Royalties Based on Its Records As mentioned above, the final rule includes a new provision to address the MLC’s royalty distributions based on the information in its records, as required by section 115(d)(3)(G)(i)(II). The new regulation has four main parts summarized here. lotter on DSK11XQN23PROD with RULES3 i. Default Royalty Distribution Practices Regarding Ownership and the MLC’s Records The first part of the regulation provides that, when making a distribution, the MLC shall treat the individual or entity identified in its records as of the date of the payee snapshot used for the applicable distribution as legally authorized to receive the distribution (e.g., meaning that such party is the owner at the time of the use (or such owner’s representative or designee) or a successor in interest to such owner’s entitlement to the royalties (or such successor’s representative or designee)). In other words, the MLC is to distribute royalties based on its records and to assume that whoever is in its records is legally entitled to the distribution, subject to the additional provisions below. By making royalty distributions to the owner reflected in the MLC’s records on the date of the payee snapshot (i.e., at the time of the payment), the MLC will be acting in accordance with widespread industry practice without contravening the statute. One commenter called it ‘‘an elegant solution.’’ 217 This default distribution provision is both consistent with the language of the statute and responsive to the MLC’s request for the ‘‘inclusion of a provision confirming that [it] can distribute royalties for a musical work to the current payee registered in its database.’’ 218 The Office concludes that 217 MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024); see also MCNA et al. Ex Parte Letter at 1– 2 (Mar. 15, 2024) (articulating qualified support for this solution in the termination context and subject to other various caveats, calling it ‘‘a reasonable and practical solution that accounts for both business considerations and the protection of creators’ rights under the law in termination rights situations’’). 218 MLC Ex Parte Letter at 3–4 (Feb. 5, 2024); see also MLC Ex Parte Letter at 1 (Feb. 21, 2024); MLC Ex Parte Letter at 1 (Mar. 22, 2024); Warner Chappell Music SNPRM Reply Comments at 5–6 (‘‘[I]n light of the undisputed comments to the SNPRM detailing how and why the U.S. and international music publishing industry is universally built on maintaining current information for—and paying—the then-current owner or administrator, Warner Chappell advocates VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 the new provision is a reasonable and appropriate approach which facilitates the MLC’s administration of royalty distributions. Moreover, this result was overwhelmingly supported by commenters. The comments made clear that the party identified in the MLC’s records at the time of the payee snapshot (or its representative or designee) will be the party who is legally entitled to the distribution in the vast majority of cases.219 Permitting the for adopting that as a default rule.’’); NMPA SNPRM Initial Comments at 10 (‘‘[A] ‘default rule’ should be the rule that applies in the vast majority of cases, and should not be the rule that applies only in exceptional cases.’’). 219 See, e.g., MLC SNPRM Initial Comments at 11 (‘‘[I]n most industry agreements the current payee typically has the right to receive royalties for all periods (both prospective and historical). Thus, a default rule that provides for payments to be made to the current payee (a result that is consistent with most industry agreements) would produce more accurate results than a default rule that provides for payments to be made to a historical payee (a result that does not align with most industry agreements.’’); NMPA SNPRM Initial Comments at 4–5 (‘‘[T]he custom and practice in the music industry is for royalties to be paid to the owner of the copyright at the time of payment rather than at the time of use, unless a different arrangement is agreed to between that copyright owner and a different payee, e.g., the prior owner/assignor of the copyright. This custom and practice is memorialized in industry contracts and the royalty and administration systems of publishers, administrators, and CMOs are built around that custom and practice. In other words, the industry ‘default rule’ is the opposite of the ‘default rule’ proposed in the SNPRM.’’); Kobalt Music SNPRM Initial Comments at 2 (‘‘The administrator who is registered at the time of a distribution is nearly always the entity that all royalties should be paid to, and this is how industry contracts and CMOs generally operate. Any exceptions to this practice would be the distinct minority.’’); Sony Music Publ’g SNPRM Initial Comments at 1–2 (‘‘The Prior Owner Rule is inconsistent with the contracts around which the music publishing industry is built. . . . When music catalogues are bought and sold, the terms of the acquisition documents generally provide that the acquiring party has the right to collect all income after the date of sale.’’); Universal Music Publ’g Grp. SNPRM Reply Comments at 2 (‘‘Under industry contracts, where rights are transferred or revert, the right to receive royalties (including those previously earned but not yet paid) generally follows the rights. . . . The Time of Use Rule will therefore . . . usually result in payment to the wrong party under the relevant contractual arrangements.’’); Warner Chappell Music SNPRM Reply Comments at 5 (‘‘[A]ny rule that would establish the ‘default payee’ as anyone other than the current rightsholder at the time of the payment will, by definition, carry a real and inherent risk of compelling payment to someone not entitled to received it. . . . [T]he U.S. and international music publishing industry is universally built on maintaining current information for—and paying—the then-current owner or administrator.’’); Big Machine Music SNPRM Initial Comments at 2 (‘‘I have never seen a copyright transfer that doesn’t include a letter of direction to effectively set out the process for the new owner to receive all future income.’’); Reservoir Media Mgmt. SNPRM Initial Comments at 2 (‘‘There is nothing to gain from some of these changes beyond a mirage of accuracy that is not in alignment with actual collection rights.’’); SONA SNPRM Reply Comments at 3 (‘‘Songwriters, PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 MLC to act on the information in its records will lead to accurate payments without overburdening copyright owners and the MLC with new, potentially significant, data, reporting, and payment requirements, which could result in a delay in royalty distributions.220 publishers, and other third parties acquiring and/ or licensing publishing rights in the music industry transfer rights, including the right to administer and collect royalty income, as of a specific date of transfer so that the party that is newly entitled to administer, collect and receive income in connection with the particular works will do so as of that specific effective date regardless of when those monies were earned.’’). Other commenters also noted that this practice is not completely universal, and that there may be exceptions. See, e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM Initial Comments at 4–5; Kobalt Music SNPRM Initial Comments at 2; Sony Music Publ’g SNPRM Initial Comments at 1–2; Universal Music Publ’g Grp. SNPRM Reply Comments at 2; Warner Chappell Music SNPRM Reply Comments at 6 (‘‘In the rare instance where parties actually intend for someone other than the current owner or administrator to receive an MLC distribution, those parties are best positioned to so notify the MLC.’’). 220 The Office acknowledges that this default distribution provision could lead to the ‘‘wrong’’ result with respect to the narrow category of posttermination royalties paid for pre-termination uses. In such cases, the pre-termination copyright owner remains entitled to those royalties absent a contrary agreement because the reversion of the copyright by operation of law does not encompass the additional entitlement to those royalties. The Office nevertheless finds the default distribution provision to be reasonable in these cases in light of the reduced burden it places on the MLC, the various exceptions to the default distribution provision discussed below, as well as comments from publishers suggesting agreement with the end-result of having the MLC distribute post-termination royalties for pre-termination uses to the posttermination owner. See, e.g., NMPA NPRM Initial Comments at 6; CMPA NPRM Initial Comments at 2 (‘‘Although it may not be in the financial interest of the pre-termination owner, . . . it would be CMPA’s recommendation that any and all adjustments of this nature be paid to the current copyright owner (that being the post-termination owner) at the time of the payment, and not at the time when the usage was made.’’); see also NMPA SNPRM Initial Comments at 5 (‘‘[I]t is the custom and practice in the industry for the new owner or the songwriter to whom rights have been assigned or reverted to be paid all unpaid royalties regardless of when they were earned.’’). Additionally, the comments suggested that at least some publishers do not wish to receive such royalties due to the administrative burdens involved in sharing those royalties with former songwriter partners. See, e.g., NMPA SNPRM Initial Comments at 8; Kobalt Music SNPRM Initial Comments at 3 (‘‘In our experience, former administrators in general are not set up to distribute royalties to their former songwriters, and almost no one—not even the former administrators themselves—wants them to continue to receive those royalties once all rights periods expire.’’); Big Machine Music SNPRM Initial Comments at 1–2 (‘‘The collection and re-distribution of this income to the new owner creates an additional administrative burden for our company, taxes the human resources of my team and creates an unwanted liability for us without any benefit.’’); Me Gusta Music SNPRM Initial Comments at 2; Relative Music Grp. SNPRM Initial Comments at 1. By including these royalties within the MLC’s default distribution provision, it allows publishers E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES3 However, the Office recognizes that there may be instances where the MLC’s distribution of royalties to the owner at the time of the payment under the default distribution provision would result in an improper party being paid. Therefore, the Office has included clarifications and limitations. First, any distribution made by the MLC is not a determination of a party’s legal entitlement to the royalties and does not prejudice any such party’s legal claim. The purpose of the default distribution provision is to reduce burdens, gain efficiencies, and enhance accuracy by applying industry practice to the MLC’s distributions. It does not alter anyone’s underlying legal rights—especially if the MLC, in relying on this provision, ends up distributing royalties to an individual or entity who is not legally entitled to them. The MLC specifically supported the inclusion of such a provision.221 Second, the default distribution provision does not apply where there is a dispute between parties or an investigation by the MLC covering the applicable works (or shares) or payees. The reference to an investigation is meant to include situations where the MLC may be looking into, for example, a potentially fraudulent registration or claim. The purpose is to make clear that where the MLC has knowledge that there is a cloud over the ownership of the relevant work (or share), it must continue holding royalties until that cloud has cleared. Third, the default distribution provision does not apply if the MLC has been ‘‘notified otherwise.’’ This language is meant to cover circumstances where the MLC receives information that would indicate to a reasonable person that the payee identified in its records is not in fact entitled to the royalty distribution. In enacting the statutory requirement for the MLC to distribute royalties pursuant to its records, Congress did not intend for the MLC to knowingly make inaccurate payments after being expressly informed otherwise.222 Whether particular information received is sufficient, or whether any such information is adequately substantiated, to choose for themselves how they would like to handle these situations. They can do nothing, and the royalties will be distributed to the posttermination owner. Or, if they wish to assert their entitlement to the royalties, they can defeat the default distribution provision and obtain them by simply notifying the MLC, as discussed below. 221 MLC Ex Parte Letter at 2 (Feb. 21, 2024). 222 See H.R. Rep. No. 115–651, at 9 (referring to ‘‘the efficient and accurate collection and distribution of royalties’’ as the MLC’s ‘‘highest responsibility’’); S. Rep. No. 115–339, at 9 (same); Conf. Rep. at 7 (same). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 for the MLC to actually be ‘‘notified’’ is a matter the Office leaves to the MLC’s reasonable discretion based on its experience, practices, and policies, subject to the Office’s guidance.223 ii. The Default Distribution Provision Does Not Change the MLC’s Duty To Verify the Accuracy of Royalty Distributions The next part of the provision states that despite the default distribution provision, the MLC must continue to engage in reasonable efforts to verify the information provided to it and to combat against fraudulent registrations and claims. This provision is not intended to require the MLC to engage in additional efforts beyond those it currently undertakes, but rather to ensure that it continues to engage in such efforts after the rule is enacted.224 An examination of the MLC’s current such efforts and their sufficiency is beyond the scope of this proceeding. iii. The MLC Must Still Correct Its Own Errors The final part of the provision is meant to codify and clarify a point made in the SNPRM that ‘‘[w]here the MLC distributes royalties to the wrong payee due to an error on the MLC’s part . . . , the MLC must correct its error in a timely fashion.’’ 225 The regulation makes clear that the applicable type of error is one caused by the MLC’s actions, as opposed to where the MLC acts in accordance with the default distribution provision or otherwise reasonably relies on information provided to it by others that turns out to be inaccurate.226 The reference to the MLC’s actions encompasses the actions of its employees, but the Office also 223 While the MLC suggested that such notifications will always take the form of disputes, the Office cautions that this might not always be the case. See MLC Ex Parte Letter at 1–2 (Mar. 22, 2024). That is why the final rule provides separate explicit provisions for both disputes and where the MLC is notified otherwise. The notification provision is meant to be broader to encompass other possible scenarios outside of a formal dispute. While the degree of overlap between the two provisions may be substantial, it is not necessarily total. 224 See MLC Ex Parte Letter at 5 (Feb. 21, 2024) (explaining that the MLC ‘‘has substantial review processes in place to prevent fraudulent or improper claiming and diversion of royalties’’); see also U.S. Copyright Office, Unclaimed Royalties: Best Practice Recommendations for the Mechanical Licensing Collective iii, 60 (2021), https:// copyright.gov/policy/unclaimed-royalties/ unclaimed-royalties-final-report.pdf (‘‘[T]he MLC should have mechanisms in place to help review, verify, and quality-check information, and recognize problems like conflicts, inconsistencies, inaccuracies, and potential fraud.’’). 225 88 FR 65908, 65918 n.137. 226 See MLC Ex Parte Letter at 2 (Mar. 22, 2024). PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 56601 intends for it to cover actions of others acting on its behalf. C. Matched Historical Royalties Outside the context of the owner at the time of the use versus the owner at the time of the payment issue, the Office received few comments regarding our proposal that the MLC report and distribute matched historical royalties in the same manner and subject to the same requirements that apply to the reporting and distribution of blanket license royalties.227 Notably, the MLC supported this proposal by including it in its own regulatory proposal and no commenters appear to have objected.228 The Office is, therefore, adopting this portion of the SNPRM as final for the reasons stated in the SNPRM.229 D. Ownership Transfers and Royalty Payee Changes The final rule retains the overall framework and structure from the SNPRM with respect to the provisions governing notice to and implementation by the MLC of ownership transfers and other royalty payee changes.230 The Office, however, has made several changes from the SNPRM. 1. Notice of a Change to the MLC The SNPRM contained detailed and tailored notice requirements based on the type of payee change at issue. It proposed such requirements for the following circumstances: (1) transfers of copyright ownership other than by will or operation of law; (2) transfers of copyright ownership by statutory termination; (3) other transfers of copyright ownership; and (4) designations of alternative royalty payees.231 In response to the SNPRM, several commenters criticized the nontermination-related notice requirements, including on the ground that the Office does not need to regulate standard operational processes, like those concerning contractual transfers and letters of direction, for which the MLC has well-functioning systems in place.232 Commenters also contended 227 See 228 See 88 FR 65908, 65914. MLC SNPRM Reply Comments, App. A. at iii–iv. 229 88 FR 65908, 65914. 230 See id. 231 Id. at 65914–17. 232 See e.g., Kobalt Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 10. E:\FR\FM\09JYR3.SGM 09JYR3 56602 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations that the SNPRM’s requirements were unworkable or unduly burdensome.233 The MLC echoed these comments and submitted a regulatory proposal that largely retained the Office’s proposed requirements for termination-related transfers, but replaced the other notice requirements with a catch-all provision providing that such notice be made in accordance with requirements established by the MLC.234 Few commenters supported the Office’s proposal with respect to nontermination-related notices.235 Based on these comments, the Office has scaled back the notice requirements, generally in line with the MLC’s proposal. Outside of the termination context, it does not appear that regulation is currently necessary. Instead, the Office is issuing a rule directing the MLC to adopt a written policy reflecting its practices and requirements for non-terminationrelated notices. The Office will monitor this area and will consider potentially adopting regulations in the future if presented with a record reflecting a need to intervene. i. Non-Termination-Related Transfers of Copyright Ownership and Royalty Payee Changes lotter on DSK11XQN23PROD with RULES3 As discussed above, the final rule omits the previously proposed requirements for non-terminationrelated notices and replaces them with a directive for the MLC to adopt and publish requirements for such notices. More specifically, the final rule provides that parties seeking to make payee changes outside the context of a termination must notify the MLC pursuant to such reasonable requirements as it establishes and makes publicly available on its website. To the extent the MLC does not already have such a policy on its website as of the date this final rule is published in the Federal Register, the MLC will have 60 days to adopt one and make it public, unless the Office permits an extension. 233 See e.g., NMPA SNPRM Initial Comments at 4, 14–15; Spirit Music Grp. SNPRM Initial Comments at 2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1; Warner Chappell Music SNPRM Reply Comments at 7–8; Universal Music Publ’g Grp. SNPRM Reply Comments at 2 n.1; Reservoir Media Mgmt. SNPRM Initial Comments at 2. 234 MLC SNPRM Reply Comments at 3–5, App. A at iv–xii; MLC SNPRM Initial Comments at 18–20; MLC Ex Parte Letter at 2 (Mar. 22, 2024) (explaining ‘‘the need for flexibility to incorporate evolving industry practices into processes to effectuate the various types of transfers and payee changes that occur in the normal course of business for rightsholders’’). 235 See, e.g., Promopub SNPRM Initial Comments at 5. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 Additionally, there is one aspect of the SNPRM regarding non-terminationrelated notices that the final rule retains. In response to the NPRM, the Songwriters Guild of America et al. (‘‘SGA et al.’’) proposed specific requirements to apply where the MLC is asked by the terminating party to implement an agreement directing it to pay post-termination royalties to the pre-termination copyright owner.236 SGA et al. was concerned about contractual overreach by publishers requiring the execution of anticipatory letters of direction as part of publishing deals.237 The Office included the proposal as part of the SNPRM, explaining that ‘‘[b]ased on the current record, the proposal seems to be a reasonable safeguard, even if there is no such overreach at present.’’ 238 No commenter specifically opposed this proposal, and the MLC included it in its regulatory proposal.239 The Office has, thus, retained most of the proposal in the final rule with some minor conforming edits.240 ii. Transfers of Copyright Ownership by Statutory Termination In contrast to the Office’s proposal on non-termination-related notices, commenters generally did not oppose the Office’s proposal on notices to the MLC about payee changes resulting from statutory terminations. Indeed, multiple commenters affirmatively supported it.241 For example, MAC et al. said that they ‘‘fully support the Office’s proposal,’’ calling it ‘‘simple, practical 236 88 FR 65908, 65917. 237 Id. 238 Id. 239 MLC SNPRM Reply Comments, App. A. at vi– vii. 240 The final rule does not include the requirement that such a notice must include ‘‘a clear statement stipulating that neither the notice nor the distribution of royalties by the mechanical licensing collective in accordance with the notice prejudices the rights of either party’’ as such a requirement would be unnecessary, considering that the regulations also require the notice to be signed after the effective date of termination. 241 See, e.g., MLC SNPRM Initial Comments at 20; MLC SNPRM Reply Comments at 3; MAC et al. SNPRM Initial Comments at 2–3; Promopub SNPRM Initial Comments at 5. Despite its general support, Promopub also expressed concern that ‘‘[i]f the terminating party has already been subjected to a dispute process at the MLC, the pre-termination copyright owner/prior payee should not have another opportunity to add salt to the wound by way of the proposed Rule creating another notification and dispute cycle.’’ Promopub SNPRM Initial Comments at 5. To clarify, these notice requirements and the dispute mechanism contained within them are only effective prospectively. This means that if a terminating party previously notified the MLC about an effective termination and the MLC acknowledged the sufficiency of that notice, then nothing in the final rule would require the terminating party to submit a new notice to the MLC. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 and efficient.’’ 242 The MLC ‘‘welcome[d] regulatory clarity from the Office’’ on this topic 243 and said that ‘‘[m]uch of the provisions concerning termination procedure are consistent with MLC practice, or could be implemented.’’ 244 The MLC and other commenters, however, proposed modifications to the Office’s proposal to address discrete concerns. Based on the comments and the discussion in the SNPRM, the Office is adopting as final the proposed notice requirements regarding payee changes resulting from statutory terminations with the modifications discussed below. a. Whether the Notice Requirements Should Be a Floor The Office disagrees with the MLC’s proposal to turn the notice requirements into a floor.245 While the Office acknowledged in the SNPRM that the proposed information that must be submitted to the MLC might not provide sufficient information to process and implement the ownership change in some cases, the Office also proposed a means by which the MLC could obtain the minimum necessary information to implement the change.246 In doing so, the Office explained that ‘‘[t]his may be a better approach than requiring terminating parties to provide additional information to the MLC at the outset that they may not readily have and which may not be needed to implement the change.’’ 247 The Office continues to believe that this is the most appropriate approach. Turning the requirements into a floor would allow the MLC to request additional and potentially unnecessary information that may be challenging to produce up front, which was precisely the concern that led to the Office’s proposal.248 As further discussed below, if the initial submission to the MLC lacks what it needs, the MLC can request additional information at that point. b. Treatment of Notices Containing Multiple Works The Office agrees with Linda Edell Howard that the rule should be clarified to recognize that a single notice— whether a change notice to the MLC or a statutory notice of termination submitted to the Office for recordation— may identify more than one musical 242 MAC et al. SNPRM Initial Comments at 2–3. SNPRM Reply Comments at 3. 244 MLC SNPRM Initial Comments at 20. 245 See MLC SNPRM Reply Comments, App. A at 243 MLC v. 246 88 FR 65908, 65915–16. at 65916. 248 Id. at 65915–16. 247 Id. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations work, and that the relevant statuses of those works may be different.249 The final rule makes clear that, in such cases, any implication as to one work does not affect another listed in the same notice. Each work must be treated independently. This is clarified throughout the final rule, including in the notice, implementation, and dispute provisions. For example, if there is a dispute as to one work, but not another in the same change notice submitted to the MLC, the MLC must still implement and give effect to the change with respect to the work that is not in dispute (assuming that there are no other issues). The same is true where the MLC has sufficient information to implement the change as to one work, but not for another from the same notice. As another example, if a notice of termination identifying multiple musical works is timely recorded in the Office as to some works but not others, assuming that there are no other issues, the MLC should implement the termination of those as to which the notice is timely recorded, even though the works with untimely recorded notices cannot be terminated. c. Requirement To Provide the Statutory Notice of Termination Linda Edell Howard asserted that it can sometimes be difficult or expensive to obtain a copy of the notice of termination submitted to the Office for recordation.250 She did not, however, make any alternative suggestions. The Office continues to believe that providing a copy of the actual notice of termination is reasonable and not unduly burdensome. d. Requirement To Provide Proof of Recordation or Proof of Submission to the Office for Recordation The Office agrees with the MLC’s proposal to clarify that the proof of submission of the statutory notice of termination to the Office must reflect that it was submitted before the effective date of termination.251 For a notice of termination to be timely recorded, it must be received by the Office before the effective date.252 The Office disagrees with ClearBox Rights that the proof of recordation requirement should be dropped because it is ‘‘cumbersome and potentially not necessary.’’ 253 ClearBox Rights made three arguments to support its position. First, it contended that it ‘‘would prove to be an administrative burden on the MLC to maintain a schedule of such notices to be delivered.’’ 254 This argument is unpersuasive given that the MLC did not object to this requirement and included it in its regulatory proposal.255 Moreover, the rule does not require the MLC to maintain any such schedule. Second, ClearBox Rights asserted that ‘‘there may be instances where the Copyright Office has not yet recorded such documents for various reasons, including that perhaps one copyright out of many on the notice is under review or possibly not valid.’’ 256 It argued that the ‘‘lack of recordation or delay of recordation of one document with many copyrights because one or more copyrights is in question for further review should not negatively impact the other copyrights on that document.’’ 257 The Office does not believe that these concerns are grounds for eliminating the proof of recordation requirement. While the Office agrees, as discussed above, that the rule should accommodate notices identifying multiple works and that each work should be handled individually, timely recordation is still required by the statute ‘‘as a condition to [the termination] taking effect.’’ 258 Thus, the MLC should not implement a change as to a particular work until proof of recordation of the relevant notice of termination for that work is delivered. Third, ClearBox Rights noted that ‘‘recordation of the termination at the Office may never happen.’’ 259 It said that it has ‘‘seen instances where a notice of termination was filed, and the pre-termination owner acknowledges the termination to be effective even though there was an issue in the notice filing or recordation.’’ 260 ClearBox Rights explained that ‘‘[s]ometimes the pre-termination owner will simply overlook the technical issues of the termination process and grant the rights back to the post-termination party.’’ 261 Linda Edell Howard made similar statements, noting that sometimes the pre-termination copyright owner 254 Id. at 9. MLC SNPRM Reply Comments, App. A at 255 See lotter on DSK11XQN23PROD with RULES3 v. 249 See 256 ClearBox Howard SNPRM Initial Comments at 4, 6, Rights SNPRM Reply Comments at 10. 8. 250 Id. 257 Id. at 4. MLC SNPRM Reply Comments, App. A at 258 See 251 See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A). Rights SNPRM Reply Comments at 259 ClearBox v. 252 See 37 CFR 201.10(f)(1)(ii)(A), (f)(3). 253 See ClearBox Rights SNPRM Reply Comments at 9–10. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 PO 00000 ‘‘waives the recordation requirement.’’ 262 The Office does not believe that these possible problems provide any basis to not require proof of recordation. As noted above, timely recordation is a statutory condition for the termination to be effective.263 If the termination is not effective, no rights change hands pursuant to section 203 or 304. To the extent the pre-termination copyright owner nevertheless acquiesces to the attempted termination, that may simply result in an ordinary transfer of copyright ownership from the pretermination copyright owner to the terminating party. As such, it would be subject to the requirements for notifying the MLC about a non-terminationrelated change, rather than a termination-related change. Based on the foregoing discussion, however, the Office concludes that the final rule should clarify that a termination-related payee change notice submitted to the MLC can be withdrawn or converted into a non-terminationrelated payee change notice pursuant to such reasonable requirements as the MLC establishes and makes publicly available on its website. The scenarios raised by the commenters demonstrate a need for flexibility. Regarding Ms. Howard’s question about what proof will qualify if notices of termination are recorded with the Office though electronic means,264 the Office reiterates that ‘‘[a]dequate proof of timely recordation could be demonstrated by either providing the MLC with a copy of the certificate of recordation or the record as reflected in the Office’s online public catalog,’’ and that ‘‘[a]dequate proof of submission to the Office for recordation could take the form of courier tracking or a delivery confirmation, a return receipt from the Office, or some other communication from the Office confirming receipt.’’ 265 The eventual ability to submit notices of termination through the Office’s online Recordation System will not impair the availability of adequate proof. For example, while courier tracking or delivery confirmation would not be available, the remitter would instead have such proof in the form of an electronic communication from the Office confirming receipt. e. Requirement To Identify the Relevant Works The Office declines the MLC’s proposal to add a requirement to 262 Howard SNPRM Initial Comments at 4. U.S.C. 203(a)(4)(A), 304(c)(4)(A). 264 Howard SNPRM Initial Comments at 4. 265 88 FR 65908, 65915. 263 17 10. 260 Id. 261 Id. Frm 00019 Fmt 4701 Sfmt 4700 56603 E:\FR\FM\09JYR3.SGM 09JYR3 56604 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations provide ‘‘[a] satisfactory identification of all musical works subject to the notice of termination identified by appropriate unique identifiers.’’ 266 The MLC said that this is needed because it ‘‘cannot implement a change in ownership of musical works without knowing which musical works are subject to the change in ownership.’’ 267 As the Office previously explained in the SNPRM, the regulations governing the content of statutory notices of termination (which must be submitted to the MLC as part of the change notice) already provide for an identification of each work.268 While the Office acknowledged in the SNPRM that such identification might not provide the MLC with sufficient information to process and implement the ownership change in some cases, the Office also proposed a means, further discussed below, by which the MLC could obtain the minimum necessary information.269 The Office agrees with other commenters ‘‘that the default position should be to make it as easy as possible for a terminating songwriter to comply with processes to effect their right.’’ 270 Thus, we decline to include a requirement that unique identifiers for all musical works must be provided up front. As further discussed below, if the MLC ultimately needs them for certain works, it can request them after attempting to implement the change based on the information in the notice. f. The MLC’s Duty To Request Additional Necessary Information In the SNPRM, the Office proposed that where a compliant terminationrelated change notice does not provide the MLC with sufficient information to process and implement the ownership change, the MLC should engage in best efforts to identify the minimum necessary information, including through correspondence with both the terminating party and pre-termination copyright owner (or their respective representatives).271 The MLC expressed concern with this proposal, stating that it is ‘‘not clear if this reference to ‘best efforts’ is meant to imply a responsibility to make findings as to what works are subject to termination.’’ 272 The MLC said that the requirement to correspond with the relevant parties ‘‘is a reasonable step’’ lotter on DSK11XQN23PROD with RULES3 266 MLC SNPRM Reply Comments, App. A at v. at 3. 268 88 FR 65908, 65915 & n.112 (citing 37 CFR 201.10(b)(1)(iii), (b)(2)(iv)). 269 Id. at 65915–16. 270 MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024). 271 88 FR 65908, 65915–16. 272 MLC SNPRM Initial Comments at 20. 267 Id. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 and that it ‘‘does not object to making reasonable efforts to reach out to parties where paperwork is incomplete.’’ 273 It said, however, that it ‘‘cannot itself identify the ‘relevant musical works,’ make decisions itself about what is contained in private contracts that may be subject to termination, or determine what works are, or are not, subject to termination in any particular disputed case.’’ 274 The Office is clarifying this portion of the rule in light of the MLC’s comments. To eliminate any confusion, the ‘‘best efforts’’ language has been eliminated in the final rule, while the requirement to correspond has been retained. In doing so, the Office emphasizes that the final rule’s reference to information that is ‘‘insufficient to enable the [MLC] to implement and give effect to the termination’’ is meant to be interpreted narrowly. In some cases, submitted information can be sufficient to enable the MLC to act, even if it must undertake certain reasonable efforts. For example, even if the identification of the works in the notice of termination does not appear sufficient on its face, perhaps lacking unique identifiers, the information is nevertheless considered sufficient if the MLC can act on the information after undertaking reasonable efforts to attempt to match the works identified in the notice of termination with the corresponding works in its records. The Office is not mandating that the MLC engage in exhaustive efforts or do this in all cases, but in the termination context, it should provide assistance within reason. Additionally, Promopub noted that there is no time limit on the MLC in this provision and said that ‘‘delay should be assiduously avoided.’’ 275 It proposed that ‘‘the MLC give notice of receipt of an appropriately documented claim within 15 calendar days of receipt’’ and that, ‘‘[i]f more information is required to process the claim, that explanatory notice should be given within 30 calendar days of receipt.’’ 276 It also wanted the MLC to establish a ‘‘hot line’’ and dedicated web pages that terminating parties can access for assistance.277 The Office agrees that the MLC should have dedicated web pages and other member support for terminating parties, and strongly encourages it to provide such support as soon as reasonably possible. The final rule adds the word ‘‘promptly’’ to signal that the MLC should move PO 00000 273 Id. at 20–21. at 21. 275 Promopub SNPRM Initial Comments at 5–6. 276 Id. at 6. 277 Id. 274 Id. Frm 00020 Fmt 4701 Sfmt 4700 expeditiously, since, as discussed above, the Office expects the MLC to undertake some reasonable efforts in addition to correspondence. Should the Office become aware of widespread unreasonable delays, we can reconsider a specific timing requirement at a later date. Lastly, the Office understands that this approach may lead to longer lead times before the MLC ends up implementing a change than if additional information were required to be submitted at the outset. As discussed above and in the SNPRM,278 the Office continues to believe that this is the better approach. However, we wish to encourage terminating parties to voluntarily provide additional useful information to the MLC, such as unique identifiers, as part of their initial notice submission if it is possible to do so. To that end, in amending its form for submitting termination-related payee change notices based on the final rule, the MLC could include fields for additional information it believes would be helpful in implementing the change, provided that the form clearly identifies those non-required fields as being optional. g. The Meaning of ‘‘Terminating Party’’ The final rule clarifies the definition of ‘‘terminating party.’’ Throughout the rule, this term is used to refer to parties entitled to royalties from the MLC based on an effective termination and who may notify the MLC of such entitlement. This term is not defined by reference to who singed and served the statutory notice of termination. The SNPRM defined the term as ‘‘the new musical work copyright owner.’’ 279 That language did not, however, account for the fact that the termination may not yet be effective at the time the payee change notice is submitted to the MLC, meaning that the relevant party is not the new owner at that point in time. The SNPRM’s definition also did not clearly provide that a successor in interest to a terminating author or heir (e.g., their new publisher or administrator) can also be a ‘‘terminating party’’ within the meaning of the rule. Including successors in interest is necessary because there may be times where the termination becomes effective and reverted rights are regranted before the MLC is notified. The final rule makes these clarifications. The Office disagrees with Linda Edell Howard that the term ‘‘terminating party’’ ‘‘should include only those who signed the notice of termination, not 278 88 279 Id. E:\FR\FM\09JYR3.SGM FR 65908, 65915–16. at 65924. 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations those non-signatory heirs or authors,’’ because ‘‘[t]he non-signatory statutory heirs or authors are represented by those who signed and served the notice of termination.’’ 280 As noted above, this misunderstands the way the term ‘‘terminating party’’ is used throughout the rule. The Office also disagrees that ‘‘[i]nformation concerning nonsignatories should not be required to implement a change in copyright ownership and payee status, or reduce the percentage to be paid out.’’ 281 Each terminating party must be treated independently, just like any other copyright owner when there is more than one. That is why the MLC is only required to implement a change as to those terminating parties whose information is provided in the notice of change. That being said, to the extent a particular terminating party is in fact represented by another terminating party, as Ms. Howard suggested, or by someone else, then the information provided to the MLC would be for that representative.282 h. Verification Obligations In the SNPRM, the Office proposed that where the MLC has good reason to doubt the authenticity of the information submitted, such as the statutory notice of termination or proof of recordation, it should seek verification from the Office.283 The MLC proposed instead to require the submitter to seek verification from the Office and deliver documentation of such verification to the MLC.284 The MLC asserted that ‘‘it would be inappropriate to shift to The MLC the role of monitoring and obtaining ownership documentation,’’ and that ‘‘[m]embers must remain primarily responsible for the completeness and accuracy of their works registrations and claims, and it would be inefficient to shift this task to The MLC.’’ 285 lotter on DSK11XQN23PROD with RULES3 280 See Howard SNPRM Initial Comments at 6. 281 See id. 282 The Office further declines Ms. Howard’s proposal to make the identification of the terminating party plural throughout the rule because ‘‘[r]arely is the terminating party one individual.’’ Howard SNPRM Initial Comments at 4. There are already specific provisions in the rule speaking to the case of multiple terminating parties (e.g., 37 CFR 210.30(c)(2)(v)), which means that the rest of the rule contemplates the possibility of there being more than one. Moreover, ‘‘[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise,’’ ‘‘words importing the singular include and apply to several persons, parties, or things.’’ 1 U.S.C. 1. 283 88 FR 65908, 65915. 284 MLC SNPRM Reply Comments at 3–4, App. A at v. 285 Id. at 4. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 The Office agrees with the MLC’s position. While we have endeavored to minimize the burden on a terminating party to have their termination implemented by the MLC, on reflection, it is more appropriate for the submitter to obtain whatever verification may be necessary. Therefore, the final rule provides that where authenticity is in doubt, the MLC shall either seek verification from the Office or request that the submitter provide such verification. i. Dispute-Related Issues In the SNPRM, the Office proposed that where the MLC receives a payee change notice from the terminating party, it must inform the pretermination copyright owner within 15 days of receiving either the notice or the last piece of information necessary to implement the change, whichever is later.286 After being so notified, a pretermination copyright owner who disputes the termination would have 30 days to initiate its dispute with the MLC before the MLC must implement the change.287 The Office agrees with Linda Edell Howard that the terminating party should be contemporaneously alerted when the MLC informs the pretermination copyright owner.288 This way, the terminating party will know when the 30-day dispute period commences. We disagree, however, with Ms. Howard’s proposal to shorten the 30-day period to 15 days.289 While the pre-termination copyright owner should already be on notice about the termination generally, the Office believes that 30 days is a reasonable amount of time after being notified that a change is being sought at the MLC, in case they wish to initiate a dispute, which requires providing specific documentation to the MLC that may take time to assemble. 2. Implementation of a Change by the MLC The SNPRM proposed various requirements to govern how the MLC implements and gives effect to a payee change, both in termination and nontermination contexts.290 Commenters generally did not oppose these requirements, though some raised discrete questions.291 The MLC generally supported the proposed requirements, including those for non286 88 FR 65908, 65916. 287 Id. Howard SNPRM Initial Comments at 5. id. 290 88 FR 65908, 65917–18. 291 See, e.g., MAC et al. SNPRM Initial Comments at 3; Howard SNPRM Initial Comments at 8–9. PO 00000 288 See 289 See Frm 00021 Fmt 4701 Sfmt 4700 56605 termination-related changes.292 Based on the comments and the discussion in the SNPRM, the Office is adopting the proposed implementation requirements as final with the modifications discussed below. i. Prospective Versus Retroactive Implementation In the SNPRM, the Office proposed that, where a relevant change is effective prior to the MLC’s implementation, the MLC should be permitted, but not required, to implement it going back to its effective date, if requested in the notice to the MLC.293 In response, MAC et al. said that ‘‘the MLC can and should implement payee changes going back to the date of the change, regardless of when implemented,’’ and disagreed that it is too burdensome for the MLC to do so.294 Linda Edell Howard raised concerns about lag times in notifying the MLC in the termination context.295 The MLC ‘‘welcome[d]’’ the Office’s proposal.296 The Office is not persuaded to alter the rule. In the SNPRM, the Office considered similar comments and weighed them against the MLC’s concerns about such a requirement being overly burdensome.297 We were ‘‘inclined to agree with the MLC that retroactive implementation may be too administratively burdensome to require for every payee change,’’ and noted that our regulations require only prospective implementation by the MLC in processing DMP voluntary licenses.298 The Office also ‘‘welcome[d] further comments on this issue,’’ including on ‘‘what is standard in the industry.’’ 299 The minimal comments received in response to the SNPRM do not meaningfully grow the record in a way that persuades the Office to impose this requirement on the MLC at this time. ii. Timing In its regulatory proposal, the MLC proposed to soften the implementation deadlines the Office proposed, by replacing requirements to implement a change within a specified period of time with language requiring only ‘‘reasonable efforts to’’ do so.300 While the MLC’s comments do not explain why they requested this change, 292 MLC SNPRM Reply Comments at 5, App. A at vii–ix, xi–xii; MLC SNPRM Initial Comments at 18 n.25. 293 88 FR 65908, 65918. 294 MAC et al. SNPRM Initial Comments at 3. 295 Howard SNPRM Initial Comments at 9. 296 MLC SNPRM Reply Comments at 5. 297 88 FR 65908, 65918. 298 Id. 299 Id. 300 MLC SNPRM Reply Comments, App. A at vii. E:\FR\FM\09JYR3.SGM 09JYR3 56606 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations presumably it is to avoid technical violations of the regulations, such as due to circumstances beyond its control or where it inadvertently makes a mistake without realizing it (e.g., where an employee accidentally fails to enter the change into the system).301 The Office declines to adopt the MLC’s proposal, but has modified the final rule to address this issue. The provision’s purpose is to set expectations for how the MLC will act, and that entails meaningful deadlines that parties to a payee change can rely on in conducting their business. The Office has imposed deadlines on the MLC’s actions in other contexts and sees no reason not to do so here. We are not opposed, however, to providing the MLC with some leeway if an implementation deadline is accidentally missed. Under the final rule, in such a situation, the MLC must implement the change as soon as reasonably practicable, but no later than the next regular monthly royalty distribution that occurs either: (1) after the original implementation deadline; or (2) at least 30 days after the date that the MLC learns that the change was not implemented on time—whichever is later. The Office believes that this solution gives the MLC reasonable flexibility without being so open-ended that the parties to a change have no idea when their change will be implemented. Importantly, the rule further provides that if the MLC is late in implementing the change, it must do so retroactively to the date of the original implementation deadline. The rule does not provide a separate deadline for making any corrective royalty adjustment. Rather, the Office expects the MLC to make any such adjustments in accordance with its regular practices. Regardless of any associated burdens, we believe this is a fair burden to place on the MLC when it fails to meet the rule’s deadlines, even if that failure is accidental. iii. Additional Provisions for Termination-Related Changes In the SNPRM, the Office proposed that where a compliant notice is accompanied by proof that the statutory notice of termination was submitted to the Office for recordation, but not proof that it was timely recorded, the MLC should hold applicable royalties pending receipt of proof of timely recordation.302 After the MLC receives proof of timely recordation, it would need to implement the change, which would include distributing the held funds to the terminating party.303 If, on the other hand, the Office refuses to record the notice or it is recorded on or after the effective date of termination, the MLC would need to release the funds to the pre-termination copyright owner.304 The Office further proposed that if proof of timely recordation is not received within 6 months, the MLC should contact the Office to confirm the status of the relevant recordation submission.305 No commenter objected to this proposal, but the MLC took exception to the part requiring it to contact the Office to confirm the status of the recordation submission.306 For the same reasons discussed above in Part III.D.1.ii.h., it proposed instead that the submitter be required to check the status with the Office and provide the MLC with documentation of the confirmed status.307 The MLC proposed that if the submission still remains pending, the submitter should provide monthly updates to the MLC.308 It further proposed that if the submitter fails to provide a monthly status confirmation, the MLC must then act in accordance with the other implementation provisions.309 On reflection, as with the provision discussed above in Part III.D.1.ii.h., the Office agrees with the MLC’s general position that the obligation to confirm the status of the submission is more appropriately placed on the submitter. The Office, however, disagrees with the MLC’s specific proposal. It would be unnecessary and overly burdensome for the terminating party to be required to contact the Office and provide the MLC with monthly updates. Instead, the final rule provides that the MLC may request periodic updates at its discretion. Additionally, the Office disagrees that if the terminating party fails to provide an update, the MLC should simply act in accordance with the rest of the implementation regulations. That would result in the funds being released to the pre-termination copyright owner. The Office does not believe the MLC should release the funds while the recordation status remains pending. Instead, the final rule provides that the MLC must hold the funds until it is informed of the notice of termination’s final recordation status and then act accordingly. The rule purposefully does not specify who must provide that final status to the MLC. Where the result is a timely recordation, the terminating party will be incentivized to provide confirmation of the final status, but in other situations (e.g., where recordation is refused), the pre-termination copyright owner would be incentivized to provide it so that the royalties do not remain on hold. Additionally, nothing prevents the MLC from contacting the Office directly, if it chooses to. Though not raised by commenters, the final rule also clarifies that the royalty hold should be lifted where the recordation submission to the Office is withdrawn by the remitter. There is no reason to hold royalties pending recordation where the recordation submission has been resolved. The omission of that scenario from the SNPRM was an unintentional oversight. E. Disputes 1. Process and Documentation for Termination-Related Disputes The Office received few comments on our proposal for the handling of termination-related disputes. The MLC generally supported this aspect of the SNPRM.310 Another commenter, Linda Edell Howard took issue with the idea that the MLC could substantiate a dispute claim without hearing from the terminating party, and raised concerns about the power imbalance between the pre-termination copyright owner and terminating party in this context.311 While the Office appreciates these concerns, we decline to address these broader issues in the current proceeding for the reasons discussed in Part III.E.2. below. Moreover, some of Ms. Howard’s concerns are connected to a subject of inquiry in a separate, open proceeding reviewing the MLC’s statutory designation.312 Based on the comments and the discussion in the SNPRM, the Office is adopting the proposed requirements 310 Id. at 5, App. A at ix–x. SNPRM Initial Comments at 5–6 & n.3, 8 (discussing, among other things, how there is a one-sided ability to hold up royalties in a dispute to give the pre-termination copyright owner leverage over the terminating party). 312 See 89 FR 5940, 5943 (Jan. 30, 2024) (requesting ‘‘information regarding: (1) any steps that the [MLC] is taking to protect against the incidence of fraudulent ownership claims and frivolous ownership disputes; and (2) whether these steps have been successful’’). lotter on DSK11XQN23PROD with RULES3 311 Howard 301 If the MLC wanted more time for all implementations, the Office believes it would have made that request more specifically. Notably, the SNPRM proposed to give the MLC at least 30 days to implement all changes, which was in line with an earlier request from the MLC. See MLC NPRM Initial Comments at 10–11. The proposal was also in line with the Office’s rules governing the MLC’s processing of DMP voluntary licenses. See 37 CFR 210.24(f). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 302 88 303 Id. FR 65908, 65917–18. at 65918. 304 Id. 305 Id. 306 MLC SNPRM Reply Comments at 3–4, App. A. at viii–ix. 307 Id. 308 Id. at App. A at viii–ix. 309 Id. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations pertaining to termination-related disputes as final. In doing so, and as discussed above in Part III.A.3., we have added language to clarify the operation of the provision in the context of disputes concerning the application of the Exception to voluntary licenses. In adopting the final rule, the Office requests that the MLC’s dispute resolution committee, which the MMA tasks with establishing the MLC’s dispute policies, promptly establish a new policy for termination-related disputes that adheres to the requirements adopted in this final rule. The final rule sets certain key requirements based on the issues raised by commenters, but it is not a substitute for a comprehensive dispute policy. 2. Dispute Resolution The Office has decided to omit the proposed provisions about how disputes should be resolved from the final rule.313 Instead, unless and until the Office regulates in this area, disputes are to be resolved pursuant to the MLC’s dispute policies. No one specifically supported the SNPRM proposal, and some commenters raised concerns with it.314 Other commenters raised other concerns and sought various regulations to address them. For example, North Music Group asked for the MLC to ‘‘be prohibited from creating disputes on its own motion,’’ or for there to at least be ‘‘some process and constraints applicable to its actions.’’ 315 The record on these issues, however, is thin. We do not take these dispute-related concerns lightly, but given the record of the proceeding, we decline to take up these issues at this time. The Office may, however, consider addressing them in a future proceeding where they can be more fully explored to determine whether any regulatory action may be needed. In the meantime, the Office requests that the MLC’s dispute resolution committee consider the concerns raised by commenters, as well as the SNPRM’s proposal to require ongoing active dispute resolution. In doing so, the Office asks the committee to: (1) examine whether such issues are arising in connection with disputes initiated with the MLC; (2) evaluate how these issues are addressed elsewhere in 313 See 88 FR 65908, 65919–20. e.g., MLC Ex Parte Letter at 5 (Feb. 5, 2024); Kobalt Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial Comments at 2; MAC et al. SNPRM Initial Comments at 3; Howard SNPRM Initial Comments at 8–9. 315 North Music Grp. SNPRM Initial Comments at 3; see also, e.g., Howard SNPRM Initial Comments at 6, 8–9 (discussing concerns with power imbalances and how disputes could affect litigation with respect to ripeness and the statute of limitations). lotter on DSK11XQN23PROD with RULES3 314 See, VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 the industry; and (3) determine whether the MLC’s dispute policies should be amended to address any of them. 3. Disclosure and Confidentiality In responding to the NPRM, the MLC asked for guidance about whether it ‘‘should be required to disclose information about the royalties being held to the parties involved’’ and stated that it ‘‘typically does not disclose the amount of royalties on hold to the parties in a dispute pending agreement or resolution of a dispute.’’ 316 ClearBox Rights stated that the MLC should disclose the royalties on hold to parties involved in a dispute.317 Based on these comments, the SNPRM proposed amending the Office’s confidentiality regulations to require that the MLC ‘‘disclose the amount being held and reason for the hold to any individual or entity with a bona fide legal claim to such funds or a portion thereof.’’ 318 The Office reasoned that this requirement would put the parties ‘‘on equal footing in developing a strategy for resolving the dispute, including the negotiation of a settlement.’’ 319 The Office also proposed that the MLC ‘‘provide the equivalent of monthly royalty statements for the amounts held along with monthly updates concerning the status of the hold.’’ 320 These proposed disclosure requirements were not exclusive to termination-related disputes. Commenters on this provision generally supported it, recognizing the value of disclosing the amount of royalties on hold to parties involved in the dispute.321 The MLC, however, voiced concerns over administrability and potential misuse. The MLC stated that the proposed rule would be burdensome, involve significant manual processing, and divert resources from other duties.322 NPRM Initial Comments at 13–14. Rights NPRM Reply Comments at 6. 318 88 FR 65908, 65919, 65927. 319 Id. at 65919. 320 Id. 321 See Spirit Music Grp. SNPRM Initial Comments at 2 (‘‘We do agree with the [Office’s] position to disclose earnings and to provide royalty statements that are in suspense due to conflicts and disputes. We also agree the MLC portal should make this information visible.’’); Promopub SNPRM Initial Comments at 7 (‘‘In the context of a dispute, we agree with the Office that if royalties are being held, the MLC should disclose the held amounts to the parties and provide updates as necessary during the pendency of the dispute. This information may be valuable to the parties for purposes of resolving the dispute.’’). 322 MLC SNPRM Reply Comments at 8; MLC Ex Parte Letter at 4 (Feb. 21, 2024). But see MLC Ex Parte Letter at 4–5 (Feb. 21, 2024) (suggesting that the MLC regularly discloses total amounts of royalties on hold to interested parties). PO 00000 316 MLC 317 ClearBox Frm 00023 Fmt 4701 Sfmt 4700 56607 The MLC also stated that providing ‘‘every party to a dispute’’ with ‘‘confidential information could . . . result in disclosure of confidential information to improper parties in some situations, and would be ripe for abuse,’’ 323 and that it had not received member complaints ‘‘around such disclosures in the context of disputes or holds.’’ 324 Further, the MLC was concerned that the proposed regulation’s use of the term ‘‘bona fide legal claim’’ was not a clear enough standard to administer, and that passing judgment on what is ‘‘bona fide’’ could expose it to liability.325 Finally, the MLC shared a general preference for prioritizing confidentiality and claimed that parties could obtain confidential information by agreement or via the legal process.326 The MLC later stated that, in the context of a termination-related dispute, it could ‘‘provide summary-level information to both the pre- and posttermination copyright owners’’ at ‘‘the outset of a dispute.’’ 327 This information would ‘‘identify the approximate amount of royalties to be distributed to a work in the first distribution occurring after the hold is requested and will be based upon information in the monthly reports of usage that The MLC received and processed at the time of the request.’’ 328 The MLC noted its preference that the Office not include provisions governing periodic (or initial) updates, including until it ‘‘has time to scope and develop a workable, systematic way to provide this information.’’ 329 If the Office were to retain such a requirement, those updates ‘‘should be limited to where a disclosure has been affirmatively requested and should not be more frequently than quarterly, to limit the burden and diversion of resources from critical path activities.’’ 330 Based on the foregoing, the Office is retaining a version of this rule, while 323 MLC SNPRM Reply Comments at 7. Ex Parte Letter at 3 (Mar. 22, 2024). 325 MLC SNPRM Reply Comments at 7–8. 326 Id. at 6–7. 327 MLC Ex Parte Letter at 2 (Mar. 22, 2024). The MLC previously stated that it could ‘‘provide the total amount of royalties being held in connection with disputed works’’ in certain ‘‘discrete and lowvolume’’ circumstances, namely ‘‘situations of agreement or legal process.’’ MLC SNPRM Reply Comments at 8. 328 MLC Ex Parte Letter at 2 (Mar. 22, 2024); see also MLC Ex Parte Letter at 4–5 (Feb. 21, 2024). Notwithstanding this offer, the MLC reiterated its concern that providing this information to parties for all disputes—i.e., not limited to parties in a termination-related dispute—would be burdensome. MLC Ex Parte Letter at 5 (Feb. 21, 2024). 329 MLC Ex Parte Letter at 2 (Mar. 22, 2024). 330 Id. 324 MLC E:\FR\FM\09JYR3.SGM 09JYR3 56608 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations narrowing its scope to make it easier for the MLC to administer. The final rule only applies to termination-related disputes, and limits disclosure requirements to the total amount of royalties being held and not the more granular information that would be contained in a royalty statement. It also reduces the periodic update requirement to apply only when requested by either party and only once a quarter. As the final rule applies to royalties being held pursuant to a termination-related dispute, the phrase ‘‘bona fide legal claim’’ was eliminated from the regulatory text. F. Corrective Royalty Adjustment 1. Background In the NPRM, the Office proposed a corrective royalty adjustment that would have ‘‘require[d] the MLC to adjust any royalties distributed under [its now-suspended Termination Policy], or distributed in a similar manner if not technically distributed pursuant to the [Termination Policy], within 90 days.’’ 331 At the outset, the Office notes that the MLC estimates the corrective adjustment to involve ‘‘less than $2 million’’ and the ‘‘total amounts that would likely change hands’’ to terminating songwriters ‘‘would be less than $1 million.’’ 332 The NPRM explained that the adjustment provision was intended ‘‘to make copyright owners whole for any distributions the MLC made based on an erroneous understanding and application of current law.’’ 333 Responding to the NPRM, parties asked the Office for further guidance regarding ‘‘how the proposed corrective royalty adjustment should work’’ in practice.334 The SNPRM subsequently proposed ‘‘a more detailed [regulation] that would lay out the operational procedures for the corrective royalty adjustment.’’ 335 The SNPRM proposed that ‘‘the corrective adjustment would apply where the MLC’s prior erroneous application of the Exception, whether or not through its [Termination Policy], affected: (1) the distribution of blanket license royalties or matched historical royalties; (2) the holding of such royalties; or (3) the deduction from a DMP’s payable blanket license royalties lotter on DSK11XQN23PROD with RULES3 331 87 FR 64405, 64412. 332 MLC Ex Parte Letter at 4 (Feb. 21, 2024). 333 87 FR 64405, 64412. 334 88 FR 65908, 65920 (citing MLC NPRM Initial Comments at 6–8; ClearBox Rights NPRM Reply Comments at 3–4; ClearBox Rights Ex Parte Letter at 2–4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North Music Grp. NPRM Reply Comments at 2). 335 88 FR 65908, 65920. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 made by matching usage to voluntary licenses or individual download licenses.’’ 336 For previously distributed overpayments made pursuant to the Termination Policy, the MLC would be required to notify the prior payee of the overpayment within thirty days, the prior payee would have thirty days to return the overpayment, and then the MLC would distribute those royalties to the proper payee with the next regular monthly royalty distribution. If the prior payee failed to repay the MLC, then the MLC would debit the prior payee’s future royalties—up to 50% of payable royalties each month—until it recovered the overpayment.337 The SNPRM also proposed that the royalty recovery and distribution instructions would apply where the MLC matched usage to a voluntary licensee or individual download licensee who was not the proper payee under the rule.338 For royalties that were held by the MLC following the suspension of its Termination Policy, the SNPRM proposed that they would be paid to the proper payee no later than thirty days after the final rule’s effective date.339 Finally, the SNPRM included a savings clause that would preserve the proper payee’s right to recover the overpayment outside of the corrective adjustment process.340 The SNPRM did not propose ‘‘any specific procedures’’ addressing circumstances where ‘‘a publisher [e.g., a prior payee] has already distributed a portion of the applicable royalties to its songwriters’’ because that ‘‘is a possibility with any type of adjustment for an overpayment.’’ 341 The Office, however, expressly sought further comments on that issue, including on a commenter’s proposal that the MLC only recoup the publisher’s share of those royalties.342 2. Comments Several commenters, including songwriters, publishers, and others, favored a rule that includes a corrective adjustment.343 Promopub suggested a 336 Id. at 65921. 337 Id. 338 Id. at 65923. 339 Id. 340 Id. at 65921. (citing ClearBox Rights Ex Parte Letter at 3–4 (June 28, 2023); ClearBox Rights NPRM Reply Comments at 3–4). 343 See, e.g., BMG NPRM Initial Comments at 2 (‘‘BMG fully supports . . . the requirement[] that . . . the MLC must pay post-termination royalties to those parties who own the U.S. copyrights in the works at issue and adjust these parties’ accounts in order that they may receive every dollar previously paid in error to terminated publishers.’’); BMG NPRM Reply Comments at 1; Christian Castle PO 00000 341 Id. 342 Id. Frm 00024 Fmt 4701 Sfmt 4700 relatively more aggressive approach to the corrective adjustment. First, where ‘‘a prior payee’s accrued royalties for a month exceed the full amount owed to the proper payee by at least twenty-five [percent],’’ it would require the MLC ‘‘to deduct the full amount owed to the proper payee from such monthly accrued royalties.’’ 344 It also proposed that, if the proper payee was not paid back in full within six months of the MLC’s initial corrective adjustment payment, the Office ‘‘should require the terminated publisher to repay the balance to the MLC within 30 calendar days for the MLC to, in-turn, distribute to the proper payee within 30 calendar days of receipt.’’ 345 Other commenters, however, disagreed that there should be a corrective adjustment, even though some of them supported posttermination copyright owners receiving post-termination royalties going forward.346 These commenters’ concerns focused on the burdens associated with administering a corrective adjustment and the Office’s authority to require such an adjustment. Regarding the Office’s authority, NMPA had concerns that the corrective NPRM Reply Comments at 4–5 (‘‘Any curative action required by the Office should, of course, be retroactive.’’); Promopub NPRM Reply Comments at 1–2 (noting that it ‘‘fully supports the proposed repeal of the [MLC’s Termination] Policy and the corresponding proposed royalties adjustments’’ and that ‘‘other collecting organizations regularly employ retroactive royalty adjustments when music publishing royalties have been paid erroneously’’); North Music Grp. NPRM Reply Comments at 2 (supporting the rule’s corrective adjustment); Miller NPRM Initial Comments at 1 (supporting 90-day adjustment period for the MLC); NSAI SNPRM Initial Comments at 2 (supporting corrective adjustments made ‘‘retroactively’’); SONA et al. NPRM Reply Comments at 3 (supporting the rule’s corrective adjustment); ClearBox Rights NPRM Reply Comments at 3–4 (supporting the rule’s corrective adjustment provision and noting disagreement with NMPA and CMPA); McAnally & North Ex Parte Letter at 3–4 (Mar. 14, 2023) (voicing that these parties ‘‘categorically disagree’’ that the rule should not be ‘‘retroactive’’); MAC et al. SNPRM Initial Comments at 3–4; Howard SNPRM Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 8–9. 344 Promopub SNPRM Initial Comments at 3. Promopub suggested these amendments, based on its concern that publishers may not return overpayments immediately and would ‘‘instead rely on the piecemeal monthly process offered.’’ Id. 345 Id.; see also Spirit Music Grp. SNPRM Initial Comments at 3 (‘‘[A]pplying 50% of the debt to the erroneous party, who may be earning only a few dollars, will result in never ending debt for the erroneously paid party. We realize the USCO is concerned with the financial impact to the incorrect party, but it is at the expense of the entitled party.’’). 346 See, e.g., CMPA NPRM Initial Comments at 1– 2; NMPA NPRM Initial Comments at 4–6; NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 1–2 & n.2; NMPA Ex Parte Letter at 2 (Jan. 24, 2024); Warner Chappell Music SNPRM Reply Comments at 2–3. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES3 adjustment would be an impermissible ‘‘retroactive’’ rule and may also be an unconstitutional ‘‘taking.’’ 347 Regarding songwriters’ and publishers’ ability to engage in a corrective adjustment, commenters stated that portions of these royalties would have already been distributed to songwriters and would be difficult to recover.348 Warner Chappell added that ‘‘retroactive debits would wreak havoc where songwriter contracts are royaltyor recoupment-based, as when recoupment has triggered the end of a contract’s term, or when a publisher has paid a contractually-due advance or bonus because the writer received a certain sum of royalties,’’ and that ‘‘[p]ublishers, songwriters, and others who’d received such payments would also bear tax and accounting obligations on income ‘wrongly’ received and already spent.’’ 349 Commenters further suggested that it would also be administratively burdensome for the MLC to carry out a corrective adjustment.350 The MLC requested that the Office ‘‘take into consideration the impact of its rule on [its] regular royalty processing operations and timelines,’’ which are ‘‘orders of magnitude larger than the total sums that would be involved in corrective adjustments for statutory terminations.’’ 351 The MLC suggested a ‘‘more efficient’’ solution that ‘‘would avoid the problems associated with clawing back royalties from songwriters.’’ 352 This ‘‘alternative approach’’ would involve the MLC providing information to the prior payee and proper payee regarding the royalties distributed to the prior payee for posttermination periods.353 The parties would then voluntarily be able to make any corrective royalty adjustments themselves (a ‘‘voluntary 347 NMPA NPRM Initial Comments at 2, 4–6; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2. 348 CMPA NPRM Initial Comments at 2; Warner Chappell Music SNPRM Reply Comments at 2–3; see also NMPA NPRM Initial Comments at 5; MLC Ex Parte Letter at 3 (Mar. 22, 2024). 349 Warner Chappell Music SNPRM Reply Comments at 2–3. 350 NMPA NPRM Initial Comments at 5 (noting that a corrective adjustment ‘‘would create a significant administrative and financial burden on the MLC, as well as on publishers or other recipients of these royalty payments who likely already distributed some portion of those amounts pursuant to their contractual obligations with their songwriters’’); CMPA NPRM Initial Comments at 2 (explaining that ‘‘retroactive accounting might cause an undue hardship on The MLC as it would be well above its normal workload’’); see also MLC Ex Parte Letter at 3–4 (Feb. 21, 2024); MLC Ex Parte Letter at 3–5 (Mar. 22, 2024). 351 MLC SNPRM Reply Comments at 2–3. 352 MLC Ex Parte Letter at 4 (Feb. 21, 2024). 353 Id. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 adjustment’’).354 The MLC also said that a ‘‘claw-back and redistribution approach’’ could be used in combination with its proposal to incentivize compliance ‘‘if a significant period elapsed without resolution by the parties.’’ 355 3. The Final Rule’s Approach Having considered all comments on this issue, the Office is adopting a final rule with an approach to corrective royalty adjustments that is similar to the SNPRM’s proposal for the reasons stated in the NPRM and SNPRM, but with certain modifications, as discussed below. Other corrective adjustment provisions proposed in the SNPRM are included in the final rule, with minor conforming adjustments. While the Office appreciates concerns regarding potential administrative burdens associated with a corrective adjustment, we continue to ‘‘disagree with commenters suggesting that there should not be any corrective adjustment because of the potential burdens involved.’’ 356 As the Office previously explained, ‘‘[c]orrective royalty adjustments are common in the music industry and explicitly contemplated by the statute and the Office’s existing regulations.’’ 357 The Office notes that the MLC already has guidelines to address the circumstances when it needs to make royalty distribution adjustments, including, for example: • when there was ‘‘an incorrect match of a sound recording to a [musical work] registration’’; • where there was an under- or overpayment ‘‘attributable to a clerical or administrative error’’; or • in ‘‘other situations that The MLC may determine from time to time in its discretion.’’ 358 These guidelines allow the MLC to adjust royalty distributions for uses going back to the first date the blanket license was available (i.e., January 1, 2021).359 Moreover, the Office must consider not only the burdens to the MLC and publishers, but also fairness to terminating songwriters, and the comparative efficiency associated with the corrective adjustment. Without a at 4–5. at 5. 356 88 FR 65908, 65920–21. 357 Id. at 65921; see MAC et al. SNPRM Initial Comments at 3–4; Howard SNPRM Initial Comments at 2 (agreeing with Office’s position). 358 The MLC, Guidelines for Adjustments secs. 2.1, 3.4 (Jan. 2022), https:// f.hubspotusercontent40.net/hubfs/8718396/files/ 2022-02/ MLC%20Guidelines%20for%20Adjustments.pdf. 359 Id. at sec. 3.4. PO 00000 354 Id. 355 Id. Frm 00025 Fmt 4701 Sfmt 4700 56609 corrective adjustment, proper payees could be forced to bring their terminated publishers to court to unwind the MLC’s erroneous payments. This would lead to a multiplicity of lawsuits and associated unnecessary costs incurred by songwriters and publishers. It may also be illusory, as songwriters who were proper payees are less likely to sue to recover royalties that, in total, may be less than the cost of hiring an attorney to litigate the matter.360 i. Voluntary Adjustments The first modification adopts the MLC’s suggestion to build in a voluntary process to reduce potential burdens on the parties or the MLC associated with any corrective adjustment. The initial step in this process is for the MLC to notify the relevant parties (i.e., the prior payee, proper payee, and any successors in interest) of the overpayment within 30 days of the final rule’s effective date. Such notice must include: (1) a summary of the Office’s conclusions regarding the Exception; (2) a description of the corrective adjustment process laid out in the final rule, including the option for the parties to engage in a voluntary adjustment in lieu of an MLC-administered adjustment; (3) for each musical work at issue, the amounts that were erroneously paid to the prior payee that are subject to being adjusted; and (4) the respective contact information for the parties contained in the MLC’s records. With this information, the parties will have the opportunity to make the corrective adjustment themselves. The parties would notify the MLC within another 30 days regarding whether the parties are engaging in a voluntary adjustment, were unable to reach such an agreement, or are still attempting to do so. If the parties engaged in a voluntary adjustment, the MLC will not make any adjustments in connection with the overpayment, but will retain records related to the voluntary adjustment. If the parties do not elect the voluntary adjustment option or if the MLC does not receive the required notice from the parties, the MLC will commence implementing the adjustment process within 30 days of 360 See U.S. Copyright Office, Copyright Small Claims 1 (2013) (noting that ‘‘federal litigation is expensive and time-consuming, and therefore out of reach for many copyright owners’’ and that the problems of enforcement of modest claims ‘‘appears to be especially acute for individual creators’’); id. at 118 (noting that songwriters would benefit from an alternative to Federal court to enforce the Copyright Act’s termination provisions (citing statement of Charles Sanders, SGA)); see also, e.g., Howard SNPRM Initial Comments at 6 (noting perceived power and sophistication imbalances between authors and publishers). E:\FR\FM\09JYR3.SGM 09JYR3 56610 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations the end of the voluntary adjustment period. If the parties notify the MLC that they are continuing efforts to reach an agreement, the MLC will not commence the corrective adjustment process unless and until it receives a subsequent notice that the parties were unable to reach an agreement. If such a subsequent notice is received more than 18 months after the effective date of the rule, the MLC may, but is not required to, adjust the overpayment. The Office believes that it is reasonable to give the prior and proper payees an opportunity to engage in the adjustment process themselves, but that option would be ineffective without also requiring the MLC to implement a corrective adjustment as an alternative. Further, even if one party was willing to engage in a voluntary adjustment, the other party may wish to have the MLC implement the corrective adjustment for tax or accounting purposes.361 While parties should jointly be able to determine the method they want to pursue to complete the adjustment, the Office does not believe that decision should be unbounded in time. Parties must decide whether the MLC is going to engage in a corrective adjustment (and notify the MLC of that decision) within 18 months of this rule’s effective date. After that time, the MLC will not be required to initiate the corrective adjustment process.362 The Office believes that the MLC should not be required to undertake the corrective adjustment indefinitely. Finally, the Office is not adopting Promopub’s repayment proposals for the corrective adjustment, as it wishes to first monitor how the adjustment process is working in practice, before making any significant amendments. We are, however, incorporating in the final rule Promopub’s requested clarification that the MLC must provide royalty statements to proper payees when it makes a corrective adjustment.363 ii. Limiting Recovery of the Overpayment to the Publisher’s Share The Office did not receive significant comments directly responding to ClearBox Rights’ proposal that the MLC may only recover the publisher’s share of the overpayment to make the lotter on DSK11XQN23PROD with RULES3 361 See Warner Chappell Music SNPRM Reply Comments at 2–3. 362 As the final rule makes clear, the MLC will discontinue any recovery efforts if it is notified that the overpayment was recovered outside of the corrective adjustment process (e.g., where there was a subsequent agreement or settlement) or a legal proceeding was commenced seeking recovery of the overpayment. 363 Promopub SNPRM Initial Comments at 3. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 corrective adjustment.364 Consequently, that provision is not included as a requirement in the final rule. The Office, however, sees no reason why songwriters, publishers, and the MLC could not agree to this type of agreement as a type of voluntary solution. Nothing in this rule prohibits the prior payee, proper payee, and MLC from all agreeing to engage in a corrective adjustment that only recovers and distributes the publisher’s share of the overpayment. The Office notes that the MLC stated that the rule envisioned a process that ‘‘requires a songwriter to pay back royalties to the pre-termination publisher’’ before that publisher returns funds to the MLC.365 The MLC claimed that this could be problematic for songwriters as ‘‘the process could lead to songwriters having to use funds to temporarily pay back royalties paid to them years ago, and then wait several months or more to get those funds back.’’ 366 It also noted that it does not ‘‘know the terms of the private contracts between the parties or how much was paid to the songwriter out of the total initial distribution,’’ 367 making it problematic to recover only the publisher’s share in any corrective adjustment procedure. The MLC’s comments imply that the rule requires songwriters (or other downstream royalty payees) to repay the prior payee before that prior payee would need to remit royalties to the MLC for further processing and distribution to the proper payee. Such an initial songwriter-repayment procedure, however, was not a requirement of the proposed rule and is not included in the final rule. iii. Voluntary Licenses The final rule does not require the MLC to make a corrective adjustment with respect to any amounts deducted, or held pending deduction, in connection with voluntary licenses. As discussed in Part III.A.3. above, the Office believes that voluntary licenses should be treated differently than section 115 statutory licenses. 364 88 FR 65908, 65921. But see MAC et al. SNPRM Initial at 3–4 (stating that ‘‘ ‘where a publisher has already distributed a portion of the applicable royalties to its songwriters,’ we believe the Office’s proposal regarding recovery of overpayment by the MLC is the proper course’’ (quoting 88 FR 65908, 65921)). 365 MLC Ex Parte Letter at 4 (Feb. 21, 2024). 366 Id. 367 Id. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 3. The Final Rule Is Not an Impermissible Retroactive Rule or an Unconstitutional Taking As an initial matter, the Office recognizes the unusual circumstances that led to this rule, namely that a government-designated collective adopted and distributed royalties pursuant to a policy that embodied a legal interpretation of the Exception, in conflict with the Office’s prior guidance. While the MLC may have intended to ensure ‘‘prompt and uninterrupted royalty payments’’ with its actions,368 it is the Office (and not the MLC) that has authority to interpret the Copyright Act, including with respect to the Act’s termination provisions in the context of the blanket license.369 As discussed at length above, the Office finds that the MLC’s Termination Policy was based on an unreasonable reading of the Act, specifically regarding its understanding of the Exception. The final rule’s corrective adjustment fixes that legal error.370 With that background, the Office now turns to the NMPA’s objection that promulgating the proposed corrective adjustment provision is outside the Office’s authority. First, NMPA suggested that this provision ‘‘may arguably be an unconstitutional taking in violation of the Fifth Amendment,’’ as ‘‘it effectively takes property interests that pre-termination copyright owners may have had and transfers them to the post-termination copyright owner.’’ 371 Second, it stated that a rule that required the MLC to make an 368 87 FR 64405, 64407 (noting that ‘‘[i]n meetings with the Office, the MLC described its policy as a middle ground and explained that the policy was intended, in part, to avoid circumstances where parties’ disputes could cause blanket license royalty payments to be held, pending resolution of the dispute, to the disadvantage of both songwriters and publishers’’). 369 While the Office acknowledges that, in the notice of proposed rulemaking in the earlier rulemaking proceeding about DMP reporting obligations, we suggested that the ‘‘MLC’s interpretation of the [Exception] seems at least colorable,’’ the Office’s intention was to ‘‘give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments,’’ 5 U.S.C. 553(c), without prejudging the rulemaking’s outcome, especially as termination was ‘‘one of the more complicated [topics] in [that earlier] proceeding’’ and parties had not provided much commentary on the MLC’s theory. 85 FR 22518, 22532 n.210, 22533. 370 See, e.g., Farmers Tel. Co. v. FCC, 184 F.3d 1241, 1250 (10th Cir. 1999) (holding that when the FCC established an organization to prepare and file access tariffs, whose board was comprised of industry participants, and that organization issued an interpretation of a regulation which was later overruled by the agency, the agency’s interpretation did not implicate the prohibition on retroactive rulemaking, including because the organization had ‘‘no authority to perform any adjudicatory or governmental functions’’). 371 NMPA NPRM Initial Comments at 12. E:\FR\FM\09JYR3.SGM 09JYR3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations adjustment to previously distributed royalties would be an impermissibly ‘‘retroactive’’ rule because it would ‘‘expressly undo royalty payments already made under the Blanket License pursuant to the MLC’s [then-]current [Termination Policy].’’ 372 i. ‘‘Takings’’ Concerns The Constitution’s Takings Clause prohibits the government from ‘‘depriving private persons of vested property rights except for a ‘public use’ and upon payment of ‘just compensation.’ ’’ 373 It is self-evident that, for there to be a taking, a party must possess (and then be deprived of) a vested property right. That is not what the corrective adjustment does. It merely applies the law as it existed at the time the MLC made the royalty distributions at issue. As the Office’s legal analysis in the NPRM, SNPRM, and Part III.A.1. above make clear, prior payees never had a vested property right to the posttermination royalties the MLC distributed to them. These royalties always belonged to the post-termination copyright owner. Because prior payees have no vested property right in the erroneous overpayments they received, recovering those amounts so they can be properly distributed in accordance with the law is not a ‘‘taking’’ within the meaning of the Takings Clause.374 lotter on DSK11XQN23PROD with RULES3 ii. ‘‘Retroactivity’’ Concerns The Office disagrees that the final rule’s corrective adjustment process to remedy improper prior MLC distributions constitutes an impermissible retroactive rule. NMPA is correct that, generally, a ‘‘statutory grant of legislative rulemaking authority will not . . . be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms.’’ 375 The Office is not, however, adopting a new retroactive rule regarding the effect of termination on section 115 statutory licenses. Instead, we are adopting a rule 372 Id. at 5. NMPA also argued that directing the MLC to pay the copyright owner at the time of the use would ‘‘impact all subsequent adjustments and accrued interest payments made based on usage not only prior to a valid termination, but also prior to any other type of ownership transfer.’’ Id. This second point is discussed in depth in Part III.B. above. 373 Landgraf v. USI Film Prods., 511 U.S. 244, 266 (1994) (referencing U.S. Const. Amend. V). 374 See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027 (1992) (observing that, under a takings claim, compensation is not owed where the government is depriving a person of something that they were not entitled to in the first place). 375 NMPA NPRM Initial Comments at 5, n.8 (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)). VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 56611 applying the law as it existed at the time that the improper royalty distributions were made, and implementing the law by requiring parties to act in accordance with their legal obligations. Promulgating the corrective adjustment process is the most efficient, reasonable, and least burdensome, means of fixing the MLC’s legal error. Far from establishing new obligations, the Office is merely enforcing preexisting obligations to ensure that parties who should have received the applicable payments from the start can obtain them.376 In promulgating this rule, the Office has considered any reasonable reliance interests and expectations of the prior payee and proper payee. We conclude that any disruption caused by the corrective adjustment process adopted in this rule is likely to be modest, and that any reliance interests or expectations are minimized by several factors. First, the MLC’s interpretation of the law was in doubt no later than September 2020, when the Office warned that parties viewed its interpretation as being ‘‘legally erroneous.’’ 377 Second, as the SNPRM noted, ‘‘[c]orrective royalty adjustments are common in the music industry and explicitly contemplated by the statute[,] the Office’s existing regulations,’’ and the MLC’s own guidelines.378 Third, the MLC only started distributing royalties in 2021, its Termination Policy reflects a September 2021 date,379 and it was suspended in November 2022.380 To the extent that the corrective adjustment is potentially burdensome to prior payees, as discussed in Part III.F.2. above, the Office has both weighed that burden against the proper payees’ interests and G. Effective Date and Compliance Deadline As is typical for many rules enacted by the Office, this final rule is effective 30 days after being published in the Federal Register. However, because the Office agrees with the MLC that it will need more than 30 days to update its processes and systems before it can reasonably be expected to implement most of the final rule,381 its compliance deadline is extended to the first distribution of royalties based on its first payee snapshot after the date that is 90 days after the rule is published in the Federal Register. This deadline is based on the timing requested by the MLC 382 and is consistent with the Office’s practice of providing reasonable transition periods where MMA-related rules necessitate significant process changes and system updates and development.383 This later compliance deadline does not apply to four sections of the final rule: (1) the provision embodying the Office’s legal conclusions about how the Exception operates in connection with blanket licenses; (2) the provision embodying the Office’s legal conclusions about how the Exception operates in connection with individual download licenses; (3) the corrective royalty adjustment remedying the MLC’s previous misapplication of the 376 Moreover, this rule does not alter any party’s royalty entitlements. Although the Copyright Office is directing the MLC to adjust the amounts distributed to various entities, the MLC’s distributions do not constitute a final determination of the amounts to which any entity is entitled. 377 87 FR 64405, 64407. 378 88 FR 65908, 65921. 379 The original version of the MLC’s Termination Policy has a September 2021 date, The MLC, Notice and Dispute Policy: Statutory Terminations (Sept. 2021), https://www.themlc.com/hubfs/Marketing/ website/Original.pdf, while the current version has an August 2022 date, The MLC, Notice and Dispute Policy: Statutory Terminations (Aug. 2022), https:// www.themlc.com/hubfs/Marketing/website/ MLC%20Statutory%20Terminations%20Policy%20 v1.2.pdf. The Office is not aware when the MLC started making distributions based on an erroneous view of the Exception. 380 The MLC, October Member Updates (Nov. 1, 2022) (on file with the Office) (noting that ‘‘The MLC is immediately suspending its [Termination] Policy pending the outcome of the rulemaking proceeding initiated by the U.S. Copyright Office’’ and that it would be placing all royalties associated with work shares previously subject to that policy on hold ‘‘effective with the first distribution of blanket license royalties related to October 2022’’). 381 See MLC Ex Parte Letter at 3–4 (Mar. 22, 2024) (‘‘This estimated timeframe accounts for basic code development, testing phases, and the general integration of new processes into The MLC’s endto-end overlapping distribution cycle process. This estimate also recognizes that, particularly regarding the distribution of royalties from periods after the effective date, the rule as currently proposed requires The MLC to operationalize nuanced practices and processes including requirements that must be met before implementing a change, requirements for confirming receipt of appropriate notice of a change, and timelines for implementing a change (among others).’’). 382 Id. The Office does not believe the MLC needs the longer transition period it requested ‘‘[i]f the final rule directs The MLC to distribute royalties to a pre-termination owner and/or a post-termination owner, depending on when corresponding usage occurred, regardless of which party is the current payee registered in The MLC database.’’ See id. at 4. While that might be a possibility under the final rule going forward, it would appear to only arise in the context of adjustments, which the MLC is only required to make once annually. See 37 CFR 210.29(b)(2). Thus, the MLC has ample time to complete those particular updates. 383 See, e.g., 37 CFR 210.27(e)(2)(i), (e)(3)(ii), (e)(5). PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 taken steps to alleviate those burdens by adjusting the rule’s regulatory language. We believe that the final rule’s corrective adjustment provision embodies the most reasonable course of action, as it implements the law as it already existed, while accounting for various administrability concerns. E:\FR\FM\09JYR3.SGM 09JYR3 56612 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations Exception; and (4) the provision requiring the MLC to adopt notice requirements for non-terminationrelated payee changes. The first two provisions are carved out because they state the accurate interpretation of the law with respect to the Exception and section 115 statutory licenses. Because the MLC has already suspended its Termination Policy and, to the best of the Office’s knowledge, is not currently making distributions in a manner inconsistent with these provisions, it should not need any additional time to comply with the prohibitions they contain. The second two provisions are carved out because those provisions have their own separate timing requirements written into the regulatory text. With respect to the corrective adjustment, the MLC is required to send and receive certain notices sooner than the general compliance deadline, which the Office believes is reasonable to require given the relatively low burden involved. Additionally, the rule requires the MLC to distribute amounts currently on hold sooner than the general compliance deadline because it did not explain why it needed more time for that particular action and the equities weigh in favor of terminating parties obtaining their royalties in a timely manner. The Copyright Office may, upon the MLC’s request, extend the compliance deadlines in our discretion by providing public notice through our website.384 List of Subjects in 37 CFR Part 210 Copyright, Phonorecords, Recordings. Final Regulations For the reasons set forth in the preamble, the U.S. 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 1. The authority citation for part 210 continues to read as follows: ■ Authority: 17 U.S.C. 115, 702. 2. Amend § 210.22 as follows: a. Redesignate paragraphs (d), (e), (f), (g), (h), (i), and (j) as paragraphs (e), (g), (h), (i), (j), (n), and (p), respectively; and ■ b. Add new paragraphs (d) and (f) and paragraphs (k), (l), (m) and (o). The additions read as follows: lotter on DSK11XQN23PROD with RULES3 ■ ■ § 210.22 * * Definitions. * * * 384 Any extensions will be reflected on the Copyright Office’s website at https://copyright.gov/ rulemaking/mma-termination/. VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 (d) The term derivative works exception means the limitations contained in 17 U.S.C. 203(b)(1) and 304(c)(6)(A). * * * * * (f) The term historical unmatched royalties means the accrued royalties transferred to the mechanical licensing collective by digital music providers pursuant to 17 U.S.C. 115(d)(10) and § 210.10. * * * * * (k) The term matched historical royalties means historical unmatched royalties attributable to a musical work (or share thereof) matched after being transferred to the mechanical licensing collective. (l) The term payee snapshot means the royalty payee information in the mechanical licensing collective’s records as of a particular date used for a particular monthly royalty distribution. (m) The term pre-termination copyright owner means the owner of the relevant copyright immediately prior to: (1) The effective date of termination for an effective termination under 17 U.S.C. 203 or 304; or (2) The purported effective date of termination for a claimed, disputed, or invalid termination under 17 U.S.C. 203 or 304. * * * * * (o) The term terminating party means: (1) A party entitled under 17 U.S.C. 203 or 304 to terminate a grant, who is seeking to terminate such a grant under such provisions; (2) A party who has effectuated termination of a grant under 17 U.S.C. 203 or 304; (3) A party to whom rights have reverted or are expected to revert pursuant to the effective termination of a grant under 17 U.S.C. 203 or 304; or (4) A successor in interest to a party identified in paragraph (o)(1), (2), or (3) of this section (e.g., a subsequent publisher or administrator). * * * * * ■ 3. Amend § 210.27 by redesignating paragraph (g)(2)(ii) as paragraph (g)(2)(ii)(A) and adding paragraph (g)(2)(ii)(B). The addition reads as follows: § 210.27 Reports of usage and payment for blanket licensees. * * * * * (g) * * * (2) * * * (ii)(A) * * * (B) To the extent applicable to the mechanical licensing collective’s efforts under paragraph (g)(2)(ii)(A) of this section: PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 (1) The derivative works exception does not apply to any individual download license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to any such license based on the derivative works exception. (2) The derivative works exception does not apply to any voluntary license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to any such license based on the derivative works exception, unless and only to the extent that the mechanical licensing collective is directed otherwise pursuant to: (i) The resolution of a dispute regarding the application of the derivative works exception to a particular voluntary license or its underlying grant of authority; or (ii) A notice submitted under § 210.30(c)(1). * * * * * ■ 4. Amend § 210.29 as follows: ■ a. In paragraph (a), remove ‘‘reporting obligations’’ and add in its place ‘‘reporting and payment obligations’’ and add two sentences at the end; and ■ b. Add paragraphs (b)(4), (j), and (k). The additions read as follows: § 210.29 Reporting and distribution of royalties to copyright owners by the mechanical licensing collective. (a) * * * This section also prescribes reporting and payment obligations of the mechanical licensing collective to copyright owners for the distribution of matched historical royalties. This section does not apply to distributions of unclaimed accrued royalties under 17 U.S.C. 115(d)(3)(J). (b) * * * (4)(i)(A) The copyright owner of a musical work (or share thereof) as of the last day of a monthly reporting period in which such musical work is used pursuant to a blanket license is entitled to all royalty payments and other distributable amounts (e.g., accrued interest), including any subsequent adjustments, for the uses of that musical work occurring during that monthly reporting period, unless such entitlement has been transferred to another individual or entity. As used in the previous sentence, the term uses means all covered activities engaged in under blanket licenses as reported by blanket licensees to the mechanical licensing collective. (B)(1) For the purpose of making any distribution of royalties or other amounts (e.g., accrued interest), as a matter of reasonable administrability, the mechanical licensing collective, in E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations the absence of a dispute or investigation, shall treat the individual or entity identified in its records as of the date of the payee snapshot used by the mechanical licensing collective for the applicable distribution as legally authorized to receive such distribution, unless the mechanical licensing collective is notified otherwise. (2) Nothing in paragraph (b)(4)(i)(B)(1) of this section shall be construed as absolving the mechanical licensing collective of its responsibility to engage in reasonable verification and antifraud efforts in connection with the registration and claiming of musical works (or shares thereof). (3) No distribution made by the mechanical licensing collective shall alter or prejudice any party’s legal entitlement to any of the distributed funds or such party’s ability to collect such funds from someone other than the mechanical licensing collective if such funds were not distributed to such party by the mechanical licensing collective. (4) Notwithstanding any other provision of this section, where the mechanical licensing collective distributes royalties to the wrong party and that error is caused by the actions of the mechanical licensing collective, the mechanical licensing collective shall promptly correct its error upon learning of it. For purposes of this paragraph (b)(4)(i)(B)(4), an error is not caused by the mechanical licensing collective where it acts in accordance with paragraph (b)(4)(i)(B)(1) of this section or otherwise reasonably relies on information provided to it by others that turns out to be inaccurate. (C) The derivative works exception does not apply to any blanket license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to a blanket license based on the derivative works exception. (ii) Subject to the requirements of and except to the extent permitted by § 210.30, the mechanical licensing collective shall not distribute royalties in a manner inconsistent with paragraph (b)(4)(i) of this section. * * * * * (j) Matched historical royalties. The mechanical licensing collective shall report and distribute matched historical royalties and related accrued interest and adjustments in the same manner and subject to the same requirements that apply to the reporting and distribution of royalties for musical works licensed under the blanket license, as if such matched historical royalties were royalties payable for VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 musical works licensed under the blanket license, but subject to the following clarifications: (1) Matched historical royalties shall be treated as accrued royalties distributable under paragraph (b)(1)(ii) of this section and shall be separately identified in applicable royalty statements. (2) With respect to the requirements of paragraph (b)(2) of this section, royalty distributions based on adjustments to matched historical royalties reflected in cumulative statements of account delivered to the mechanical licensing collective by digital music providers pursuant to § 210.10(b)(3)(i) shall be made by the mechanical licensing collective at least once annually, upon submission of one or more statements of adjustment delivered to the mechanical licensing collective by digital music providers pursuant to § 210.10(k), to the extent any such statement of adjustment is delivered to the mechanical licensing collective during such annual period. (k) Corrective royalty adjustment. Any distribution under paragraph (b) of this section (including any distribution of matched historical royalties, or related accrued interest or adjustments) or deduction under § 210.27(g)(2)(ii) (other than a deduction related to a voluntary license) made by the mechanical licensing collective before August 8, 2024 and based on an application of the derivative works exception that is inconsistent with paragraph (b)(4)(i)(C) of this section (including as such paragraph applies to matched historical royalties through paragraph (j) of this section) or § 210.27(g)(2)(ii)(B)(1), as each of those provisions exist on August 8, 2024, shall be subject to adjustment by the mechanical licensing collective. Any amounts held by the mechanical licensing collective in connection with such application of the derivative works exception as of August 8, 2024 shall also be subject to adjustment. The adjustment process shall be as follows: (1)(i) To the extent required by this paragraph (k), where a royalty payee (the prior payee) received amounts from the mechanical licensing collective that such prior payee would not have received had the distribution been made in a manner consistent with the application of the derivative works exception embodied in paragraph (b)(4)(i)(C) of this section, the mechanical licensing collective shall, except as otherwise provided for by this paragraph (k), recover such overpayment from such prior payee and shall distribute it to the royalty payee (the proper payee) who is entitled to such funds under the application of the PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 56613 derivative works exception embodied in paragraph (b)(4)(i)(C) of this section. (ii) The mechanical licensing collective shall notify each prior payee and proper payee (collectively, the parties) of the overpayment no later than August 8, 2024. Such notice shall contain at least the following information: (A) A summary of the Copyright Office’s conclusions embodied in paragraph (b)(4)(i)(C) of this section and § 210.27(g)(2)(ii)(B); (B) A description of the adjustment process detailed in this paragraph (k), including the option for the parties to reach a voluntary agreement concerning the overpayment; (C) For each musical work (or share thereof) at issue, the amount of the overpayment; and (D) The respective contact information for each of the parties contained in the mechanical licensing collective’s records. (iii) After receiving such notice, the parties may attempt to reach a voluntary agreement with respect to the overpayment. Before September 9, 2024, the parties shall notify the mechanical licensing collective that: (A) The parties reached a voluntary agreement with respect to the overpayment; (B) The parties are in the process of attempting to reach a voluntary agreement with respect to the overpayment; or (C) The parties did not reach a voluntary agreement with respect to the overpayment. (iv) The mechanical licensing collective shall act as follows in connection with such notice: (A) If the mechanical licensing collective receives notice that the parties reached a voluntary agreement with respect to the overpayment, it shall not make any adjustment in connection with the overpayment. (B) If the mechanical licensing collective receives notice that the parties are in the process of attempting to reach a voluntary agreement with respect to the overpayment, it shall not take any action unless and until it receives a subsequent notice. If the subsequent notice states that the parties reached a voluntary agreement with respect to the overpayment, the mechanical licensing collective shall not make any adjustment in connection with the overpayment. If the subsequent notice states that the parties did not reach a voluntary agreement with respect to the overpayment, the mechanical licensing collective shall commence the adjustment process described in paragraph (k)(1)(v) of this E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 56614 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations section. If such a subsequent notice is received after August 8, 2024, the mechanical licensing collective shall not be required to make any adjustment in connection with the overpayment. (C) If the mechanical licensing collective receives notice that the parties did not reach a voluntary agreement with respect to the overpayment, it shall commence the adjustment process described in paragraph (k)(1)(v) of this section. (D) If the mechanical licensing collective does not receive a timely notice under paragraph (k)(1)(iii) of this section, it shall commence the adjustment process described in paragraph (k)(1)(v) of this section. (v) Where, pursuant to paragraph (k)(1)(iv) of this section, the mechanical licensing collective is required to commence an adjustment process with respect to the overpayment, the following requirements shall apply: (A) Not later than October 7, 2024 or 30 calendar days after receiving an applicable subsequent notice under paragraph (k)(1)(iv)(B) of this section, whichever is later, the mechanical licensing collective shall notify the prior payee that the adjustment process has commenced and request that the prior payee return the overpayment no later than November 6, 2024 or 30 calendar days after receiving the notice, whichever is later. Any returned amounts shall be distributed, accompanied by an appropriate royalty statement, to the proper payee with the next regular monthly royalty distribution to occur at least 30 calendar days after any such amounts are returned. (B) If such overpayment is not returned in full in accordance with paragraph (k)(1)(v)(A) of this section, then beginning with the first distribution of royalties to occur at least 30 calendar days after the deadline specified in that paragraph, 50 percent of any and all accrued royalties and other distributable amounts (e.g., accrued interest) that would otherwise be payable to the prior payee from the mechanical licensing collective each month, regardless of the associated work (or share), shall instead be distributed, accompanied by an appropriate royalty statement, to the proper payee until such time as the full amount of the overpayment is recovered. Where the amount to be recovered under this paragraph during a monthly royalty distribution constitutes less than 50 percent of the applicable accrued royalties and other distributable amounts, the mechanical licensing collective shall recover the full amount of the overpayment. Where more than VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 one proper payee is entitled to a corrective royalty adjustment from the same prior payee for different musical works, any amounts recovered and distributed under this paragraph (k)(1)(v)(B) shall be apportioned equally among such proper payees. (2) Where, as of August 8, 2024, the mechanical licensing collective is holding amounts that would constitute an overpayment under paragraph (k)(1) of this section if such amounts had been distributed to the prior payee, such amounts shall be distributed, accompanied by an appropriate royalty statement, to the proper payee no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after August 8, 2024. (3) The recovery and distribution processes described in paragraphs (k)(1) and (2) of this section shall also apply, as applicable, to amounts deducted, or held pending deduction, by the mechanical licensing collective under § 210.27(g)(2)(ii), other than with respect to amounts relating to voluntary licenses, where the proper payee is not the payee to whom the relevant usage was originally matched. For purposes of this paragraph (k)(3), the payee to whom the relevant usage was originally matched shall constitute the prior payee as that term is used elsewhere in this paragraph (k). (4) Nothing in this paragraph (k) shall be construed as prejudicing the proper payee’s right or ability to otherwise recover such overpayment from the prior payee outside of the adjustment process detailed in this paragraph (k). Where the overpayment is recovered outside of such adjustment process or a legal proceeding is commenced seeking recovery of the overpayment, the mechanical licensing collective must be notified. Upon receipt of such notice, the mechanical licensing collective shall discontinue any recovery efforts engaged in under this paragraph (k). (5) Notwithstanding the adjustment process detailed in this paragraph (k), the parties and the mechanical licensing collective may voluntarily agree to an alternative adjustment process. ■ 5. Revise § 210.30 to read as follows: § 210.30 Transfers of copyright ownership, royalty payee changes, and related disputes. (a) General. This section prescribes rules governing the mechanical licensing collective’s administration of transfers of copyright ownership, other royalty payee changes, and related disputes. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 (b) Requirements for the mechanical licensing collective to implement a change. The mechanical licensing collective shall not take any action to implement or give effect to any transfer of copyright ownership (including a transfer resulting from an effective termination under 17 U.S.C. 203 or 304) or other change to a royalty payee, unless the requirements of paragraph (c) of this section are satisfied or the mechanical licensing collective is acting in connection with the resolution of a dispute. Where the requirements of paragraph (c) of this section are satisfied, the mechanical licensing collective shall implement and give effect to such transfer or other change in accordance with paragraph (d) of this section. (c) Notices of change. The mechanical licensing collective must be appropriately notified in writing with respect to any transfer or other change described in paragraph (b) of this section. Subject to the further requirements of this paragraph (c), such notice must comply with any reasonable formatting and submission requirements that the mechanical licensing collective establishes and makes publicly available on its website. No fee may be charged for submitting such a notice. Upon submitting such a notice, or any additional information related to such notice, the submitter shall be provided with a prompt response from the mechanical licensing collective confirming receipt of the notice, or any additional information related to such notice, and the date of receipt. (1)(i)(A) Subject to paragraph (c)(1)(ii) of this section, for any transfer or other payee change not addressed by paragraph (c)(2) of this section, the mechanical licensing collective shall be notified of such transfer or payee change in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (B) If such requirements are not publicly available on the mechanical licensing collective’s website as of July 9, 2024, the mechanical licensing collective shall adopt such requirements and make them available as soon as reasonably practicable, but no later than September 9, 2024, unless the Copyright Office allows for an extension in its discretion. The mechanical licensing collective shall make such requirements publicly available on its website at least 30 calendar days before such requirements become effective. (C) The mechanical licensing collective shall make any amendment to such requirements publicly available on its website at least 30 calendar days E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations before such amendment becomes effective, unless the mechanical licensing collective can articulate good cause for not providing such advanced notice. In no case shall an amendment be effective before being published on the mechanical licensing collective’s website. (ii) Notwithstanding paragraph (c)(1)(i) of this section, any notice seeking to change the royalty payee from a terminating party (or its designee) to a corresponding pretermination copyright owner (or its designee) is subject to the following additional requirements: (A) The notice must be signed after the effective date of termination. (B) The notice must set forth in plain language an acknowledgement that the requested action alters the royalty payee from that established by § 210.29(b)(4)(i). (2) Specific requirements for notices about transfers of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 are as follows: (i) The required notice shall include all of the following information: (A) A true, correct, complete, and legible copy of the signed and as-served notice of termination submitted to the Copyright Office for recordation pursuant to § 201.10. (B) A true, correct, complete, and legible copy of the statement of service submitted to the Copyright Office for recordation pursuant to § 201.10, if one was submitted. (C) Either: (1) Proof, as to a particular musical work, that the notice of termination was recorded in the Copyright Office before the effective date of termination. Where the notice of termination identifies more than one musical work, each musical work shall be treated independently; or (2) If the Copyright Office has not yet recorded the notice of termination, proof, as to a particular musical work, that the notice of termination was submitted to the Copyright Office for recordation before the effective date of termination, provided that proof, as to such musical work, that the notice of termination was recorded in the Copyright Office before the effective date of termination is delivered to the mechanical licensing collective at a later date. Where the notice of termination identifies more than one musical work, each musical work shall be treated independently. (D) The terminating party, identified by name and any known and appropriate unique identifiers, appropriate contact information for the terminating party or their administrator VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 or other representative, and, if the terminating party is not already receiving royalty distributions from the mechanical licensing collective, any additional information that is necessary for the terminating party to receive royalty distributions from the mechanical licensing collective. (ii) With respect to the information required by paragraphs (c)(2)(i)(A) through (C) of this section, providing an official Copyright Office certification for any such information shall not be required. If the mechanical licensing collective has good cause to doubt the authenticity of any such information, the mechanical licensing collective shall either seek verification from the Copyright Office or request that such verification be provided to the mechanical licensing collective by the submitter. (iii) Where the information required by paragraph (c)(2)(i) of this section is insufficient to enable the mechanical licensing collective to implement and give effect to the termination with respect to a particular musical work, the mechanical licensing collective shall promptly correspond with the terminating party and the pretermination copyright owner (or their respective representatives) to attempt to obtain the minimum necessary information. (iv) The required notice shall be submitted and signed by either the terminating party or the pre-termination copyright owner (or their respective duly authorized representatives). Such signature shall be accompanied by the name and title of the person signing the notice and the date of the signature. The notice may be signed electronically. The person signing the notice shall certify that they have appropriate authority to submit the notice to the mechanical licensing collective and that all information submitted as part of the notice is true, accurate, and complete to the best of the signer’s knowledge, information, and belief, and is provided in good faith. If the notice is submitted by the terminating party, the following additional steps shall be required: (A) The mechanical licensing collective shall notify the pretermination copyright owner about the terminating party’s notice within 15 calendar days of receiving either the notice or the last piece of information necessary for the mechanical licensing collective to implement the change as to a particular musical work, whichever is later, and shall contemporaneously alert the terminating party that such notice was sent to the pre-termination copyright owner. PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 56615 (B) If the pre-termination copyright owner does not initiate a dispute with the mechanical licensing collective regarding the termination, in accordance with paragraph (e) of this section, within 30 calendar days of receiving such notice, the mechanical licensing collective shall implement and give effect to the transfer of copyright ownership resulting from the termination, in accordance with paragraph (d) of this section. Nothing in this paragraph (c)(2)(iv)(B) shall prevent the pre-termination copyright owner from disputing the termination with the mechanical licensing collective at a later date or challenging the termination in a legal proceeding. (v) Where there is more than one terminating party or pre-termination copyright owner, the required notice shall include a satisfactory identification of any applicable ownership shares for each musical work subject to the termination. Where there is more than one terminating party, the notice shall be effective only as to those terminating parties whose information is provided in accordance with paragraph (c)(2)(i)(D) of this section. Where there is more than one terminating party, a notice that is signed and certified by any one terminating party in accordance with paragraph (c)(2)(iv) of this section is sufficient as to all terminating parties. (vi)(A) A notice submitted to the mechanical licensing collective pursuant to this paragraph (c)(2) may be withdrawn in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (B) A notice submitted to the mechanical licensing collective pursuant to this paragraph (c)(2) may be converted into a notice under paragraph (c)(1) of this section in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (C) Such requirements shall comply with the requirements of paragraphs (c)(1)(i)(B) and (C) of this section. (d) Implementation of a change. Upon receiving a notice that complies with the requirements of paragraph (c) of this section, the mechanical licensing collective shall implement and give effect to the identified transfer or other payee change on a per work basis as follows: (1)(i) Except as provided by paragraph (d)(1)(ii) of this section, where the mechanical licensing collective receives the notice before the first day of the first monthly reporting period to commence E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 56616 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties for such reporting period. (ii) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted by the terminating party under paragraph (c)(2) of this section, and the pretermination copyright owner does not initiate a dispute as described in paragraph (c)(2)(iv)(B) of this section, where the mechanical licensing collective receives the notice at least 45 calendar days before the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties for such reporting period. (2)(i) Except as provided by paragraph (d)(2)(ii) of this section, where the mechanical licensing collective receives the notice on or after the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after the mechanical licensing collective receives the notice. (ii) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted by the terminating party under paragraph (c)(2) of this section, and the pretermination copyright owner does not initiate a dispute as described in paragraph (c)(2)(iv)(B) of this section, where the mechanical licensing collective receives the notice less than 45 calendar days before the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after the pre-termination copyright owner’s deadline to dispute under paragraph (c)(2)(iv)(B) of this section. (3) Where additional information related to the notice is required to enable the mechanical licensing collective to implement and give effect to the change, and such information is VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 received after receipt of the notice, the timing requirements described in paragraphs (d)(1) and (2) of this section shall be based on the date that the last piece of necessary information is received by the mechanical licensing collective. (4) Where the change is effective as to one or more monthly reporting periods for which the mechanical licensing collective distributed royalties before implementing and giving effect to the change, the mechanical licensing collective may, but is not required to, make a corrective royalty adjustment if the notice requests one. (5) If the mechanical licensing collective does not implement and give effect to the change in accordance with the deadlines prescribed by paragraphs (d)(1) through (3) of this section, the mechanical licensing collective shall implement and give effect to the change as soon as reasonably practicable, provided that the change is implemented and given effect by the mechanical licensing collective no later than the next regular monthly royalty distribution to occur either after the implementation deadline that originally applied under paragraphs (d)(1) through (3) of this section, as applicable, or at least 30 calendar days after the date that the mechanical licensing collective learns that the change was not implemented on time, whichever is later. In such cases, the mechanical licensing collective shall implement and give effect to the change as of the implementation deadline that originally applied under paragraphs (d)(1) through (3) of this section, as applicable, including by making any necessary corrective royalty adjustments. (6) No action or inaction by the mechanical licensing collective with respect to implementing and giving effect to a transfer or other payee change shall alter or prejudice any party’s rights to royalties pursuant to such change or such party’s right to collect such royalties from someone other than the mechanical licensing collective if such royalties were not distributed to such party by the mechanical licensing collective. (7) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted under paragraph (c)(2) of this section, and the notice is accompanied by proof that the notice of termination was submitted to the Copyright Office for recordation, but the notice is not accompanied by proof that it was recorded in the Copyright Office before the effective date of termination, the PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 mechanical licensing collective shall act as follows: (i) Upon subsequent receipt of proof that the notice of termination was recorded in the Copyright Office before the effective date of termination, the mechanical licensing collective shall treat the proof of recordation as a type of additional information under paragraph (d)(3) of this section. The mechanical licensing collective shall not implement or give effect to any such termination unless and until such proof is received. (ii) Until receipt of the proof described in paragraph (d)(7)(ii)(B) or (C) of this section, as the case may be, and subject to paragraph (d)(7)(ii)(D) of this section the mechanical licensing collective shall hold applicable accrued royalties and accrued interest pending receipt of proof that the notice of termination was recorded in the Copyright Office before the effective date of termination as follows: (A) The mechanical licensing collective shall commence holding such amount no later than the implementation deadline that would apply under paragraphs (d)(1) through (3) of this section, as applicable, if proof of recordation had been provided with the notice. (B) After receiving proof that the notice of termination was recorded in the Copyright Office before the effective date of termination is received, the mechanical licensing collective shall implement and give effect to the termination as provided by paragraphs (d)(1) through (5) and (d)(7)(i) of this section, as applicable. (C) After receiving proof that the Copyright Office refused to record the notice of termination, the recordation submission was withdrawn, or the notice of termination was recorded on or after the effective date of termination, the mechanical licensing collective shall release the held funds to the pretermination copyright owner. (D) If the mechanical licensing collective does not receive the proof described in either paragraph (d)(7)(ii)(B) or (C) of this section within 6 months after the mechanical licensing collective commences holding applicable accrued royalties and accrued interest, the mechanical licensing collective shall request that the terminating party provide an update about the status of the relevant recordation submission. If the submission remains pending at that time, the mechanical licensing collective may continue to request periodic updates from the terminating party in its discretion. Upon receiving the proof described in either paragraph E:\FR\FM\09JYR3.SGM 09JYR3 lotter on DSK11XQN23PROD with RULES3 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Rules and Regulations (d)(7)(ii)(B) or (C), the mechanical licensing collective shall act in accordance with paragraph (d)(7)(ii)(B) or (C), as the case may be. (iii) Where a notice of termination identifies more than one musical work, whether the notice is timely recorded in the Copyright Office shall be determined on a per work basis with respect to each musical work identified in the notice. (e) Termination disputes. The following requirements shall apply to any dispute initiated with the mechanical licensing collective regarding a termination under 17 U.S.C. 203 or 304: (1) Such a dispute must be with regard to the validity of the termination or the application of the derivative works exception to a particular voluntary license or its underlying grant of authority. (2) Only a pre-termination copyright owner (or its representative) may initiate such a dispute. (3)(i) If a pre-termination copyright owner (or its representative) initiates such a dispute and delivers the information required to substantiate the dispute to the mechanical licensing collective under paragraph (e)(4) of this section, the mechanical licensing collective shall hold applicable accrued royalties and accrued interest pending resolution of the dispute. (ii) With respect to any dispute concerning the application of the derivative works exception to a particular voluntary license or its underlying grant of authority: (A) The mechanical licensing collective shall, as needed and on an ongoing basis, invoice any applicable digital music provider for the royalties associated with the dispute. (B) The mechanical licensing collective shall hold such royalties in the same manner and at the same interest rate as any other funds held pursuant to 17 U.S.C. 115(d)(3)(H)(ii). (C) Where the resolution of the dispute results in payment being made by the mechanical licensing collective pursuant to a blanket license, the payment must include any accrued interest. Where the resolution of the dispute results in a digital music provider paying a voluntary licensor, the mechanical licensing collective must promptly return the held amount, including any accrued interest, to the VerDate Sep<11>2014 20:10 Jul 08, 2024 Jkt 262001 digital music provider accompanied by notice that the dispute has been resolved in such manner. (4) The minimum information that must be delivered to the mechanical licensing collective to substantiate a termination-related dispute shall consist of the following: (i) A cognizable explanation of the grounds for the dispute, articulated with specificity. (ii) Documentation sufficient to support the grounds for the dispute, which shall consist of the following: (A) A true, correct, complete, and legible copy of each grant in dispute. (B) A true, correct, complete, and legible copy of any other agreement or document necessary to support the grounds for the dispute. (C) Such other documentation or substantiating information as the mechanical licensing collective may reasonably require pursuant to a dispute policy adopted under 17 U.S.C. 115(d)(3)(K). (iii) A satisfactory identification of each musical work in dispute. (iv) A certification that the submitter has appropriate authority to initiate the dispute with the mechanical licensing collective and that all information submitted in connection with the dispute is true, accurate, and complete to the best of the submitter’s knowledge, information, and belief, and is provided in good faith. (v) The following additional information if the dispute concerns the application of the derivative works exception to a particular voluntary license or its underlying grant of authority: (A) A true, correct, complete, and legible copy of each voluntary license at issue. (B) A satisfactory identification of each relevant sound recording that constitutes a derivative work within the meaning of 17 U.S.C. 101 that was prepared pursuant to appropriate authority. (C) The date of preparation for each such sound recording, which must be before the effective date of termination. (5) Notwithstanding anything to the contrary that may be contained in § 210.34, any and all documentation provided to the mechanical licensing collective pursuant to paragraph (e)(4) of this section shall be disclosed to all parties to the dispute. If a party to the PO 00000 Frm 00033 Fmt 4701 Sfmt 9990 56617 dispute is not a party or successor to a party to an otherwise confidential document, such disclosure shall be subject to an appropriate written confidentiality agreement. (6) Any dispute initiated with the mechanical licensing collective under this paragraph (e) shall be limited to those musical works identified pursuant to paragraph (e)(4)(iii) of this section. The existence of such a dispute shall not affect the implementation of a change with respect to any other musical work identified in the same notice of change and that is not subject to a dispute. ■ 6. Amend § 210.34 as follows: ■ a. In paragraph (c)(5), remove ‘‘to paragraph (c)(4) of’’ and add in its place ‘‘to paragraph (c)(4) or (6) of’’; and ■ b. Add paragraph (c)(6). The addition reads as follows: § 210.34 Treatment of confidential and other sensitive information. * * * * * (c) * * * (6) Notwithstanding paragraph (c)(1) of this section, where the mechanical licensing collective places any amount on hold pursuant to a dispute initiated under § 210.30(e), the mechanical licensing collective shall promptly disclose the total amount held for each disputed work (or share thereof) to the parties to the dispute, which shall include an identification of the approximate amount of royalties expected to have been distributed for each disputed work (or share thereof) in the first monthly distribution to occur after the initiation of the hold. Upon the written request of any party to the dispute, the mechanical licensing collective shall provide an update about the amount held to all parties to the dispute within a reasonable period of time, except that the mechanical licensing collective is not required to provide such an update more frequently than once every three months. * * * * * Dated: June 25, 2024. Suzanne Wilson, General Counsel and Associate Register of Copyrights. Approved by: Carla D. Hayden, Librarian of Congress. [FR Doc. 2024–14609 Filed 7–8–24; 8:45 am] BILLING CODE 1410–30–P E:\FR\FM\09JYR3.SGM 09JYR3

Agencies

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Rules and Regulations]
[Pages 56586-56617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14609]



[[Page 56585]]

Vol. 89

Tuesday,

No. 131

July 9, 2024

Part III





Library of Congress





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Copyright Office





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37 CFR Part 210





Termination Rights, Royalty Distributions, Ownership Transfers, 
Disputes, and the Music Modernization Act; Final Rule

Federal Register / Vol. 89 , No. 131 / Tuesday, July 9, 2024 / Rules 
and Regulations

[[Page 56586]]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 210

[Docket No. 2022-5]


Termination Rights, Royalty Distributions, Ownership Transfers, 
Disputes, and the Music Modernization Act

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

ACTION: Final rule.

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SUMMARY: The U.S. Copyright Office is issuing a final rule regarding 
how the Copyright Act's derivative works exception to termination 
rights applies to the statutory mechanical blanket license established 
by the Music Modernization Act. The final rule also addresses other 
matters relevant to identifying the proper payee to whom the mechanical 
licensing collective must distribute royalties. Among other things, the 
Office is adopting regulations addressing the mechanical licensing 
collective's distribution of matched historical royalties and 
administration of ownership transfers, other royalty payee changes, and 
related disputes.

DATES: This rule is effective August 8, 2024. However, compliance by 
the mechanical licensing collective, other than with respect to 
Sec. Sec.  210.27(g)(2)(ii)(B)(1), 210.29(b)(4)(i)(C), 210.29(k), and 
210.30(c)(1)(i)(B), is not required until the first distribution of 
royalties based on the first payee snapshot taken after October 7, 
2024. The Copyright Office may, upon request, extend the compliance 
deadlines in its discretion by providing public notice through its 
website.

FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the 
General Counsel, by email at [email protected] or telephone at 202-
707-8350.

SUPPLEMENTARY INFORMATION:

I. Background

    The Copyright Office (``Office'') issues this final rule subsequent 
to a supplemental notice of proposed rulemaking (``SNPRM''), published 
in the Federal Register on September 26, 2023,\1\ and a notice of 
proposed rulemaking (``NPRM''), published in the Federal Register on 
October 25, 2022.\2\ This final rule assumes familiarity with the NPRM 
and SNPRM, as well as the public comments received in response to those 
notices.\3\
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    \1\ 88 FR 65908 (Sept. 26, 2023).
    \2\ 87 FR 64405 (Oct. 25, 2022).
    \3\ The NPRM stemmed from a previous rulemaking, discussed in 
detail in the NPRM, that involved multiple rounds of public comments 
through a notification of inquiry, 84 FR 49966 (Sept. 24, 2019), a 
notice of proposed rulemaking, 85 FR 22518 (Apr. 22, 2020), and an 
ex parte communications process. Guidelines for ex parte 
communications, along with records of such communications, including 
those referenced herein, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. All 
rulemaking activity, including public comments, as well as 
educational material regarding the MMA, can currently be accessed 
via navigation from https://www.copyright.gov/music-modernization. 
Comments received in response to the NPRM and SNPRM are available at 
https://copyright.gov/rulemaking/mma-termination/. References to the 
public comments are by party name (abbreviated where appropriate), 
followed by ``NPRM Initial Comments,'' ``NPRM Reply Comments,'' 
``SNPRM Initial Comments,'' ``SNPRM Reply Comments,'' or ``Ex Parte 
Letter,'' as appropriate.
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    While the final rule retains many elements from the SNPRM, it also 
adopts a number of changes in response to the public comments, 
including a scaling back of certain proposals. We have adopted a number 
of commenter suggestions where reasonable, and have striven to 
establish a fair and balanced approach to the issues presented in this 
proceeding. In particular, the Office has endeavored to find solutions 
to the practical and administrative concerns that were raised by 
commenters. We are thankful for their participation in this process.
    This document first summarizes the Office's earlier proposals and 
the public comments. It next addresses questions raised regarding our 
rulemaking authority. Finally, it discusses the different parts of the 
final rule: termination and the derivative works exception; the 
copyright owner entitled to blanket license royalties; matched 
historical royalties; ownership transfers and royalty payee changes; 
disputes; the corrective royalty adjustment; and the rule's effective 
date and compliance deadline.

A. The NPRM

    The Office commenced this proceeding after the Mechanical Licensing 
Collective (``MLC'') \4\ adopted a termination dispute policy 
(``Termination Policy'') that conflicted with prior Office guidance and 
was based on an erroneous interpretation of how the Copyright Act's 
derivative works exception (``Exception'') to termination rights 
applies to the statutory mechanical blanket license (``blanket 
license'') established by the Orrin G. Hatch-Bob Goodlatte Music 
Modernization Act (``MMA'').\5\ The Office concluded it was necessary 
to address the legal issues more directly, including how termination 
law and the Exception intersect with the blanket license.\6\ In the 
NPRM, it explained that clarifying the issues ``would provide much 
needed business certainty to music publishers and songwriters'' and 
``would enable the MLC to appropriately operationalize the distribution 
of post-termination royalties in accordance with existing law.'' \7\ 
The NPRM contained a detailed discussion of the procedural background 
leading to this rulemaking,\8\ the Office's regulatory authority,\9\ 
and legal background about the Copyright Act's termination provisions 
and the Exception.\10\
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    \4\ The preamble uses the terms ``Mechanical Licensing 
Collective'' or ``MLC'' to refer to the currently designated 
mechanical licensing collective. The regulatory text uses the 
lowercase statutory term ``mechanical licensing collective,'' as the 
regulations apply to any designated mechanical licensing collective, 
including the current or any future designee.
    \5\ 87 FR 64405, 64407.
    \6\ Id.
    \7\ Id. (``Moreover, without the uniformity in application that 
a regulatory approach brings, the Office is concerned that the MLC's 
ability to distribute post-termination royalties efficiently would 
be negatively impacted.'').
    \8\ Id. at 64406-07.
    \9\ Id. at 64407-08.
    \10\ Id. at 64408-10.
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    The Office then analyzed the application of the Exception in the 
context of the blanket license and preliminarily concluded that the 
MLC's Termination Policy was ``inconsistent with the law.'' \11\ We 
explained that ``[w]hether or not the Exception applies to a [digital 
music provider's (``DMP's'')] blanket license (and the Office concludes 
that the Exception does not), the statute entitles the current 
copyright owner to the royalties under the blanket license, whether 
pre- or post-termination.'' \12\ This means that ``the post-termination 
copyright owner (i.e., the author, the author's heirs, or their 
successors, such as a subsequent publisher grantee) is due the post-
termination royalties paid by the DMP to the MLC.'' \13\
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    \11\ Id. at 64410-11.
    \12\ Id. at 64411.
    \13\ Id.
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    The Office proposed a rule to recognize the payee under the blanket 
license who is legally entitled to royalties following a statutory 
termination.\14\ We also proposed to require the MLC to immediately 
repeal its Termination Policy in full after concluding that it was 
``contrary to the Office's interpretation of current law.'' \15\ We 
further proposed to require the MLC to adjust any royalties distributed 
under the policy within 90

[[Page 56587]]

days to make copyright owners whole for any distributions it made based 
on ``an erroneous understanding and application of current law.'' \16\
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    \14\ Id. at 64411-12.
    \15\ Id. at 64412.
    \16\ Id.
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    After the NPRM was published, the MLC said that it voluntarily 
``suspended [its Termination Policy] pending the outcome of the 
[Office's] rulemaking proceeding'' and will ``hold[ ] all royalties for 
uses of musical works that are subject to statutory termination claims 
beginning with the royalties for the October 2022 usage period, which 
would have been initially distributed in January 2023.'' \17\ To the 
Office's knowledge, the MLC continues to hold such royalties.
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    \17\ The MLC, Policies, https://www.themlc.com/dispute-policy 
(last visited June 14, 2024).
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B. The NPRM Comments

    The Office received over 40 public comments in response to the 
NPRM. These comments reflected the views of hundreds of interested 
parties, including songwriters, music publishers and administrators, 
record companies, public interest groups, academics, and practitioners. 
Most commenters, including multiple music publishers and 
administrators, generally supported the NPRM.\18\ While some commenters 
raised concerns with certain aspects of the NPRM,\19\ the National 
Music Publishers' Association (``NMPA'') was the only commenter to 
oppose the proposed rule more broadly, though it supported the NPRM's 
goal of ``ensuring that royalties for uses under the Section 115(d) 
blanket license . . . are paid to the proper copyright owner.'' \20\
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    \18\ See, e.g., Authors All. et al. NPRM Initial Comments at 1-
3; BMG Rights Mgmt. NPRM Initial Comments at 1-2; BMG Rights Mgmt. 
NPRM Reply Comments at 1; ClearBox Rights NPRM Initial Comments at 
2, 6-8; Fishman & Garcia NPRM Initial Comments at 1-4; Gates NPRM 
Reply Comments; Howard NPRM Initial Comments at 1-2; Howard NPRM 
Reply Comments at 2-3; King, Holmes, Paterno & Soriano LLP NPRM 
Initial Comments; Landmann NPRM Initial Comments; Miller NPRM 
Initial Comments; North Music Grp. NPRM Reply Comments at 2-3; NSAI 
NPRM Initial Comments at 3; Promopub NPRM Initial Comments at 1-2; 
Promopub NPRM Reply Comments at 1-2; Recording Academy NPRM Reply 
Comments at 2-3; Rights Recapture NPRM Initial Comments; SGA et al. 
NPRM Initial Comments at 1-2, 5; SONA et al. NPRM Initial Comments 
at 2-3; SONA et al. NPRM Reply Comments at 3; Songwriters NPRM Reply 
Comments at 1; Wixen Music Publ'g NPRM Initial Comments at 1-2.
    \19\ See, e.g., CMPA NPRM Initial Comments at 1-2; A2IM & RIAA 
NPRM Reply Comments at 1-2; MPA NPRM Reply Comments at 2-5.
    \20\ See generally NMPA NPRM Initial Comments; NMPA Ex Parte 
Letter (Feb. 6, 2023).
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    Several commenters, including the MLC, sought additional guidance 
from the Office on various related issues not directly addressed by the 
NPRM. Examples include the following:
     Application of the Exception to other types of statutory 
mechanical licenses; \21\
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    \21\ See, e.g., MLC NPRM Initial Comments at 6; MLC NPRM Reply 
Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox 
Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; 
King, Holmes, Paterno & Soriano LLP NPRM Initial Comments.
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     Application of the Exception to voluntary licenses; \22\
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    \22\ See, e.g., MLC NPRM Initial Comments at 4-6; MLC NPRM Reply 
Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox 
Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; 
Rights Recapture NPRM Initial Comments.
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     Procedures for carrying out the proposed corrective 
royalty adjustment to remedy prior distributions by the MLC based on an 
erroneous understanding and application of the Exception; \23\
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    \23\ See, e.g., MLC NPRM Initial Comments at 6-8; ClearBox 
Rights NPRM Reply Comments at 3-4; ClearBox Rights Ex Parte Letter 
at 2-4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub 
NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North 
Music Grp. NPRM Reply Comments at 2.
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     Procedures concerning notice, documentation, timing, and 
other matters relating to the MLC's implementation of a termination 
notification; \24\ and
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    \24\ See, e.g., MLC NPRM Initial Comments at 10-11; ClearBox 
Rights NPRM Initial Comments at 8; ClearBox Rights NPRM Reply 
Comments at 5-6; Howard NPRM Initial Comments at 3-5; Howard NPRM 
Reply Comments at 2-3; SGA et al. NPRM Initial Comments at 2, 6-8.
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     Procedures concerning termination disputes and related 
confidential information.\25\
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    \25\ See, e.g., MLC NPRM Initial Comments at 11-14; ClearBox 
Rights NPRM Reply Comments at 6.
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    The MLC emphasized the importance of the Office providing guidance 
regarding its termination-related procedures, explaining that rules 
addressing these procedures are ``essential to processing royalties in 
connection with statutory termination claims'' and ``would provide 
important guidance to parties involved in termination claims.'' \26\
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    \26\ MLC NPRM Initial Comments at 9-10; see also MLC NPRM Reply 
Comments at 2.
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C. The SNPRM

    After considering the requests for further guidance and other 
comments received, the Office issued an SNPRM modifying the NPRM, 
providing additional detail, and expanding the NPRM's scope. In 
addition to addressing the Exception, the SNPRM addressed and sought 
comments on other matters relevant to identifying the proper payee to 
whom the MLC must distribute royalties. Such matters included issues 
related to the MLC's distribution of matched historical royalties and 
administration of ownership transfers, other royalty payee changes, and 
related disputes. While requests for additional guidance largely 
pertained to termination-related issues, those requests and other 
comments suggested that more comprehensive regulations would be 
beneficial to the MLC, publishers, songwriters, and the wider music 
industry. As the SNPRM explained, ``[t]he accurate distribution of 
royalties is a core objective of the MLC'' and ``[a]dopting the 
[supplemental proposed rule] would establish standards and settle 
expectations for all parties with respect to such distributions.'' \27\ 
At a high level, the SNPRM provided the following views and proposals 
beyond those in the NPRM:
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    \27\ 88 FR 65908, 65909.
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     The Office's preliminary views on the application of the 
Exception to matched historical royalties,\28\ pre-2021 statutory 
mechanical licenses, individual download licenses, and voluntary 
licenses.\29\
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    \28\ Phrases defined in the SNPRM--e.g., ``historical unmatched 
royalties,'' ``matched historical royalties,'' ``the owner at the 
time of the use,'' and ``the owner at the time of the payment''--
have the same meaning here. See id. at 65909-10, 65912-13.
    \29\ Id. at 65910-12.
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     Additional discussion relating to the Office's preliminary 
view in the NPRM that the owner at the time of the use is entitled to 
distributions of blanket license royalties absent an agreement to the 
contrary, and a related proposal to accommodate and give effect to 
contractual payment arrangements that may require a different 
result.\30\
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    \30\ Id. at 65912-14.
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     A proposal that the MLC report and distribute matched 
historical royalties in the same manner and subject to the same 
requirements that apply to the reporting and distribution of blanket 
license royalties.\31\
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    \31\ Id. at 65914.
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     A proposal regarding how the MLC should be notified about 
an ownership transfer or other royalty payee change, with detailed 
provisions covering different types of changes, such as those relating 
to contractual assignments, statutory terminations, and other changes 
(e.g., when parties direct the MLC to pay an alternative designated 
payee).\32\
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    \32\ Id. at 65914-65917.
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     A proposal regarding how the MLC should implement and give 
effect to such payee changes.\33\
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    \33\ Id. at 65917-18.
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     A proposal regarding the process and documentation for 
termination-

[[Page 56588]]

related disputes initiated with the MLC.\34\
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    \34\ Id. at 65919.
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     A proposal regarding the resolution of all types of 
disputes initiated with the MLC.\35\
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    \35\ Id. at 65919-20.
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     A proposal regarding certain disclosures to be made by the 
MLC in connection with disputes and other royalty holds.\36\
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    \36\ Id. at 65919.
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     A proposal regarding how the MLC should administer a 
corrective royalty adjustment to cure any distributions it previously 
made under its since-suspended Termination Policy.\37\
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    \37\ Id. at 65920-21.
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D. The SNPRM Comments

    The Office received over 50 public comments in response to the 
SNPRM from a wide variety of interested parties across the music 
industry. Some parties supported aspects of the SNPRM,\38\ while others 
were critical of certain provisions. The primary criticism addressed 
the question of whether the owner at the time of the use or the owner 
at the time of the payment should receive distributions of blanket 
license royalties from the MLC.\39\ Commenters also took issue with the 
Office's proposed expansion of the rule beyond the NPRM, with some 
commenters requesting that those new issues be removed from 
consideration.\40\ The MLC provided a regulatory proposal that shared 
many similarities with the SNPRM and was ``aimed at implementing 
certain proposals of the Office concerning statutory terminations, 
while omitting language concerning'' various other issues that, in its 
view, ``do not need further regulation.'' \41\
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    \38\ See, e.g., MAC et al. SNPRM Initial Comments at 2, 4 (``The 
Copyright Office's proposed rules, both initially and as altered 
here, accurately, clearly, concisely, and properly addresses the 
implementation of the MMA while maintaining and supporting the 
significant advances made by the MLC. We continue to 
enthusiastically support this proposed rule and remain thankful to 
the Copyright Office for addressing this area of great need by 
utilizing its oversight and governance authority.''); Howard SNPRM 
Initial Comments at 1 (``I support the supplemental rulemaking and 
directives proposed by the Office.'').
    \39\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM 
Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24, 
2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM 
Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1-
2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom 
Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial 
Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music 
SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial 
Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music 
SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial 
Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial 
Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM 
Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments; 
Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs 
SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at 
1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM 
Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments; 
Jody Williams Songs SNPRM Initial Comments at 1; Concord Music 
Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply 
Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The 
Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply 
Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA 
SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply 
Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8; 
DLC SNPRM Reply Comments at 2-4.
    \40\ See, e.g., MLC SNPRM Initial Comments at 17-20; NMPA SNPRM 
Initial Comments at 3-4; NMPA Ex Parte Letter at 2-3 (Jan. 24, 
2024); Kobalt Music SNPRM Initial Comments at 3; Big Machine Music 
SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1-2; 
North Music Grp. SNRPM Initial Comments at 1, 3-4; MAC et al. SNPRM 
Reply Comments at 2-3; MAC Ex Parte Letter at 1-2 (Dec. 29, 2023); 
Recording Academy SNPRM Reply Comments at 1-2; Warner Chappell Music 
SNPRM Reply Comments at 2-3; ClearBox Rights SNPRM Reply Comments at 
3, 10; SONA SNPRM Reply Comments at 5; DLC SNPRM Reply Comments at 
1.
    \41\ MLC SNPRM Reply Comments at 2 & App. A; MLC SNPRM Initial 
Comments at 17 (stating that ``the Office's procedural guidance on 
notice and transfer procedures in the terminations context is 
helpful'' and that ``much of the proposal with respect to 
terminations generally addresses a regulatory need''); see also NMPA 
Ex Parte Letter at 3 (Jan. 24, 2024) (conveying ``its desire for the 
Office to provide any guidance the MLC has requested'').
---------------------------------------------------------------------------

II. Rulemaking Authority

    Having considered all relevant comments, the Office concludes that 
we have appropriate statutory authority to adopt the final rule for the 
reasons explained in the NPRM and SNPRM, as well as the additional 
reasons discussed below.\42\ As previously explained, section 702 of 
the Copyright Act specifically grants the Office the authority to 
``establish regulations not inconsistent with law for the 
administration of the functions and duties made the responsibility of 
the Register under [title 17].'' \43\ Implementation of the MMA is one 
of those ``functions and duties'' that Congress made the Office's 
responsibility. Specifically, the Office has been granted the authority 
to ``conduct such proceedings and adopt such regulations as may be 
necessary or appropriate to effectuate the provisions of [the MMA 
pertaining to the blanket license.]'' \44\ Several commenters 
explicitly supported the Office's general rulemaking authority.\45\ The 
only commenter to question the Office's authority was NMPA, which 
offered various arguments for why the Office lacks authority to issue 
this rule.\46\ None are persuasive.
---------------------------------------------------------------------------

    \42\ 87 FR 64405, 64407-08; 88 FR 65908, 65910.
    \43\ 17 U.S.C. 702.
    \44\ Id. at 115(d)(12)(A).
    \45\ See, e.g., ClearBox Rights NPRM Initial Comments at 2; SONA 
et al. NPRM Initial Comments at 2; SGA et al. NPRM Initial Comments 
at 2; Howard NPRM Reply Comments at 3; Recording Academy NPRM Reply 
Comments at 2; Promopub NPRM Reply Comments at 2; MCNA et al. Ex 
Parte Letter at 2 (Mar. 15, 2024).
    \46\ NMPA NPRM Initial Comments at 7-10. Despite its previous 
objections, NMPA's SNPRM comments appear to signal a change in its 
position on the Office's general rulemaking authority, though this 
is not entirely clear. See NMPA SNPRM Initial Comments at 2 & n.2 
(stating that ``[t]here is clear industry consensus on the [proposed 
rule requiring that all post-termination royalties under the blanket 
license be paid to the post-termination copyright owner], and the 
[Office] should adopt it immediately,'' but then also noting some of 
its previous concerns).
---------------------------------------------------------------------------

    NMPA first argued that the Office has no authority under section 
702 of the Copyright Act or the MMA to promulgate rules that involve 
substantive questions of copyright law.\47\ This is clearly incorrect. 
The Office ``has statutory authority to issue regulations necessary to 
administer the Copyright Act'' and ``to interpret the Copyright Act.'' 
\48\ As the NPRM detailed, ``[t]he Office's authority to interpret 
title 17 in the context of statutory licenses in particular has long 
been recognized.'' \49\
---------------------------------------------------------------------------

    \47\ See NMPA NPRM Initial Comments at 7-8.
    \48\ Motion Picture Ass'n of Am., Inc. v. Oman, 750 F. Supp. 3, 
6 (D.D.C. 1990), aff'd, 969 F.2d 1154 (D.C. Cir. 1992); see also, 
e.g., Fox Tel. Stations, Inc. v. Aereokiller, LLC, 851 F.3d 1002, 
1011 (9th Cir. 2017) (recognizing that ``the Copyright Office has a 
much more intimate relationship with Congress [than the courts] and 
is institutionally better equipped than we are to sift through and 
to make sense of the vast and heterogeneous expanse that is the 
Act's legislative history''); Satellite Broad. & Commc'ns Ass'n of 
Am. v. Oman, 17 F.3d 344, 345, 347-48 (11th Cir. 1994), cert. 
denied, 513 U.S. 823 (1994) (recognizing the Copyright Office's 
authority to issue regulations and ``statutory authority to 
interpret the provisions of the compulsory licensing scheme'' found 
in 17 U.S.C. 111).
    \49\ 87 FR 64405, 64408.
---------------------------------------------------------------------------

    Indeed, as the Office has previously explained, ``[t]he Office 
exercises its authority under section 702 when it is necessary `to 
interpret the statute in accordance with Congress'[s] intentions and 
framework.' '' \50\ That is what the Office is doing here, just as we 
have done on numerous previous occasions, for example to determine that 
satellite carriers are not ``cable systems'' within the meaning of 
section 111 and therefore do not qualify for that statutory 
license,\51\ to state the meaning of ``digital phonorecord delivery'' 
under

[[Page 56589]]

the section 115 statutory license,\52\ and to determine that internet 
streaming of AM/FM broadcast signals are not exempted ``broadcast 
transmissions'' within the meaning of section 114.\53\ The Office has 
done this in the termination context as well, adopting a rule 
addressing the meaning of ``executed'' under section 203 in the context 
of gap grants.\54\
---------------------------------------------------------------------------

    \50\ 73 FR 40802, 40806 (July 16, 2008) (quoting 57 FR 3284, 
3292 (Jan. 29, 1992)).
    \51\ 57 FR 3284, 3290-92, 3296; see Satellite Broad. & Commc'ns 
Ass'n of Am., 17 F.3d 344.
    \52\ 73 FR 66173, 66174-75 (Nov. 7, 2008).
    \53\ 65 FR 77292, 77293-95 (Dec. 11, 2000); see Bonneville Int'l 
Corp. v. Peters, 347 F.3d 485 (3d Cir. 2003).
    \54\ 76 FR 32316, 32316-20 (June 6, 2011). While the Office has 
express authority to regulate the content of notices of termination, 
we also referred to our authority under section 702 in adopting the 
rule and stated that the focus of the rulemaking was our recordation 
practices. Id. at 32319-20. Moreover, the rulemaking required the 
Office to opine on a substantive area of copyright law, namely 
whether or how the statute's termination provisions apply to gap 
grants. Id. at 32316-17; see U.S. Copyright Office, Analysis of Gap 
Grants under the Termination Provisions of Title 17 (2010), https://www.copyright.gov/reports/gap-grant-analysis.pdf. At least one court 
appears to have followed the Office's interpretation. See Mtume v. 
Sony Music Ent., 408 F. Supp. 3d 471, 475-76 (S.D.N.Y. 2019).
---------------------------------------------------------------------------

    Regarding the Office's specific authority under the MMA, we have 
issued several rules that required analyzing substantive provisions of 
the statute. For example, the Office determined what constitutes ``the 
due date for payment'' under section 115(d)(8)(B)(i),\55\ how the 
endorsement criterion for designating the MLC is to be evaluated under 
section 115(d)(3)(A)(ii),\56\ the meaning of ``producer'' under section 
115(d)(4)(A)(ii)(I)(aa),\57\ and what constitutes minimum ``good-faith, 
commercially reasonable efforts'' under section 115(d)(4)(B).\58\
---------------------------------------------------------------------------

    \55\ 88 FR 60587, 60590-91 (Sept. 5, 2023).
    \56\ 84 FR 32274, 32280-84 (July 8, 2019).
    \57\ 85 FR 22518, 22532.
    \58\ 85 FR 58114, 58119 (Sept. 17, 2020). We also note that, in 
addition to the specific authority granted in section 115 and 
general authority granted in section 702, Congress gave the Office 
the responsibility to interpret title 17 when questions of law arise 
in proceedings before the Copyright Royalty Judges. 17 U.S.C. 
802(f)(1)(B)(i), (f)(1)(D) (granting the Office the ability to 
``resolve'' any ``novel material question of substantive law 
concerning an interpretation of those provisions of [title 17] that 
are the subject of [a] proceeding'' before the Copyright Royalty 
Judges and to review the Judges' final determinations for ``legal 
error . . . of a material question of substantive law under [title 
17]'').
---------------------------------------------------------------------------

    NMPA also made a series of arguments based on the premise that any 
rulemaking authority the Office may have with respect to section 115 or 
other statutory licenses does not extend to other areas of the 
Copyright Act, like those dealing with termination.\59\ These 
arguments, and their underlying premise, are similarly unsupported by 
title 17. The MMA and section 702 provide the Office with ample 
authority to interpret sections 203 and 304, as well as other 
provisions of the Copyright Act, in the context of the blanket license 
and the MLC's operations.\60\
---------------------------------------------------------------------------

    \59\ NMPA NPRM Initial Comments at 8-10.
    \60\ See 17 U.S.C. 115(d)(12)(A), 702; see also, e.g., Motion 
Picture Ass'n of Am., Inc., 750 F. Supp. at 6; Aereokiller, LLC, 851 
F.3d at 1011; Satellite Broad. & Commc'ns Ass'n of Am., 17 F.3d at 
345, 347-48.
---------------------------------------------------------------------------

    As explained in the NPRM, despite its focus on termination issues, 
``this rulemaking ultimately reflects the Office's oversight and 
governance of the MLC's reporting and payment obligations to copyright 
owners.'' \61\ The Office has exercised its authority in this area 
before. As discussed in the NPRM, the Office previously issued 
regulations regarding the MLC's reporting and distribution of royalties 
to copyright owners with ``no dispute regarding the propriety or 
authority of the Office to promulgate [them].'' \62\ In that prior 
proceeding, we concluded that we have ``the authority to promulgate 
these rules under the general rulemaking authority in the MMA.'' \63\
---------------------------------------------------------------------------

    \61\ 87 FR 64405, 64408.
    \62\ Id. at 64408 & n.39 (quoting 85 FR 22549, 22550-52 (Apr. 
22, 2020)).
    \63\ 85 FR 22549, 22551 (quoting 17 U.S.C. 115(d)(12)) 
(observing that ``Congress provided general authority to the 
Register of Copyrights to `conduct such proceedings and adopt such 
regulations as may be necessary or appropriate to effectuate the 
provisions of this subsection' '').
---------------------------------------------------------------------------

    The final rule in this proceeding is no different. It governs how 
the MLC is to report and distribute royalties to copyright owners, 
including with respect to identifying the proper royalty payee. The 
fact that the final rule addresses that core MLC function in a context 
that raises substantive questions of copyright law (like termination)--
and thus requires analysis of various points of substantive copyright 
law (such as termination and the Exception)--does not deprive the 
Office of its authority to regulate how the MLC reports and pays 
royalties. Nor does the fact that parts of the Office's analysis or 
reasoning could potentially be applied by others in contexts outside 
the scope of this proceeding.\64\
---------------------------------------------------------------------------

    \64\ At a minimum, this proceeding has demonstrated that it is 
``necessary or appropriate'' to ``adopt . . . regulations'' ``to 
effectuate'' section 115(d)(3)(G)(i)(II), requiring the MLC to 
``distribute royalties to copyright owners in accordance with . . . 
the ownership and other information contained in the records of the 
[MLC].'' 17 U.S.C. 115(d)(3)(G)(i)(II), (12)(A); see also, e.g., 87 
FR 64405, 64407 (discussing need to revisit the termination issue 
more directly, including ``how termination law intersects with the 
blanket license''); 88 FR 65908, 65909-10 (explaining that the MLC 
sought additional regulatory guidance ``necessary'' and 
``essential'' to its operations). Thus, the current rulemaking ``is 
consistent with the Office's practice of promulgating regulations to 
construe statutory terms that are critical to the administration of 
a statutory license administered by the Office.'' 73 FR 66173, 
66175.
---------------------------------------------------------------------------

    The flaw in NMPA's argument is highlighted by considering its 
consequences. If the Office's authority is as limited as NMPA 
suggested, it would mean that the MLC would be the one (in the absence 
of a lawsuit) to determine the meaning of any questioned statutory 
provisions. The Office's oversight of the MLC through regulatory action 
cannot be frustrated when such oversight may involve addressing 
substantive issues of copyright law. Concluding otherwise would be 
contrary to the statute's logic and Congress's intent. Congress 
intentionally invested the Office with ``broad regulatory authority'' 
under the MMA, in part to oversee the MLC, such as by ``thoroughly 
review[ing]'' MLC policies ``to ensure the fair treatment of interested 
parties.'' \65\
---------------------------------------------------------------------------

    \65\ H.R. Rep. No. 115-651, at 5-6 (2018); S. Rep. No. 115-339, 
at 5 (2018); Report and Section-by-Section Analysis of H.R. 1551 by 
the Chairmen and Ranking Members of Senate and House Judiciary 
Committees 4 (2018) (``Conf. Rep.''), https://www.copyright.gov/legislation/mma_conference_report.pdf.
---------------------------------------------------------------------------

    NMPA also specifically challenged the Office's authority to adopt 
the corrective royalty adjustment, arguing that it is an impermissible 
retroactive rule and an unconstitutional taking.\66\ We disagree with 
this characterization and address this topic in Part III.F., below.
---------------------------------------------------------------------------

    \66\ NMPA NPRM Initial Comments at 4-6, 12-13; NMPA Ex Parte 
Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2; 
see also CMPA NPRM Initial Comments at 1-2 (arguing against 
retroactivity); Warner Chappell Music SNPRM Reply Comments at 2-3 
(same).
---------------------------------------------------------------------------

III. Final Rule

    Having reviewed and considered all comments, the Office has weighed 
the relevant legal, business, and practical implications and equities 
raised, and pursuant to its authority under 17 U.S.C. 115 and 702 is 
adopting a final rule regarding MLC royalty distributions. The Office 
finds it reasonable to adopt much of the SNPRM as final regulations, 
but with some significant modifications. As discussed in more detail 
below, the Office is adopting a final rule that is a scaled-down 
version of the SNPRM and applies a different solution to the issue of 
identifying the payee to whom the MLC must distribute royalties.
    Specifically, in response to the comments that the SNPRM was too 
broad \67\ and the MLC's own regulatory

[[Page 56590]]

proposal,\68\ the Office has narrowed the scope of the rule to provide 
the guidance the MLC sought without expanding the rule to other areas 
that do not appear to need regulation at this time based on the current 
record.\69\ While some commenters would prefer that the Office not 
address any issues beyond those raised in the original NPRM, the Office 
disagrees. As discussed above, the MLC and several other commenters had 
requested additional guidance from the Office on various related 
topics. Consequently, the Office issued the SNPRM seeking public 
comments on a supplemental proposed rule focused on providing such 
guidance. When the MLC requests guidance from the Office, we will 
generally provide it given the oversight role we play under the MMA. 
The Office finds that it is reasonable and appropriate to provide such 
guidance here.
---------------------------------------------------------------------------

    \67\ See, e.g., Kobalt Music SNPRM Initial Comments at 3; Big 
Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial 
Comments at 1-2; North Music Grp. SNRPM Initial Comments at 1, 3-4; 
MAC et al. SNPRM Reply Comments at 2-3; MAC Ex Parte Letter at 1-2 
(Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1-2; 
Warner Chappell Music SNPRM Reply Comments at 2-3; ClearBox Rights 
SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5.
    \68\ MLC SNPRM Reply Comments at App. A.
    \69\ To be clear, the Office reserves the right to regulate 
these other areas in the future should it become necessary or 
appropriate to do so.
---------------------------------------------------------------------------

    To the extent some commenters suggested that the Office is moving 
too quickly on some of these issues or has not engaged in a sufficient 
administrative process, the Office disagrees.\70\ The Office issued the 
SNPRM precisely to solicit substantive comments from interested parties 
about these expanded topics. In doing so, the Office provided for both 
initial and reply comment periods as well as deadline extensions, 
ultimately providing parties with over two months to submit written 
comments. The Office also made itself available for ex parte meetings 
for several months after the period for written comments ended. Given 
this ample opportunity to engage with the Office on these issues, we 
see no reason to delay providing the MLC with the guidance it needs to 
operate. As always, the Office will continue to monitor the effect of 
the rule, and if there are any unforeseen consequences or should 
anything not operate as intended, we can consider amending the rule in 
the future.
---------------------------------------------------------------------------

    \70\ See, e.g., North Music Grp. SNRPM Initial Comments at 1, 3-
4; Recording Academy SNPRM Reply Comments at 1-2; ClearBox Rights 
SNPRM Reply Comments at 3, 10.
---------------------------------------------------------------------------

    Where parties have objected to certain aspects of the SNPRM, the 
Office has considered those comments and addressed these issues, as 
discussed below. If not otherwise discussed, the Office has concluded 
that the relevant proposed provision should be adopted for the reasons 
stated in the NPRM or SNPRM.

A. Termination and the Exception

    In the NPRM, the Office engaged in an extensive preliminary 
analysis that concluded that ``[w]hether or not the Exception applies 
to a DMP's blanket license (and the Office concludes that the Exception 
does not), the statute entitles the current copyright owner to the 
royalties under the blanket license, whether pre- or post-
termination.'' \71\ We explained that this means that ``the post-
termination copyright owner (i.e., the author, the author's heirs, or 
their successors, such as a subsequent publisher grantee) is due the 
post-termination royalties paid by the DMP to the MLC.'' \72\
---------------------------------------------------------------------------

    \71\ 87 FR 64405, 64410-11.
    \72\ Id. at 64411.
---------------------------------------------------------------------------

    Based on the MLC's and other commenters' requests for additional 
guidance,\73\ the SNPRM contained additional analysis and made further 
preliminary conclusions, including that: (1) the Exception does not 
apply to matched historical royalties; \74\ (2) with respect to covered 
activities, record companies' pre-2021 individual download licenses and 
the authority obtained from them by DMPs are the only pre-2021 
statutory mechanical licenses to have continued in effect after the 
license availability date; \75\ (3) the Exception does not apply to 
individual download licenses; \76\ and (4) the Exception may apply to 
some voluntary licenses, but not others.\77\
---------------------------------------------------------------------------

    \73\ 88 FR 65908, 65909-10.
    \74\ Id. at 65910-11.
    \75\ Id. at 65911.
    \76\ Id.
    \77\ Id. at 65911-12.
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    Most comments addressing the Office's termination analysis were in 
response to the NPRM, as parties largely did not comment on the 
additional analysis from the SNPRM. While many commenters agreed with 
the Office's analysis,\78\ others raised some concerns.\79\ Several 
commenters, even some who raised concerns with the Office's analysis, 
supported its end result that the post-termination copyright owner is 
entitled to post-termination royalties under the blanket license.\80\
---------------------------------------------------------------------------

    \78\ See, e.g., A2IM & RIAA NPRM Reply Comments at 2; Authors 
All. et al. NPRM Initial Comments at 2-3; BMG Rights Mgmt. NPRM 
Initial Comments at 2; ClearBox Rights NPRM Initial Comments at 6-7; 
Fishman & Garcia NPRM Initial Comments at 1-4; King, Holmes, Paterno 
& Soriano LLP NPRM Initial Comments; North Music Grp. NPRM Reply 
Comments at 2; Recording Academy NPRM Reply Comments at 2; SGA et 
al. NPRM Initial Comments at 2, 5; SONA et al. NPRM Initial Comments 
at 2-3; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments.
    \79\ See NMPA NPRM Initial Comments at 2-3; NMPA Ex Parte Letter 
at 2-3 (Feb. 6, 2023); MPA NPRM Reply Comments at 2-5; see also A2IM 
& RIAA NPRM Reply Comments at 2; A2IM & RIAA SNPRM Initial Comments 
at 1-4; Fishman & Garcia NPRM Initial Comments at 4; NMPA SNPRM 
Initial Comments at 2 n.2.
    \80\ See, e.g., NMPA SNPRM Initial Comments at 1-2 (``NMPA 
supported and continues to support the bright-line rule that the 
[Office] proposed to establish in the NPRM, requiring that all post-
termination royalties under the Blanket License be paid to the post-
termination copyright owner.''); Universal Music Publ'g Grp. SNPRM 
Reply Comments at 5 n.4; Warner Chappell Music SNPRM Reply Comments 
at 2; Kobalt Music SNPRM Initial Comments at 1; NSAI SNPRM Initial 
Comments at 2; Promopub SNPRM Initial Comments at 2.
---------------------------------------------------------------------------

    Having considered all relevant comments, the Office is adopting the 
termination-related aspects of the SNPRM's proposal as final for the 
reasons discussed below, as well as the reasoning in the NPRM and SNPRM 
in relevant part.
1. Blanket Licenses
i. Background
    In the NPRM, the Office thoroughly analyzed the Exception in the 
context of the blanket license. In that analysis, the Office made two 
overarching conclusions that: (1) the Exception does not apply to 
blanket licenses; and (2) even if the Exception did apply, under the 
terms of the blanket license (i.e., the applicable text of section 115 
and related regulations), a terminated publisher still would not be 
entitled to post-termination blanket license royalties.\81\
---------------------------------------------------------------------------

    \81\ 87 FR 64405, 64410-11.
---------------------------------------------------------------------------

    In concluding that the Exception does not apply, the Office made 
three further overall conclusions. First, the Office concluded that 
``[t]o be subject to termination, a grant must be executed by the 
author or the author's heirs,'' and that, ``[a]s a type of statutory 
license, the blanket license is `self-executing,' such that it cannot 
be terminated'' under section 203 or 304.\82\ The Office explained that 
``[i]f a blanket license cannot be terminated, then it cannot be 
subject to an exception to termination; the license simply continues in 
effect according to its terms.'' \83\
---------------------------------------------------------------------------

    \82\ Id. at 64410.
    \83\ Id.
---------------------------------------------------------------------------

    Second, the Office concluded that ``[s]ection 115's blanket 
licensing regime is premised on the assumption that DMPs are not 
preparing derivative works pursuant to their blanket licenses,'' and 
that ``where no sound recording derivative is prepared pursuant to a 
DMP's blanket license,

[[Page 56591]]

that blanket license is not part of any preserved grants that make the 
Exception applicable.'' \84\ The Office explained that ``[i]f no 
derivative work is prepared `under authority of the grant,' then the 
Exception cannot apply,'' but recognized that ``[p]roponents of the 
Exception's application to the blanket license might argue that the 
blanket license should be construed as being included within a so-
called `panoply' of grants pursuant to which a pre-termination 
derivative work of the musical work was prepared.'' \85\ The Office 
observed that the ``only panoply to which the blanket license could 
theoretically belong would be the grant (or chain of successive grants) 
emanating from the songwriter and extending to the record company (or 
other person) who prepared the sound recording derivative licensed to 
the DMP.'' \86\ After analyzing that possibility, the Office concluded 
that ``[t]he Exception, as interpreted by [the Supreme Court in Mills 
Music, Inc. v. Snyder],\87\ should not be read as freezing other grants 
related to, but outside of, the direct chain of successive grants 
providing authority to utilize the sound recording derivative, such as 
the musical work licenses obtained by DMPs,'' and the Office discussed 
several reasons explaining why.\88\
---------------------------------------------------------------------------

    \84\ Id. at 64410-11.
    \85\ Id.
    \86\ Id.
    \87\ 469 U.S. 153 (1985).
    \88\ 87 FR 64405, 64410-11.
---------------------------------------------------------------------------

    Third, the Office concluded that applying the Exception to the 
blanket license in the manner the MLC had done previously, whereby the 
payee would be frozen in time, would lead to an ``extreme result'' 
because it would also freeze all other aspects of the license in 
time.\89\ For example, ``it would freeze in time everything from DMP 
reporting requirements and MLC royalty statement requirements to the 
rates and terms of royalty payments for using the license set by the 
[Copyright Royalty Judges].'' \90\
---------------------------------------------------------------------------

    \89\ Id. at 64411.
    \90\ Id.
---------------------------------------------------------------------------

    The SNPRM addressed this analysis as well.\91\ There, the Office 
described the NPRM's conclusions about the Exception as 
``preliminary,'' making clear that we ``welcome[d] further comments and 
legal discussion.'' \92\ The Office has considered all comments, 
including those raising concerns with aspects of this analysis. For the 
reasons discussed below, we find those concerns unpersuasive. 
Therefore, the Office is adopting the termination analysis from the 
NPRM and SNPRM as final for the reasons discussed in the NPRM and 
SNPRM, subject to the further discussion below.
---------------------------------------------------------------------------

    \91\ 88 FR 65908, 65910.
    \92\ Id. at 65912 n.69.
---------------------------------------------------------------------------

ii. Comments and Discussion
    The principal critics of the NPRM's analysis were NMPA and the 
Motion Picture Association (``MPA''). NMPA asserted that ``[t]he 
Exception has historically been interpreted by many industry 
stakeholders to permit the pre-termination musical composition 
copyright owner to continue to receive mechanical royalties post-
termination for uses of those compositions in derivative sound 
recordings, including in interactive streaming, provided that the 
mechanical license was issued pre-termination and the recording was 
prepared pre-termination.'' \93\ NMPA said that ``[t]his interpretation 
was based on, inter alia, the Supreme Court's decision in Mills Music, 
Inc. v. Snyder, and the Second Circuit's decision in Woods v. Bourne 
Co.,'' \94\ and that ``[b]ased on this interpretation, before the MMA 
was enacted, [DMPs], along with other Section 115 statutory licensees, 
continued to pay mechanical royalties to the pre-termination rights 
owner for uses of recordings prepared pre-termination pursuant to pre-
termination mechanical licenses.'' \95\ NMPA stated that it ``never 
understood the MMA to change or resolve the law of statutory 
termination or to provide a new or different rule applicable to Blanket 
Licenses.'' \96\ It explained its view that ``the MMA addresses the 
termination issue in Section 115(d)(9)(A),'' which was intended to 
``preserve the status quo.'' \97\
---------------------------------------------------------------------------

    \93\ NMPA NPRM Initial Comments at 2-3; see also NMPA Ex Parte 
Letter at 2 (Feb. 6, 2023).
    \94\ 60 F.3d 978 (2d Cir. 1995).
    \95\ NMPA NPRM Initial Comments at 3; see also NMPA Ex Parte 
Letter at 2 (Feb. 6, 2023).
    \96\ NMPA NPRM Initial Comments at 3.
    \97\ Id. at 3 n.5.
---------------------------------------------------------------------------

    After a full review and analysis, the Office is not persuaded by 
NMPA's argument. We do not dispute NMPA's assertion that certain 
publishers may have adopted a different approach to termination, but 
this approach is not supported by the law in the context of the blanket 
license. As discussed further below in Part III.F., the Office is not 
adopting a new position, or changing the law as it relates to 
termination or the Exception. Nor are we contending that the MMA or 
blanket license altered the law as it relates to the Exception. The 
Office is merely stating what the law is and has always been.
    In support of its approach, NMPA suggested that its view of the 
Exception was universally relied on as the status quo. The comments, 
however, reveal otherwise. For example, ClearBox Rights said that 
``there has not been consistency in the history of how these royalties 
have been paid [with respect to the Exception], so such past practices 
should not be interpreted as any kind of precedent or guidance into how 
they should be paid in the future, or adjusted for any given period of 
time.'' \98\ NMPA even described its views with qualifying language, 
stating that its interpretation of Mills Music has been followed by 
``some'' copyright owners and that ``legal interpretations of this 
holding and views as to the applicability of the [Exception] to the 
[blanket license] may differ.'' \99\
---------------------------------------------------------------------------

    \98\ ClearBox Rights NPRM Reply Comments at 1-2 (further stating 
that performing rights organizations ``fairly consistently pass 
through to the post-termination rights holder the performance side 
of these very same [DMP] interactive streams''); see also, e.g., 
King, Holmes, Paterno & Soriano LLP NPRM Initial Comments at 1 (``We 
have been concerned for years about some music publishers' claims 
that the [Exception] entitles the original publisher of a 
composition to continue to collect indefinitely on mechanical 
licenses issued pursuant to the compulsory license provisions of the 
U.S. Copyright Act. Such claims do not comport with the language of 
the [Exception] itself or the legislative history surrounding 
it.''); McAnally & North Ex Parte Letter at 2 (Mar. 14, 2023) 
(asserting that views like NMPA's are ``inconsistent with our 
understanding of how terminations have been treated in the industry 
regarding payments of mechanical royalties under Section 115'').
    \99\ NMPA Ex Parte Letter at 2 (Feb. 6, 2023).
---------------------------------------------------------------------------

    Further, NMPA's claim that section 115(d)(9)(A) supports its 
position is misplaced. That provision does not speak to the Exception 
or the preservation of any pre-MMA status quo (outside the narrow 
context of individual download licenses). As explained in the SNPRM, 
that provision, read together with section 115(d)(9)(B), provides, with 
respect to covered activities, that ``only record companies' pre-2021 
individual download licenses and the authority obtained from them by 
DMPs survived the license availability date.'' \100\ The Office 
explained that ``[b]ecause all other pre-2021 statutory mechanical 
licenses to engage in covered activities are no longer in effect 
pursuant to their own terms (i.e., the statutory text), any application 
the Exception may or may not have had while they were in force seems to 
have no bearing on the MLC's distribution of royalties for post-2021 
usage.'' \101\
---------------------------------------------------------------------------

    \100\ 88 FR 65908, 65911.
    \101\ Id.
---------------------------------------------------------------------------

    The statute plainly states that the blanket license was 
``automatically substituted for and supersede[d] any existing 
compulsory license previously obtained under [section 115].'' \102\ The

[[Page 56592]]

language NMPA highlighted--that this substitution happened ``without 
any interruption in license authority enjoyed by [a DMP]''--simply 
means that the substitution did not cause there to be any gap in a 
DMP's licensing authority, between the old pre-2021 statutory license 
and the new blanket license, that could potentially subject the DMP to 
an infringement claim.\103\ If this language meant that all previous 
licensing authority remains intact indefinitely after the license 
availability date, then it would render the rest of the provision 
superfluous. There would be no need to have the blanket license 
substitute for and supersede the pre-2021 license because the authority 
provided by the pre-2021 license would continue in effect. It would 
also directly contradict section 115(d)(9)(B), which states that 
``licenses other than individual download licenses obtained under 
[section 115] for covered activities prior to the license availability 
date shall no longer continue in effect.'' \104\ Thus, the Office 
disagrees with NMPA's reading of the statute.\105\
---------------------------------------------------------------------------

    \102\ See 17 U.S.C. 115(d)(9)(A).
    \103\ See id.
    \104\ See id. at 115(d)(9)(B).
    \105\ See also 85 FR 58114, 58118 (discussing how ``the 
statutory provisions regarding notices of [blanket] license and the 
transition to the blanket license must be read together, such that 
DMPs transitioning to the blanket license must still submit notices 
of license to the MLC'').
---------------------------------------------------------------------------

    NMPA next argued that ``the phrase `terminated grant' in the 
statutory text appears to refer to the original grant from the author 
to the publisher that is being terminated, and not to subsequent grants 
made by the publisher under the authority of that original grant.'' 
\106\ It asserted that ``[s]ubsequent grants of the right to prepare 
and use derivative works made by the publisher are not the terminated 
grant under Sections 203 and 304 and are instead part of the `panoply' 
of licenses preserved by the [Exception].'' \107\ Thus, in NMPA's view, 
``the terminable grant that must be executed by the author is the 
original license from author to publisher; therefore, whether Section 
115 licenses are `self-executing' would be inapposite to the relevant 
analysis'' because ``[t]he subsequent grants of the right to prepare 
derivative works are in virtually all cases not `executed by the author 
or the author's heirs.' '' \108\
---------------------------------------------------------------------------

    \106\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA 
NPRM Initial Comments at 11 n.27.
    \107\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA 
NPRM Initial Comments at 11 n.27.
    \108\ NMPA NPRM Initial Comments at 11 n.27.
---------------------------------------------------------------------------

    The Office disagrees. The phrase ``terminated grant'' in the 
statutory text is not limited solely to the original grant from the 
songwriter to the publisher. In Mills Music, the Supreme Court 
concluded that all three references to the word ``grant'' in the text 
of the Exception should be given a ``consistent meaning,'' and that 
each reference encompasses both the original grant and subsequent 
grants.\109\ That lack of distinction between the original grant and 
subsequent grants was central to the Court's holding that the Exception 
preserved ``the total contractual relationship.'' \110\ The cornerstone 
of the Court's opinion was its conclusion that the successive grants 
were connected to each other in such a way that they both needed to be 
preserved under the Exception in the context at issue.\111\
---------------------------------------------------------------------------

    \109\ Mills Music, 469 U.S. at 164-67 (concluding that the 
phrase ``under the terms of the grant after its termination'' ``as 
applied to any particular licensee would necessarily encompass both 
the 1940 grant [from the songwriter to the publisher] and the 
individual license [from the publisher to the record company to 
prepare a sound recording derivative] executed pursuant thereto''); 
see id. at 164 (explaining that the Exception is ``defined by 
reference to the scope of the privilege that had been authorized 
under the terminated grant and by reference to the time the 
derivative works were prepared'') (emphasis added); id. at 173 
(explaining that ``[p]retermination derivative works--those prepared 
under the authority of the terminated grant--may continue to be 
utilized under the terms of the terminated grant'') (emphasis 
added); see also Howard B. Abrams & Tyler T. Ochoa, 2 The Law of 
Copyright sec. 12:44 (2023) (``[T]he term ``grant'' is read to 
include the entire chain of authority for the preparation of a 
derivative work.'').
    \110\ Mills Music, 469 U.S. at 163-69 (``We are not persuaded 
that Congress intended to draw a distinction between authorizations 
to prepare derivative works that are based on a single direct grant 
and those that are based on successive grants.'').
    \111\ Id. at 166-69 (explaining that, with respect to the 
particular facts in the case, defining the relevant ``terms of the 
grant'' as ``the entire set of documents that created and defined 
each licensee's right to prepare and distribute derivative works'' 
meant preserving not only the record companies' right to prepare and 
distribute the derivative works, but also their corresponding duty 
to pay the publisher any due royalties and the publisher's duty to 
pay the songwriter's heirs any due royalties, and that if it were 
otherwise, then there would be no contractual or statutory 
obligation on the publisher or record companies to pay the 
songwriter's heirs any royalties).
---------------------------------------------------------------------------

    In asserting that the NPRM's conclusions about the application of 
the Exception to the blanket license must be wrong because the 
subsequent grants of the right to prepare derivative works are almost 
always not executed by the author or the author's heirs, NMPA 
misapprehends how the subsequent grants are connected to the original 
grant. Outside the context of a statutory license, where a songwriter 
makes a grant to a publisher and the publisher then makes subsequent 
grants to third parties (e.g., to a record company to prepare a sound 
recording derivative, to a DMP to make and distribute phonorecords, or 
an assignment of the full copyright to a different publisher), each of 
those subsequent grants, despite not being executed by the songwriter 
or the songwriter's heirs, can still be terminated. This is because the 
authority for each of those subsequent grants derives from and is 
dependent upon the authority conveyed by the original grant from the 
songwriter to the publisher. Thus, when the original grant is 
terminated, it also terminates the subsequent grants (subject to the 
possible preservation of certain contractual terms governing the 
utilization of pre-termination derivative works under the 
Exception).\112\ It is a foundational legal principle that one cannot 
give what one does not have.\113\ In this context, what the publisher 
possesses with respect to the original grant, and can therefore 
subsequently convey to third parties, is encumbered by the songwriter's 
termination rights.\114\ This concept is plainly embodied in the 
statute, which makes reference not only to ``the grantee,'' but also 
``the grantee's successor in title.'' \115\
---------------------------------------------------------------------------

    \112\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 
sec. 11.02[C][2] (2023) (``When A terminates the original grant to 
B, it follows that B's license to C will also terminate.'').
    \113\ Legal Maxims, Black's Law Dictionary (11th ed. 2019) 
(``Nemo dat quod non habet. No one gives what he does not have; no 
one transfers (a right) that he does not possess.'').
    \114\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 
sec. 11.02[A][4][b] (2023) (``If the original grant from A to B had 
by its terms provided for a reversion to A thirty-five years after 
execution, B would lack the power to convey rights to C beyond such 
thirty-five-year period. The fact that reversion from B to A occurs 
by operation of law rather than by the express terms of the grant to 
B does not enlarge the rights that B can convey to C.''); see also 
Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 325 NE2d 137, 139 
(N.Y. 1975) (``It is elementary ancient law that an assignee never 
stands in any better position than his assignor. He is subject to 
all the equities and burdens which attach to the property assigned 
because he receives no more and can do no more than his 
assignor.'').
    \115\ See 17 U.S.C. 203(a)(4), (b)(4); id at 304(c)(4), (6)(D).
---------------------------------------------------------------------------

    The blanket license, however, operates differently. Unlike 
voluntary licenses, the authority a DMP has to make and distribute 
phonorecords of musical works under a blanket license does not derive 
from and is not dependent upon any authority granted by a songwriter or 
publisher. The blanket license is self-executing,\116\ and a DMP's 
authority under it is established by Congress.\117\ Therefore, if the 
original grant from the songwriter to the publisher is terminated, it 
has no effect on the DMP's blanket license

[[Page 56593]]

(other than the transfer of copyright ownership causing the royalty 
payee to change). Unlike a voluntary license, the grant of authority 
provided to the DMP under its blanket license was never encumbered by 
the songwriter's termination rights, so exercising those rights has no 
impact on the continuation of the DMP's authority. As a blanket license 
cannot be terminated under section 203 or 304, whether directly or 
indirectly, ``it cannot be subject to an exception to termination; the 
license simply continues in effect according to its terms.'' \118\
---------------------------------------------------------------------------

    \116\ Mills Music, 469 U.S. at 168 n.36; see Melville B. Nimmer 
& David Nimmer, 3 Nimmer on Copyright sec. 11.02 n.121 (2023); Paul 
Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d ed. 2023).
    \117\ See also Mills Music, 469 U.S. at 168 n.36 (referring to 
section 115 statutory licenses as ``a statutory right'' belonging to 
the licensee) (emphasis added).
    \118\ 87 FR 64405, 64410. As noted in the NPRM, this ``does not 
mean that entitlement to royalties is fixed. It travels with 
ownership of the copyright.'' Id. at 64410 n.70.
---------------------------------------------------------------------------

    MPA's criticism of the NPRM focused on a different issue, namely 
its concerns that the Office's legal analysis ``could be read as 
narrowing the holdings [of Mills Music and Woods] by injecting a 
`direct chain' limitation on the pre-termination grants preserved under 
the [Exception].'' \119\ MPA argued that:
---------------------------------------------------------------------------

    \119\ MPA NPRM Reply Comments at 2.

    To the extent that the Office's discussion of Mills [Music] 
could be read to limit the [Exception] solely to a ``direct chain'' 
of grants, such a reading would appear to be in tension not only 
with the [Exception]--which provides that a derivative work prepared 
under authority of a grant ``may continue to be used under the terms 
of the grant,'' . . .--but also the Supreme Court's interpretation 
of that language in Mills [Music], as well as the Second Circuit's 
further explication of the [Exception] in Woods v. Bourne. Mills 
[Music] held that, as used in the [Exception], ``the terms of the 
grant'' means the ``entire set of documents that created and defined 
each licensee's right to prepare and distribute derivative works.'' 
469 U.S. at 167. The [Exception] thus encompasses the original grant 
from author to publisher, as well as the succeeding grants derived 
therefrom, potentially involving multiple licensees. See id. at 165-
67 (emphasis added).\120\
---------------------------------------------------------------------------

    \120\ Id. at 4 (citing 17 U.S.C. 203(b)(1), 304(c)(6)(A)).

    MPA further said that ``[i]n some cases, an initial grant by an 
author to a movie studio or music publisher, and that entity's 
subsequent grants to third parties to for the use and distribution of 
derivative works, will generate `branches' of licensing authority 
rather than a simple linear chain.'' \121\ According to MPA, ``[t]here 
is nothing in the [Exception] or Mills [Music] . . . to suggest that a 
pre-termination publisher is entitled to royalties only if the pre-
termination license falls within a single `direct chain' to the party 
that prepared the derivative.'' \122\
---------------------------------------------------------------------------

    \121\ Id.
    \122\ Id.
---------------------------------------------------------------------------

    MPA then pointed to Woods for confirmation that ``Mills [Music] is 
not so limited.'' \123\ It stated that ``[a]s further explicated in 
Woods, the Supreme Court's holding in Mills [Music] established that 
`where multiple levels of licenses govern use of a derivative work, the 
``terms of the grant'' encompass the original grant from author to 
publisher and each subsequent grant necessary to enable the particular 
use at issue,' '' and that ``[t]he effect of Mills [Music] is to 
preserve during the post-termination period the panoply of contractual 
obligations that governed pre-termination uses of derivative works by 
derivative work owners or their licensees.'' \124\ MPA asserted that 
``[c]onsistent with its understanding of Mills [Music], the Woods court 
upheld the pre-termination publisher's right to collect public 
performance royalties from [the performing rights organization,] ASCAP 
for post-termination performances in movies and television programs 
even though ASCAP's licensing relationship was outside of the `direct 
chain' of authority by which the original publisher had granted synch 
rights to the producers of those shows.'' \125\ MPA highlighted that 
the Second Circuit said that ``the `terms of the grant' included `the 
provisions of the grants from [the publisher] to ASCAP and from ASCAP 
to the television stations' in place at the time of termination,'' and 
that `` `[t]he fact that the performance right in the Song [was] 
conveyed separately through ASCAP [was] simply an accommodation' that 
did not negate the applicability of the [Exception].'' \126\ It 
concluded that ``[n]either the [Exception], nor Mills [Music] or Woods, 
limits post-termination utilization of a derivative based on the 
particular configuration of the relevant pre-termination grants'' and 
that ``[i]n considering the applicability of the [Exception], the 
correct question is not whether the user prepared the derivative 
pursuant to some `direct chain' of authority, but whether the use is 
permitted under the entire `set' or `panoply' of grants emanating from 
the original grant by the author.'' \127\
---------------------------------------------------------------------------

    \123\ Id. at 4-5.
    \124\ Id. (quoting Woods, 60 F.3d at 987).
    \125\ Id. at 5 (citing Woods, 60 F.3d at 984).
    \126\ Id. (all alterations, except the last one, in original) 
(quoting Woods, 60 F.3d at 987-88).
    \127\ Id.
---------------------------------------------------------------------------

    The Office disagrees with these assertions to the extent they 
relate to the blanket license. The blanket license is not part of any 
so-called ``panoply,'' regardless of whether a panoply is limited to a 
``direct chain'' of successive grants or can include ``branches'' of 
related grants outside of that chain. As discussed above, the blanket 
license, as a type of statutory license, is fundamentally different 
from voluntary licenses. Because the authority provided by a blanket 
license is supplied by law and is divorced from any authority deriving 
from an author or any terminated grant, it is an intervening grant. It 
sits outside of any potential panoply of grants authorized by the 
author and the author's successors, assignees, licensees, and the like 
that form the overall transaction involving the relevant derivative 
work and which is subject to termination and possibly the Exception. 
The blanket license simply is not part of that contractual 
transaction.\128\
---------------------------------------------------------------------------

    \128\ See also 17 U.S.C. 115(d)(2) (explaining how a DMP may 
obtain a blanket license based on its unilateral actions).
---------------------------------------------------------------------------

    Neither Mills Music nor Woods holds otherwise, as neither involved 
a statutory license. In both cases, all of the grants at issue were 
contractual and emanated from a songwriter's copyright and the 
authority initially conveyed by the original grant from the songwriter 
to a publisher.\129\ Thus, neither case's holding is directly 
applicable to the operation of the Exception to a non-contractual 
intervening grant, like the blanket license. The Supreme Court, in 
Mills Music, noted that statutory licenses are different and were not 
at issue in the case.\130\ And key language in Woods specifically 
refers to ``the panoply of contractual obligations.'' \131\
---------------------------------------------------------------------------

    \129\ Mills Music, 469 U.S. at 154-58; Woods, 60 F.3d at 981-84, 
987-88.
    \130\ Mills Music, 469 U.S. at 168 n.36; see also id. at 185 
n.12 (White, J. dissenting).
    \131\ Woods, 60 F.3d at 987 (emphasis added).
---------------------------------------------------------------------------

    The Office's conclusions about the Exception are fully consistent 
with Mills Music, both as described here and in the NPRM. Neither MPA 
nor any other commenter addressed the specific points made in the NPRM 
regarding how the Exception operates with respect to panoplies of 
grants,\132\ other than to assert that the overall conclusion was at 
odds with Mills Music and Woods.
---------------------------------------------------------------------------

    \132\ See 87 FR 64405, 64410 (``The Exception, as interpreted by 
Mills Music, should not be read as freezing other grants related to, 
but outside of, the direct chain of successive grants providing 
authority to utilize the sound recording derivative, such as the 
musical work licenses obtained by DMPs.'').
---------------------------------------------------------------------------

    Relying on a single out-of-context quote, MPA argued that, because 
Mills Music said that `` `the terms of the grant' means the `entire set 
of documents that created and defined each licensee's right to prepare 
and distribute derivative works,' '' it must mean that the

[[Page 56594]]

Exception ``thus encompasses the original grant from author to 
publisher, as well as the succeeding grants derived therefrom, 
potentially involving multiple licensees.'' \133\ The Office is not 
persuaded. Read in its proper context, the Court's reference to ``each 
licensee'' is not referring to multiple licensees across different 
branches of grants involved in the preparation and utilization of a 
single derivative work. Rather, it is plainly referring to a single 
licensee for each derivative work; specifically, each record company 
that prepared one of the sound recording derivatives at issue in the 
case (which involved over 400 voluntary mechanical licenses and the 
preparation of over 400 sound recording derivatives).\134\ This 
conclusion is apparent not only from reading the opinion as a whole, 
but from the sentence immediately preceding the one quoted by MPA, 
which states that ``a fair construction of the phrase `under the terms 
of the grant' as applied to any particular licensee would necessarily 
encompass both the 1940 grant [from the songwriter to the publisher] 
and the individual [voluntary mechanical] license [from the publisher 
to the record company] executed pursuant thereto.'' \135\
---------------------------------------------------------------------------

    \133\ MPA NPRM Reply Comments at 4 (quoting Mills Music, 469 
U.S. at 165-67).
    \134\ See Mills Music, 469 U.S. at 158, 167, 168 n.36.
    \135\ See id. at 166-67 (emphasis added).
---------------------------------------------------------------------------

    Other language in the Court's opinion similarly reflects that it 
was only addressing direct chains of successive grants providing 
authority to prepare derivative works.\136\ For example, the Court was 
``not persuaded that Congress intended to draw a distinction between 
authorizations to prepare derivative works that are based on a single 
direct grant and those that are based on successive grants.'' \137\ The 
Court found it to be ``a matter of indifference . . . whether the 
authority to prepare the work had been received in a direct license 
from an author, or in a series of licenses and sublicenses.'' \138\ 
According to the Court, ``Congress saw no reason to draw a distinction 
between a direct grant by an author to a party that produces derivative 
works itself and a situation in which a middleman is given authority to 
make subsequent grants to such producers.'' \139\ It makes sense that 
the Court's opinion was limited to discussing a direct chain of 
successive grants because that is what was at issue in the case. We 
continue to believe that our reading of the statute and Mills Music, as 
well as our analysis and conclusions regarding panoplies and direct 
chains of successive grants, are correct.\140\
---------------------------------------------------------------------------

    \136\ See Howard B. Abrams & Tyler T. Ochoa, 2 The Law of 
Copyright sec. 12:44 (2023) (explaining that ``the Supreme Court 
seemed to be using the concept that the series of documents running 
from the author to the ultimate preparer of the derivative work 
should best be treated as a single transaction although it was 
spread over several documents executed at different times'').
    \137\ Mills Music, 469 U.S. at 163-64 (emphasis added).
    \138\ Id. at 173-74 (emphasis added).
    \139\ Id. at 172 (emphasis added).
    \140\ See 87 FR 64405, 64410-11; see also, e.g., Fishman & 
Garcia NPRM Initial Comments at 1-4 (agreeing with the Office's 
analysis and conclusions); SONA et al. NPRM Initial Comments at 2-3 
(same).
---------------------------------------------------------------------------

    With respect to Woods, even if the discussion in that case could be 
read in the broad manner that MPA suggested, it is not clear that the 
court's reasoning was correct or involved the same circumstances at 
issue here. Among other concerns, Woods did not speak to all the issues 
identified in the NPRM.\141\ For example, nothing in Woods appears to 
address the fact that if the word ``grant'' is given a consistent 
meaning within the text of the Exception--which, according to Mills 
Music, it should--it cannot be referring to a grant that did not 
provide authority to prepare the derivative work at issue.\142\
---------------------------------------------------------------------------

    \141\ See 87 FR 64405, 64410-11.
    \142\ See id. at 64411 (explaining that because ``[t]he 
Exception's first use of `grant' is to a `derivative work prepared 
under authority of the grant,' '' it ``cannot be referring to the 
DMP's musical work licenses pursuant to which no derivative work was 
prepared'').
---------------------------------------------------------------------------

    The Woods court did not engage in this level of textual analysis. 
Instead, it reviewed Mills Music and cited a law review article for the 
proposition that the Exception applies to ``each subsequent grant 
necessary to enable the particular use at issue.'' \143\ As discussed 
above, the Office does not believe Mills Music is so expansive. Nor 
does the cited law review article appear to support such a broad 
reading.\144\ In any event, we emphasize that because Woods is 
distinguishable with respect to section 115 statutory licenses, it is 
not necessary for the Office to resolve these disagreements to adopt 
the final rule.
---------------------------------------------------------------------------

    \143\ See Woods, 60 F.3d at 986-88 (emphasis added).
    \144\ Woods quotes from a law review article ``describing [the] 
holding in Mills Music as `preserving the entire paper chain that 
defines the entire transaction.' '' Woods, 60 F.3d at 987 (quoting 
Howard B. Abrams, Who's Sorry Now? Termination Rights and the 
Derivative Works Exception, 62 U. Det. L. Rev. 181, 234-35 (1985) 
(``Abrams'')). But a few sentences earlier, that article explained 
that the ``transaction'' being referred to was the ``set of 
transfers and licenses that ran from the author to a record 
company.'' Abrams at 234.
---------------------------------------------------------------------------

    Lastly, Professors Fishman and Garcia, while supportive of most of 
the Office's analysis, believed that the NPRM overestimated what would 
happen if the Exception did apply to blanket licenses.\145\ They said 
that the NPRM's suggestion that all of the blanket license's terms 
``would be frozen indefinitely'' under the Exception, such as ``the 
royalty rate to be paid,'' ``would contradict the plain terms 
established in [section] 115, which explicitly contemplate a variable 
rate to be determined by the [Copyright Royalty Judges].'' \146\ They 
explained that ``[t]hat variability is a term of the grant,'' and that 
to conclude otherwise ``would read into the terms of the blanket 
license a permanently fixed royalty rate that does not exist.'' \147\ 
The professors then noted that the NPRM ``correctly rejected the 
possibility of freezing the payee on the same basis.'' \148\
---------------------------------------------------------------------------

    \145\ Fishman & Garcia NPRM Initial Comments at 4.
    \146\ Id.
    \147\ Id.
    \148\ Id.
---------------------------------------------------------------------------

    Considering this comment, the Office wishes to clarify this point 
from the NPRM. We meant to illustrate the problems with the MLC's 
previous view of how the Exception would apply--that the Exception 
would freeze the royalty payee.\149\ This portion of the NPRM was 
intended to explain that if the MLC were correct that the Exception 
applied in such a manner as to freeze the royalty payee, then the 
Exception would have to freeze everything else too, which would lead to 
the ``extreme result.'' \150\
---------------------------------------------------------------------------

    \149\ See 87 FR 64405, 64411 (premising the discussion on the 
observation that if the Exception applies to the blanket license, 
``then it is not clear why it would only apply to the payee, as the 
MLC's prior rulemaking comments seem to suggest'') (emphasis added).
    \150\ See id.
---------------------------------------------------------------------------

2. Individual Download Licenses
    The Office received few comments responding to the SNPRM's analysis 
regarding individual download licenses. The American Association of 
Independent Music and the Recording Industry Association of America 
(``A2IM & RIAA'') sought ``to clarify ambiguity in [the sections of the 
proposed rule about individual download licenses and voluntary 
licenses] and to ensure that the proposed rule will not affect the 
status quo as it applies to record companies' mechanical licensing and 
payment practices.'' \151\ They stated that ``the broadened scope of 
the current SNPRM in fact could have unintended consequences for record 
company practices in ways that are contrary to both the law and 
established industry practice, and in a manner that is not

[[Page 56595]]

necessary to the Office's regulation of the [MLC].'' \152\
---------------------------------------------------------------------------

    \151\ A2IM & RIAA SNPRM Initial Comments at 1.
    \152\ Id.
---------------------------------------------------------------------------

    Regarding individual download licenses, A2IM & RIAA agreed with 
parts of the Office's legal analysis of the Exception, but said that 
``in a regulation about the MLC's recognition of deductions from 
royalties that would otherwise be due under the blanket license, [the] 
proposed language is opaque and potentially confusing.'' \153\ They 
said that:
---------------------------------------------------------------------------

    \153\ Id. at 2-3.

    [T]he main point is that a termination pursuant to Section 203 
or 304 does not affect an individual download license, so a blanket 
license royalty deduction for usage pursuant to an individual 
download license that was appropriate prior to termination remains 
so after termination. The regulations should state that plainly, 
rather than the language that is currently proposed. In any event, 
it should be clear that [this provision] does not mean that a record 
company that relied on an individual download license for the 
creation of a sound recording cannot continue to rely on that 
license for distribution of the recording (in download form or 
otherwise) after termination of the author's publishing 
agreement.\154\
---------------------------------------------------------------------------

    \154\ Id. at 3.

    The Office disagrees that the language is confusing. The provision 
clearly provides that the Exception does not apply to an individual 
download license, and further states that, for avoidance of doubt, no 
one may be understood to be the copyright owner or royalty payee of a 
work used under an individual download license based on an 
interpretation or application of the Exception. A2IM & RIAA's statement 
that a termination ``does not affect an individual download license'' 
is accurate.\155\ But it is important to recognize that, as explained 
in the NPRM and SNPRM, even though ``the license simply continues in 
effect according to its terms,'' under those terms, ``entitlement to 
royalties . . . travels with ownership of the copyright.'' \156\ 
``[W]henever a change is effectuated, whether via a contractual 
assignment or by operation of a statutory termination, the new owner 
becomes the proper payee entitled to royalties under the [individual 
download] license.'' \157\ This provision is meant to clarify the 
Exception's correct operation in light of the MLC's prior views.\158\
---------------------------------------------------------------------------

    \155\ See id.
    \156\ 87 FR 64405, 64410-11 & n.70; 88 FR 65908, 65911 & n.67.
    \157\ 87 FR 64405, 64411; 88 FR 65908, 65911 & n.67.
    \158\ See 87 FR 64405, 64406-07.
---------------------------------------------------------------------------

3. Voluntary Licenses
    The Office also received few comments regarding the SNPRM's 
discussion of voluntary licenses. A2IM & RIAA agreed with the SNPRM's 
description of the complexities involved, noting that ``record 
companies regularly obtain voluntary mechanical licenses rather than 
compulsory licenses, and generally pass through download rights to 
DMPs.'' \159\ They asserted that the ``[r]ights that the record company 
obtains from the pre-termination copyright owner are clearly preserved 
by the [Exception] when the record company relies on its voluntary 
mechanical license for the creation of either a first use recording or 
a cover.'' \160\ Based on this, A2IM & RIAA ``question the treatment of 
voluntary licenses in the proposed rule.'' \161\ They said that 
``[n]either the pre-termination nor post-termination copyright owner 
would be motivated to provide the required notice, when the effect of 
failing to give notice is that the DMP would in effect pay twice--once 
to the pre-termination copyright owner through the record company and 
once to the post-termination copyright owner through the MLC.'' \162\ 
They believed that ``[r]oyalty payments would more often be handled 
appropriately if the default assumption were that the [Exception] will 
apply to rights obtained by a record company under a voluntary license 
and passed through to a DMP.'' \163\
---------------------------------------------------------------------------

    \159\ A2IM & RIAA SNPRM Initial Comments at 3.
    \160\ Id.
    \161\ Id.
    \162\ Id. at 4.
    \163\ Id.
---------------------------------------------------------------------------

    The Digital Licensee Coordinator (``DLC'') raised similar concerns 
about potentially paying twice, stating that ``in no event can DMPs be 
in the position of double-paying the royalties at issue, potentially 
being subject to late fees as a result of any delay in payment to the 
correct rightsholder.'' \164\ In the DLC's view, ``the most sensible 
approach'' to dealing with disputes over the application of the 
Exception to voluntary licenses ``would be to not require any payment 
from the DMP to the MLC until the dispute is resolved.'' \165\
---------------------------------------------------------------------------

    \164\ DLC SNPRM Initial Comments at 3-4.
    \165\ Id. at 4.
---------------------------------------------------------------------------

    In subsequent comments, the DLC clarified that its ``concern arises 
with respect to the MLC's ability to demand payment when there is a 
dispute related to termination that involves one or more voluntary 
licensors.'' \166\ It explained that ``the circumstances where a 
voluntary license partner has a right to demand royalties 
notwithstanding who the MLC's records show is entitled to payment is 
ultimately a matter of private contract between the parties, and there 
is no industry standard approach to that issue.'' \167\ The DLC also 
said that it did not believe the statute requires the MLC to hold 
royalties pending the resolution of disputes over the application of 
the Exception to voluntary licenses because such disputes are not 
ownership disputes within the meaning of the statute.\168\ Based on 
these comments, the DLC does not appear to take issue with the 
possibility of double payments under the proposed rule where no dispute 
is initiated with the MLC.
---------------------------------------------------------------------------

    \166\ DLC Ex Parte Letter at 2 (Mar. 4, 2024).
    \167\ Id.
    \168\ Id. at 2-3.
---------------------------------------------------------------------------

    The Office does not believe that these comments warrant any 
substantive changes to the provision governing voluntary licenses. 
First, this provision does not embody a presumption or a default rule 
about the Exception as A2IM & RIAA suggested. Rather, it is a 
regulatory application of legal precedent establishing that the pre-
termination copyright owner bears the burden of proving that the 
Exception applies.\169\ The Office continues to believe that ``it would 
not be prudent to attempt to craft a rule trying to account for how the 
Exception may or may not apply in every possible situation'' and that 
``the MLC should not exercise independent judgment regarding the 
application of the Exception to a voluntary license or its underlying 
grant of authority.'' \170\
---------------------------------------------------------------------------

    \169\ 88 FR 65908, 65912.
    \170\ Id.
---------------------------------------------------------------------------

    If the Office were to adopt the default assumption A2IM & RIAA 
requested, it would open the door to default assumptions in other 
voluntary license contexts. Moreover, doing so would require the MLC to 
determine, at minimum, whether the licenses at issue were indeed relied 
upon ``for the creation of either a first use recording or a cover.'' 
\171\ That is precisely the type of fact-finding and independent 
judgment the Office does not believe the MLC should be required to 
undertake in this context.
---------------------------------------------------------------------------

    \171\ See A2IM & RIAA SNPRM Initial Comments at 3-4.
---------------------------------------------------------------------------

    Second, given that the DLC does not appear to share A2IM & RIAA's 
concern about DMPs potentially double paying, the Office does not 
believe that any change to this aspect of the rule is warranted. The 
DLC made clear that this issue is one of private contract between the 
relevant parties.\172\ Even if that were

[[Page 56596]]

not the case, the possibility of making double payments in this context 
does not appear to be any different than in other contexts where a DMP 
may be caught in the middle of a dispute between purported copyright 
owners. Any time someone claims to be the owner of a copyright 
purportedly licensed to a DMP by someone else, it will need to decide 
which party to pay. Depending on the relevant contract's terms, the DMP 
may well decide to pay both parties to limit its potential liability 
for failing to pay the party who ultimately prevails in the dispute. 
Thus, the situation that could arise under the rule does not appear to 
be a special one necessitating a regulatory solution.
---------------------------------------------------------------------------

    \172\ DLC Ex Parte Letter at 2 (Mar. 4, 2024).
---------------------------------------------------------------------------

    With respect to the DLC's request that DMPs not be required to pay 
royalties to the MLC to be held pending the resolution of a dispute 
initiated with the MLC, the Office disagrees. As the Office explained 
in the SNPRM, even though ``a dispute as to the application of the 
Exception is not a dispute over ownership,'' ``a pre-termination 
copyright owner [should] be able to initiate a dispute with the MLC 
over the application of the Exception to a particular voluntary license 
or its underlying grant of authority, and . . . the MLC should hold 
applicable royalties pending resolution of such a dispute.'' \173\
---------------------------------------------------------------------------

    \173\ 88 FR 65908, 65919.
---------------------------------------------------------------------------

    Even if such a royalty hold is not required by the statute, the 
Office nevertheless finds it to be a reasonable and prudent approach to 
the administration of such disputes, as it ensures that the relevant 
funds will be available upon the resolution of the dispute. As between 
allowing a DMP to hold the relevant royalties versus the MLC, the more 
appropriate approach is for them to be held by the MLC, rather than a 
DMP with whom the purported copyright owner may have no relationship. 
Moreover, even if the Office did not require this, a DMP would risk 
late fees, or even default and termination of its blanket license, if 
it declined to pay the applicable royalties to the MLC and the 
voluntary licensor does not prevail in the dispute. Thus, the final 
rule has been clarified to state that the MLC shall invoice the 
relevant DMP for the applicable royalties.
    The DLC asked that if the Office adopts this approach, we ``provide 
guidance on how any interest accrued by the MLC during the pendency of 
a termination dispute is handled.'' \174\ Specifically, it requested 
that ``where resolution of the dispute results in a service paying the 
voluntary licensor, the interest should be paid back to the service 
(with any requirement to pay that interest onto the voluntary licensor 
dictated by the terms of the voluntary license).'' \175\ The DLC 
further said that ``where resolution of the dispute results in payment 
being made by the MLC to a blanket licensor, then any interest earned 
should be used to offset the MLC's administrative costs.'' \176\
---------------------------------------------------------------------------

    \174\ DLC Ex Parte Letter at 3 (Mar. 4, 2024).
    \175\ Id. at 3 n.10.
    \176\ Id.
---------------------------------------------------------------------------

    The Office had proposed that royalties held in connection with 
these kinds of disputes accrue interest, but did not elaborate 
further.\177\ Our intent was for the MLC to hold royalties in the same 
manner as any other held royalties under section 115(d)(3)(H)(ii).\178\
---------------------------------------------------------------------------

    \177\ 88 FR 65908, 65926.
    \178\ 17 U.S.C. 115(d)(3)(H)(ii)(I).
---------------------------------------------------------------------------

    The final rule makes three clarifications regarding the funds held 
due to a termination-related dispute involving a voluntary license. 
First, the applicable funds shall be held by the MLC in the same manner 
and at the same interest rate as any other held funds. Second, where 
the resolution of the dispute results in payment being made by the MLC 
pursuant to a blanket license, that payment must include accrued 
interest. In that situation, the Office sees no reason why the MLC or 
DMPs (through an offsetting of the MLC's costs) should profit from the 
fact that there was a dispute. Third, where the resolution of the 
dispute results in a DMP paying royalties to a voluntary licensor, the 
MLC must promptly return the held funds, including accrued interest, to 
the DMP, who then may or may not be required to pass that interest on 
to the voluntary licensor depending on the terms of their agreement.
    The Office disagrees with the MLC that ``under the explicit 
language of [section 115(d)(3)(H)], interest earned . . . can only be 
for the benefit of copyright owners,'' such that ``such accrued 
interest cannot be transmitted to [DMPs] for their own benefit (or to 
be disposed of in their discretion), even where royalties are 
ultimately refunded to [DMPs] as associated with voluntary licenses.'' 
\179\ Section 115(d)(3)(H) does not apply in the context of funds held 
during disputes over the application of the Exception to voluntary 
licenses.
---------------------------------------------------------------------------

    \179\ MLC Ex Parte Letter at 5-6 (Mar. 22, 2024).
---------------------------------------------------------------------------

    First, section 115(d)(3)(H) provides requirements for the holding 
of royalties and accrual of interest with respect to ``unmatched'' 
works.\180\ As discussed above, disputes over the application of the 
Exception are not ownership disputes.\181\ Since ownership is not in 
question, and the owner would need to already be registered with the 
MLC for there to even be a dispute of this kind, the works at issue in 
such a dispute would not be ``unmatched'' within the meaning of the 
statute.\182\
---------------------------------------------------------------------------

    \180\ See 17 U.S.C. 115(d)(3)(H).
    \181\ 88 FR 65908, 65919.
    \182\ See 17 U.S.C. 115(e)(35) (``The term `unmatched', as 
applied to a musical work (or share thereof), means that the 
copyright owner of such work (or share thereof) has not been 
identified or located.'').
---------------------------------------------------------------------------

    Second, section 115(d)(3)(H) does not apply through section 
115(d)(3)(G)(i)(III)(bb), which provides that the MLC shall ``deposit 
into an interest-bearing account, as provided in subparagraph (H)(ii), 
royalties that cannot be distributed due to . . . a pending dispute 
before the dispute resolution committee of the [MLC].'' \183\ Such 
disputes are described in section 115(d)(3)(K)(i) as ``disputes 
relating to ownership interests in musical works licensed under this 
section.'' \184\ The Office reiterates that a dispute over the 
application of the Exception is not an ownership dispute. It is a 
dispute over the legal effect of a valid termination.\185\
---------------------------------------------------------------------------

    \183\ See id. at 115(d)(3)(G)(i)(III)(bb).
    \184\ Id. at 115(d)(3)(K)(i).
    \185\ 88 FR 65908, 65919.
---------------------------------------------------------------------------

    For these reasons, the Office is regulating how the MLC should 
handle these types of disputes and the associated royalties and 
interest. With respect to the interest issue, we believe the most 
equitable approach is for the MLC to pay the interest along with the 
royalties, regardless of to whom such royalties are paid. The reason 
for requiring the accrual of interest is to make the applicable party 
whole for the time-value of money while the dispute is pending 
resolution. The Office is requiring the interest rate to be the same as 
for funds held under section 115(d)(3)(H)(ii) because that is a rate 
that Congress, by enacting it as part of the MMA, has found to be 
reasonable. Where there is a voluntary license at issue, whether the 
DMP or the voluntary licensor is to be made whole is up to the relevant 
agreement. Therefore, depending on the terms of the agreement, either 
the DMP will be permitted to retain the interest for itself or will be 
required to pay it through to the voluntary licensor. A voluntary 
licensor should not gain a benefit beyond the terms of its agreement 
simply because the Office is requiring the disputed funds to be held at 
the MLC rather than at the DMP.

[[Page 56597]]

B. The Copyright Owner at the Time of the Use Versus the Copyright 
Owner at the Time of the Payment

    In both the NPRM and SNPRM, the Office proposed that the copyright 
owner at the time of the use is legally entitled to royalty 
distributions from the MLC unless the MLC is directed otherwise. In 
response to the SNPRM, the Office received numerous comments from 
publishers, songwriters, and other industry stakeholders expressing 
concern with that approach. As discussed below, their concerns related 
to whether the Office's understanding of the law conflicted with 
current music industry royalty administration practices or would cause 
administrative challenges for the MLC. In this final rule, the Office 
is adopting our earlier proposal with some modifications to address 
these operational concerns.
1. Background
    In addressing whether the owner at the time of the use or the owner 
at the time of the payment is entitled to blanket license royalties, 
the NPRM stated that a copyright owner is entitled to blanket license 
royalties at the moment in time when the use of the relevant musical 
work by a DMP occurs.\186\ The Office refers to this understanding as 
the ``owner at the time of the use'' approach.
---------------------------------------------------------------------------

    \186\ 87 FR 64405, 64412.
---------------------------------------------------------------------------

    The SNPRM provided further analysis of this approach, concluding 
that ``it appears that, absent an agreement to the contrary, the 
copyright owner who can sue a DMP for infringement due to non-payment 
of royalties under the blanket license is the copyright owner at the 
time the infringement was committed--i.e., at the time of the use. It, 
therefore, seems reasonable to the Office for that owner to be the one 
to whom such royalties are paid by the MLC.'' \187\ The Office's 
conclusion that the owner at the time of the use is entitled to the 
royalty distribution was based on both the MMA and broader copyright 
law principles.\188\ The SNPRM proposed regulatory text identifying the 
owner at the time of the use as the legally entitled party.
---------------------------------------------------------------------------

    \187\ 88 FR 65908, 65913.
    \188\ See id. at 65912 (reflecting the Office's statutory 
analysis).
---------------------------------------------------------------------------

    The Office, recognizing the importance of giving effect to private 
contracts that may call for different payment arrangements, also 
proposed that the rule ``would only establish the owner at the time of 
the use as the default payee--i.e., the proper payee to whom the MLC 
must distribute royalties and any other related amounts under the 
blanket license in the absence of an agreement to the contrary.'' \189\ 
We then proposed additional provisions to govern notification of the 
MLC about alternative payee designations, such as through letters of 
direction, ``to accommodate and give effect to contractual payment 
arrangements that deviate from this default rule.'' \190\
---------------------------------------------------------------------------

    \189\ Id. at 65913.
    \190\ Id. at 65913-14, 65916-17.
---------------------------------------------------------------------------

    Finally, the NPRM also proposed that the MLC should use the last 
day of the relevant monthly reporting period to identify the proper 
copyright owner for that month's royalty distribution. The Office 
suggested that doing so would be in line with the monthly reporting and 
royalty distribution process created by the MMA and our regulations and 
would make the rule reasonably administrable for the MLC, compared to 
requiring the MLC to identify the copyright owner entitled to royalties 
on a day-to-day basis.\191\ The Office sought comments on this proposed 
approach, including whether some other point in time might be 
appropriate.\192\
---------------------------------------------------------------------------

    \191\ 87 FR 64405, 64412.
    \192\ Id.
---------------------------------------------------------------------------

2. Comments
    Comments from publishers, songwriters, and other industry 
stakeholders expressed concern with the owner at the time of the use 
approach.\193\ Many of these parties favored an approach where 
royalties would be distributed to the copyright owner identified in the 
MLC's records as of the date of each monthly royalty distribution. The 
Office refers to this as ``the owner at the time of the payment'' 
approach.
---------------------------------------------------------------------------

    \193\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM 
Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24, 
2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM 
Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1-
2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom 
Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial 
Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music 
SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial 
Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music 
SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial 
Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial 
Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM 
Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments; 
Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs 
SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at 
1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM 
Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments; 
Jody Williams Songs SNPRM Initial Comments at 1-2; Concord Music 
Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply 
Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The 
Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply 
Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA 
SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply 
Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8; 
DLC SNPRM Reply Comments at 2-4.
---------------------------------------------------------------------------

    At a high level, commenters' primary concerns with the owner at the 
time of the use approach were practical ones. Specifically, they 
asserted that this approach is not a standard practice in the music 
industry and is contrary to how industry contracts generally work, that 
it will be burdensome and disruptive across the industry (including to 
the MLC), and that it will result in inaccurate and delayed payments 
(including to songwriters).\194\
---------------------------------------------------------------------------

    \194\ Examples of other issues raised by the comments include 
that: it may upset commercial expectations and cause problems with 
financial modeling and reporting; it may lead to an increase in 
fraudulent claims; implementation would require the development of 
new data and processing systems and new reporting formats and 
standards across the entire industry that will be costly and time-
consuming to create; once a publisher's or administrator's rights 
period expires, they should not be burdened with the expense and 
liability of needing to ensure that any future income they receive 
flows through to the current owner to whom rights have been 
transferred; former publishers and administrators are not set up to 
distribute royalties to former songwriter partners, and practically 
would not have current contact or banking information available to 
make such distributions to their former songwriters; the choice of 
songwriters to change publishers or administrators should be 
honored, and they should not be forced to continue a relationship 
with their former representative with respect to these royalties 
that may be inefficient or lack transparency and accountability; it 
will lead to lower match rates and more unmatched royalties at the 
MLC, especially for pre-2021 periods.
---------------------------------------------------------------------------

    A few commenters supported the Office's legal conclusions regarding 
the proper copyright owner who is entitled to blanket license 
royalties.\195\ Others suggested a bifurcated approach to addressing 
the issue. For example, the Music Artists Coalition (``MAC'') said 
that, in the termination context, the payee should be the owner at the 
time of the use, but for everything else, it should be the owner at the 
time of the payment.\196\ Similarly, NMPA, as a ``compromise,'' 
proposed regulatory text based on the NPRM that ``applies a time of use 
rule solely in the termination context.'' \197\ It argued, however, 
``that a rule providing for payment to the owner at the time of 
distribution in all contexts is the more appropriate one.'' \198\
---------------------------------------------------------------------------

    \195\ See, e.g., Howard SNPRM Initial Comments at 1-2; King, 
Holmes, Paterno & Soriano LLP SNPRM Reply Comments.
    \196\ MAC Ex Parte Letter at 2 (Dec. 29, 2023).
    \197\ NMPA Ex Parte Letter at 2 (Jan. 24, 2024).
    \198\ Id.
---------------------------------------------------------------------------

3. Legal Entitlement to Blanket License Royalties
    Despite the lack of support from commenters, few addressed the

[[Page 56598]]

statutory text or the Office's legal analysis. Only NMPA and the MLC 
provided substantive arguments that the MMA's statutory language and 
legislative history support the MLC distributing royalties to the owner 
at the time of the payment.\199\
---------------------------------------------------------------------------

    \199\ NMPA SNPRM Initial Comments at 11-13; MLC SNPRM Initial 
Comments at 4-11. NMPA also made an argument based on language used 
by the Office in the NPRM's analysis of the Exception which stated 
that the ``current copyright owner'' is entitled to blanket license 
royalties, that owner ``can change over time'' and, after such a 
change, ``the new owner becomes the proper payee.'' NMPA SNPRM 
Initial Comments at 11 (citing 87 FR 64405, 64411; 88 FR 65908, 
65912). To clarify, the Office's use of the term ``current'' was 
intended to identify that the proper payee is the copyright owner 
concurrent with the time the work was used. While the last copyright 
owner in time may be the proper payee, we were not suggesting that 
this is necessarily always the case.
---------------------------------------------------------------------------

    NMPA conceded that the Office's proposal ``is not based on an 
unreasonable legal interpretation.'' At the same time, it asserted that 
``unless the statute is clear, a legal interpretation of relevant 
statutory provisions should not cause disruption in a private, 
functioning market.'' \200\ It also disagreed with the Office's 
statutory analysis and proposed a different reading. NMPA's statutory 
arguments referred to sections 115(d)(3)(G)(i)(II) and 115(d)(3)(J)(i) 
(provisions governing royalty distributions), stating that they must be 
read together with sections 115(d)(3)(E)(i) and 115(d)(3)(E)(ii)(II)-
(III) (provisions governing the MLC's ownership database). Relying on 
those provisions, NMPA stated:
---------------------------------------------------------------------------

    \200\ NMPA SNPRM Initial Comments at 11.

    The MLC is . . . not directed by statute to maintain . . . 
historical copyright ownership or chain of title information within 
its musical works database. Because the MLC does not maintain in the 
musical works database records that would enable it to identify the 
``copyright owner'' at the precise time of use, and the ``copyright 
owner'' as identified in the musical works database is always the 
then-current copyright owner (and not the owner at the time of use 
or at some other prior time), the direction to pay ``copyright 
owners in accordance with . . . the ownership and other information 
contained in the records of [the MLC]'' should be read as a 
direction to pay the owner at the time of payment.\201\
---------------------------------------------------------------------------

    \201\ Id. at 12 (second and third alterations in original).

    NMPA then referred to section 115(d)(3)(I), asserting that ``once a 
match is made, all the accrued royalties with respect to such 
previously unmatched work are paid to the then-current copyright owner 
to which the work has been matched. There is no requirement for the MLC 
to determine which portion of those royalties may relate to uses made 
at a time when a different (potentially not yet identified) copyright 
owner owned the work.'' \202\ NMPA concluded by stating that it ``does 
not believe that the sections referred to by the [Office] support a 
different conclusion,'' as those provisions ``do not address the issue 
of who has the statutory right to receive Blanket License royalty 
payments.'' \203\
---------------------------------------------------------------------------

    \202\ Id. at 12-13.
    \203\ Id. at 13.
---------------------------------------------------------------------------

    The MLC made similar statutory arguments, referencing some of the 
MMA's same sections,\204\ as well as its legislative history.\205\ 
Similar to NMPA, the MLC asserted that ``[t]he MMA directive to 
distribute royalties based on the `information in [its] records' is 
most appropriately read to mean that The MLC is to distribute royalties 
to the copyright owners' current registered payee.'' \206\
---------------------------------------------------------------------------

    \204\ MLC SNPRM Initial Comments at 4-7 (referencing 17 U.S.C. 
115(d)(3)(G)(i)(II), 115(d)(3)(J)(i), 115(d)(3)(E)(i)-(ii), and 
115(d)(3)(I)).
    \205\ Id. at 4-11. Regarding legislative history, the MLC 
primarily pointed to there being ``no mention or contemplation of 
the creation of a database that includes temporal histories of past 
ownership'' and that a description of the provisions concerning 
market share-based distributions of unclaimed royalties ``conveys an 
understanding that royalties would be paid to the entities that 
currently represent songwriters, not to an entity that may have 
represented the songwriter in the past but is no longer authorized 
to do so.'' Id. at 8-9 (citing H.R. Rep. No. 115-651, at 7-9, 13 and 
S. Rep. No. 115-339, at 8-9, 14).
    \206\ Id. at 5-6.
---------------------------------------------------------------------------

    The Office acknowledges the practical consequences of our analysis 
in the SNPRM. However, those practicalities do not create legal 
entitlements or change the terms of title 17, absent contractual or 
other arrangements. While sections 115(d)(3)(G)(i)(II) and 115(d)(3)(I) 
provide the ``copyright owner'' with legal entitlement to the 
royalties, neither they nor the other cited provisions speak to which 
copyright owner possesses such entitlement between the owner at the 
time of the use or the owner at the time of the payment.\207\ That is 
why the Office engaged in the analysis it did in the NPRM and 
SNPRM.\208\
---------------------------------------------------------------------------

    \207\ Nor do these provisions necessarily require that there be 
only a single payee contained in the MLC's records for each work (or 
share). At best, these provisions are silent on that issue. The 
MLC's reliance on legislative history is similarly misplaced, as 
their cited references also do not appear to directly speak to this 
issue. In particular, market share-based distributions of unclaimed 
royalties are a unique feature of the MMA, and whatever the meaning 
of the specific provisions governing that special type of 
distribution--which is a matter beyond the scope of this 
proceeding--they do not speak to the legal entitlement to or 
distribution requirements for blanket license royalties that have 
not yet become ``unclaimed'' within the meaning of the statute. See 
17 U.S.C. 115(d)(3)(J), (e)(34).
    \208\ 88 FR 65908, 65912 (explaining that the analysis regarding 
the owner at the time of the use versus the owner at the time of the 
payment issue concerned the Office's proposal ``[t]o codify its 
preliminary conclusion that the statute entitles the `current 
copyright owner' to the royalties under the blanket license'').
---------------------------------------------------------------------------

    The MMA's references to the MLC's records do not resolve this 
issue. They merely provide instructions as to how the MLC shall 
distribute royalties to legally entitled copyright owners. Such 
distributions must be made to such copyright owners ``in accordance 
with . . . the ownership and other information contained in the records 
of the [MLC].'' \209\ Those records contain important information about 
how to make the distribution, including contact, banking, and other 
information about the owner, as well as whether payment is to be made 
to an administrator or other representative or designee.\210\
---------------------------------------------------------------------------

    \209\ See 17 U.S.C. 115(d)(3)(G)(i)(II).
    \210\ See, e.g., 37 CFR 210.31(b)(1)(iii), (b)(1)(v)(D).
---------------------------------------------------------------------------

    Of course, the statute's direction to the MLC to make distributions 
based on the information in its records does not resolve any underlying 
dispute regarding who is entitled to the royalty distribution. Clearly, 
the MLC can only distribute royalties based on known information. But 
what the MLC ``knows,'' based on its records, could turn out to be 
wrong, for example, if an imposter managed to successfully register a 
fraudulent ownership claim, or a legitimate copyright owner 
accidentally but erroneously claimed a work in good faith. If the 
statute is understood to confer entitlement to the royalties on 
whomever is identified in the MLC's records, it creates a conflict with 
the rest of the statutory text that confers this entitlement on the 
copyright owner. Moreover, such a reading would provide perverse 
incentives for parties to race to submit as many fraudulent claims to 
the MLC as possible in the hope of gaining such legal entitlement. 
Congress did not intend to create such an absurd scheme, whereby 
claimants who may be intentionally lying can obtain legal entitlement 
to royalties for uses of copyrighted works instead of the actual 
copyright owners.
    Thus, while the individual or entity legally entitled to the 
royalties and the individual or entity actually receiving the 
distribution from the MLC will, in most cases, be the same, this will 
not always be the case. If they are not the same, being identified in 
the MLC's records alone will not alter or prejudice the true copyright 
owner's legal entitlement to those royalties. The Office concludes that 
this is the only reasonable way to read the MMA's

[[Page 56599]]

instructions to the MLC regarding distributions.
    With respect to the Office's further analysis contained in the NPRM 
and SNPRM, to the extent NMPA or the MLC is suggesting that Congress 
meant to establish a special exception regarding copyright ownership or 
royalty entitlement in connection with the blanket license, the Office 
disagrees. As explained in the SNPRM, reading section 501(b) in 
conjunction with section 115(d)(4)(E)(ii)(II) (which directly 
references section 501), ``it appears that, absent an agreement to the 
contrary, the copyright owner who can sue a DMP for infringement due to 
non-payment of royalties under the blanket license is the copyright 
owner at the time the infringement was committed--i.e., at the time of 
the use.'' \211\ This is the best reading of the statute: that Congress 
expected the party who is legally entitled to the royalties and the 
party who is legally permitted to sue a DMP for infringement for the 
nonpayment of such royalties to be one and the same. That understanding 
is best reflected in section 115(d)(4)(E)(ii)(II)'s cross reference to 
section 501. If Congress had intended an exception to the operation of 
section 501(b) for infringement cases related to the blanket license, 
it would have articulated one. The Office recognizes that legal 
entitlements can be varied by contract, but that variation is not 
relevant to understanding how the statute works absent any such 
agreement's terms.
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    \211\ 88 FR 65908, 65913.
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    Some commenters suggested to the Office that potential concerns 
over the time of use approach are addressed through contract.\212\ But 
contract terms stating that acquiring publishers will be paid royalties 
for pre-acquisition uses of musical works imply agreement with the 
Office's conclusions about default royalty entitlement in the absence 
of a relevant agreement. Additionally, most of the comments addressing 
the time of use approach focused on concerns related to business 
practices (e.g., paperwork, royalty processing, data tracking) rather 
than the law. While such concerns are relevant to the practical 
administrability of the rule, and support certain changes the Office 
ultimately made to the final rule (which are discussed below), they 
have no bearing on the statutory analysis discussed above or in the 
NPRM or SNPRM.
---------------------------------------------------------------------------

    \212\ See, e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM 
Initial Comments at 4-5 & n.4, 10; Kobalt Music SNPRM Initial 
Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 1; 
Sony Music Publ'g SNPRM Initial Comments at 1-2; Spirit Music Grp. 
SNPRM Initial Comments at 1; Concord Music Publ'g SNPRM Initial 
Comments at 2; Universal Music Publ'g Grp. SNPRM Reply Comments at 
2.
---------------------------------------------------------------------------

    Based on the foregoing, as well as the relevant discussion in the 
NPRM and SNPRM, the Office is adopting the owner at the time of the use 
rule as final, but only with respect to identifying who is legally 
entitled to blanket license royalties under the statute as a default 
matter. Unlike the SNPRM, the final rule does not mandate that the MLC 
may only make distributions to either the owner at the time of the use 
or an alternative payee specifically designated by such owner.\213\ 
Rather, it contains a new provision (detailed in the section below) 
governing how the MLC is to make royalty distributions based on the 
information in its records.
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    \213\ Despite this change, the final rule still provides that 
the relevant owner is the owner as of the last day of the monthly 
reporting period in which the work is used pursuant to a blanket 
license. While the Office's original reasoning for that was 
partially based on concerns about requiring the MLC to manage day-
to-day ownership changes occurring mid-month, it also rested on the 
fact that the MMA established a monthly-based reporting scheme for 
DMPs. 87 FR 64405, 64412. The Office relies on the latter in 
adopting the final rule. See 17 U.S.C. 115(d)(4)(A).
---------------------------------------------------------------------------

    As discussed above, the MLC's records are not determinative with 
respect to who is legally entitled to royalties. At the same time, the 
Office agrees with NMPA and the MLC that section 115(d)(3)(G)(i)(II) 
directs the MLC to make distributions in accordance with the 
information in its records.\214\ The Office has therefore decided to 
adopt two provisions--one that describes who is legally entitled to the 
royalties and another that directs to whom the MLC shall distribute 
royalties. The two provisions avoid confusion, making clear that the 
MLC's distribution does not mean that the recipient is legally entitled 
to those royalties, but instructing the MLC regarding the distributions 
that it should make. Adopting regulations directing the MLC to act, 
unaccompanied by regulations identifying who is legally entitled to the 
royalties, could create a misunderstanding regarding proper application 
of the law. But, as discussed below, aligning the legal entitlement 
with the directive to the MLC in all cases would be administratively 
infeasible. The new distribution provision instead enables the MLC to 
make royalty distributions to the owner at the time of the payment in 
accordance with the standard industry practice for which commenters 
expressed virtually universal support.
---------------------------------------------------------------------------

    \214\ 17 U.S.C. 115(d)(3)(G)(i)(II).
---------------------------------------------------------------------------

    Some commenters continued to voice concerns with the Office 
articulating who is legally entitled to the royalties as a default 
matter, even when coupled with the new distribution provision discussed 
below.\215\ The Office has considered these concerns, but declines to 
remove the entitlement provision from the final rule. Especially 
considering the new distribution provision discussed below, the Office 
believes it is important to provide a clear statement of the party who 
is legally entitled to blanket license royalties as a default matter.
---------------------------------------------------------------------------

    \215\ See NMPA Ex Parte Letter at 1-2 (Jan. 24, 2024); MLC Ex 
Parte Letter at 3 (Feb. 5, 2024); MAC & NSAI Ex Parte Letter at 1 
(Feb. 12, 2024).
---------------------------------------------------------------------------

    First, the Office is always mindful of potential unintended 
consequences that may stem from its rules. To the extent the Office's 
legal conclusions may differ from the practices of certain industry 
participants, those differences seem to be based on expectations 
arising out of contracts or business norms, not title 17. Moreover, 
failure to explain that entitlement to royalties is based on the time 
of the use could lead to confusion and the mistaken impression that the 
MLC's royalty distributions, which are based on information in its 
records at the time of the payment--principally for administrative 
convenience--reflects a determination of entitlement. On balance, the 
best way to minimize confusion is for the Office to articulate our 
interpretation of the statute.
    Second, the Office disagrees with the argument that the rule is 
unnecessary because private agreements will govern anyway. That 
argument presupposes that every private agreement will speak to this 
issue. Nothing in the record indicates that this is universally true, 
indicating there is at least some subset of contracts as to which this 
provision will be applicable.\216\ Moreover, this argument presupposes 
that all transfers are contractual, which is incorrect.
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    \216\ The Office, of course, does not mean to suggest that this 
provision should in any way override the intent of contracting 
parties if an agreement is ambiguous. If the parties disagree as to 
whether an agreement conveyed the entitlement to the applicable 
royalties, the usual standards under applicable state law for 
construing private contracts would still apply. The MLC should treat 
any such disagreement like an ownership dispute.
---------------------------------------------------------------------------

    Finally, the Office disagrees that the existence of non-contractual 
transfers, like intestate succession or bankruptcy, weigh against this 
rule, as their existence does not change the statutory analysis 
discussed above and in the SNPRM. The Office has, however, clarified in 
the final rule that the entitlement to royalties can be

[[Page 56600]]

transferred and that the default royalty entitlement provided for is 
subject to any such transfer.
4. The MLC's Distribution of Royalties Based on Its Records
    As mentioned above, the final rule includes a new provision to 
address the MLC's royalty distributions based on the information in its 
records, as required by section 115(d)(3)(G)(i)(II). The new regulation 
has four main parts summarized here.
i. Default Royalty Distribution Practices Regarding Ownership and the 
MLC's Records
    The first part of the regulation provides that, when making a 
distribution, the MLC shall treat the individual or entity identified 
in its records as of the date of the payee snapshot used for the 
applicable distribution as legally authorized to receive the 
distribution (e.g., meaning that such party is the owner at the time of 
the use (or such owner's representative or designee) or a successor in 
interest to such owner's entitlement to the royalties (or such 
successor's representative or designee)). In other words, the MLC is to 
distribute royalties based on its records and to assume that whoever is 
in its records is legally entitled to the distribution, subject to the 
additional provisions below. By making royalty distributions to the 
owner reflected in the MLC's records on the date of the payee snapshot 
(i.e., at the time of the payment), the MLC will be acting in 
accordance with widespread industry practice without contravening the 
statute. One commenter called it ``an elegant solution.'' \217\
---------------------------------------------------------------------------

    \217\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024); see also 
MCNA et al. Ex Parte Letter at 1-2 (Mar. 15, 2024) (articulating 
qualified support for this solution in the termination context and 
subject to other various caveats, calling it ``a reasonable and 
practical solution that accounts for both business considerations 
and the protection of creators' rights under the law in termination 
rights situations'').
---------------------------------------------------------------------------

    This default distribution provision is both consistent with the 
language of the statute and responsive to the MLC's request for the 
``inclusion of a provision confirming that [it] can distribute 
royalties for a musical work to the current payee registered in its 
database.'' \218\ The Office concludes that the new provision is a 
reasonable and appropriate approach which facilitates the MLC's 
administration of royalty distributions. Moreover, this result was 
overwhelmingly supported by commenters. The comments made clear that 
the party identified in the MLC's records at the time of the payee 
snapshot (or its representative or designee) will be the party who is 
legally entitled to the distribution in the vast majority of 
cases.\219\ Permitting the MLC to act on the information in its records 
will lead to accurate payments without overburdening copyright owners 
and the MLC with new, potentially significant, data, reporting, and 
payment requirements, which could result in a delay in royalty 
distributions.\220\
---------------------------------------------------------------------------

    \218\ MLC Ex Parte Letter at 3-4 (Feb. 5, 2024); see also MLC Ex 
Parte Letter at 1 (Feb. 21, 2024); MLC Ex Parte Letter at 1 (Mar. 
22, 2024); Warner Chappell Music SNPRM Reply Comments at 5-6 (``[I]n 
light of the undisputed comments to the SNPRM detailing how and why 
the U.S. and international music publishing industry is universally 
built on maintaining current information for--and paying--the then-
current owner or administrator, Warner Chappell advocates for 
adopting that as a default rule.''); NMPA SNPRM Initial Comments at 
10 (``[A] `default rule' should be the rule that applies in the vast 
majority of cases, and should not be the rule that applies only in 
exceptional cases.'').
    \219\ See, e.g., MLC SNPRM Initial Comments at 11 (``[I]n most 
industry agreements the current payee typically has the right to 
receive royalties for all periods (both prospective and historical). 
Thus, a default rule that provides for payments to be made to the 
current payee (a result that is consistent with most industry 
agreements) would produce more accurate results than a default rule 
that provides for payments to be made to a historical payee (a 
result that does not align with most industry agreements.''); NMPA 
SNPRM Initial Comments at 4-5 (``[T]he custom and practice in the 
music industry is for royalties to be paid to the owner of the 
copyright at the time of payment rather than at the time of use, 
unless a different arrangement is agreed to between that copyright 
owner and a different payee, e.g., the prior owner/assignor of the 
copyright. This custom and practice is memorialized in industry 
contracts and the royalty and administration systems of publishers, 
administrators, and CMOs are built around that custom and practice. 
In other words, the industry `default rule' is the opposite of the 
`default rule' proposed in the SNPRM.''); Kobalt Music SNPRM Initial 
Comments at 2 (``The administrator who is registered at the time of 
a distribution is nearly always the entity that all royalties should 
be paid to, and this is how industry contracts and CMOs generally 
operate. Any exceptions to this practice would be the distinct 
minority.''); Sony Music Publ'g SNPRM Initial Comments at 1-2 (``The 
Prior Owner Rule is inconsistent with the contracts around which the 
music publishing industry is built. . . . When music catalogues are 
bought and sold, the terms of the acquisition documents generally 
provide that the acquiring party has the right to collect all income 
after the date of sale.''); Universal Music Publ'g Grp. SNPRM Reply 
Comments at 2 (``Under industry contracts, where rights are 
transferred or revert, the right to receive royalties (including 
those previously earned but not yet paid) generally follows the 
rights. . . . The Time of Use Rule will therefore . . . usually 
result in payment to the wrong party under the relevant contractual 
arrangements.''); Warner Chappell Music SNPRM Reply Comments at 5 
(``[A]ny rule that would establish the `default payee' as anyone 
other than the current rightsholder at the time of the payment will, 
by definition, carry a real and inherent risk of compelling payment 
to someone not entitled to received it. . . . [T]he U.S. and 
international music publishing industry is universally built on 
maintaining current information for--and paying--the then-current 
owner or administrator.''); Big Machine Music SNPRM Initial Comments 
at 2 (``I have never seen a copyright transfer that doesn't include 
a letter of direction to effectively set out the process for the new 
owner to receive all future income.''); Reservoir Media Mgmt. SNPRM 
Initial Comments at 2 (``There is nothing to gain from some of these 
changes beyond a mirage of accuracy that is not in alignment with 
actual collection rights.''); SONA SNPRM Reply Comments at 3 
(``Songwriters, publishers, and other third parties acquiring and/or 
licensing publishing rights in the music industry transfer rights, 
including the right to administer and collect royalty income, as of 
a specific date of transfer so that the party that is newly entitled 
to administer, collect and receive income in connection with the 
particular works will do so as of that specific effective date 
regardless of when those monies were earned.''). Other commenters 
also noted that this practice is not completely universal, and that 
there may be exceptions. See, e.g., MLC SNPRM Initial Comments at 
11; NMPA SNPRM Initial Comments at 4-5; Kobalt Music SNPRM Initial 
Comments at 2; Sony Music Publ'g SNPRM Initial Comments at 1-2; 
Universal Music Publ'g Grp. SNPRM Reply Comments at 2; Warner 
Chappell Music SNPRM Reply Comments at 6 (``In the rare instance 
where parties actually intend for someone other than the current 
owner or administrator to receive an MLC distribution, those parties 
are best positioned to so notify the MLC.'').
    \220\ The Office acknowledges that this default distribution 
provision could lead to the ``wrong'' result with respect to the 
narrow category of post-termination royalties paid for pre-
termination uses. In such cases, the pre-termination copyright owner 
remains entitled to those royalties absent a contrary agreement 
because the reversion of the copyright by operation of law does not 
encompass the additional entitlement to those royalties. The Office 
nevertheless finds the default distribution provision to be 
reasonable in these cases in light of the reduced burden it places 
on the MLC, the various exceptions to the default distribution 
provision discussed below, as well as comments from publishers 
suggesting agreement with the end-result of having the MLC 
distribute post-termination royalties for pre-termination uses to 
the post-termination owner. See, e.g., NMPA NPRM Initial Comments at 
6; CMPA NPRM Initial Comments at 2 (``Although it may not be in the 
financial interest of the pre-termination owner, . . . it would be 
CMPA's recommendation that any and all adjustments of this nature be 
paid to the current copyright owner (that being the post-termination 
owner) at the time of the payment, and not at the time when the 
usage was made.''); see also NMPA SNPRM Initial Comments at 5 
(``[I]t is the custom and practice in the industry for the new owner 
or the songwriter to whom rights have been assigned or reverted to 
be paid all unpaid royalties regardless of when they were 
earned.'').
    Additionally, the comments suggested that at least some 
publishers do not wish to receive such royalties due to the 
administrative burdens involved in sharing those royalties with 
former songwriter partners. See, e.g., NMPA SNPRM Initial Comments 
at 8; Kobalt Music SNPRM Initial Comments at 3 (``In our experience, 
former administrators in general are not set up to distribute 
royalties to their former songwriters, and almost no one--not even 
the former administrators themselves--wants them to continue to 
receive those royalties once all rights periods expire.''); Big 
Machine Music SNPRM Initial Comments at 1-2 (``The collection and 
re-distribution of this income to the new owner creates an 
additional administrative burden for our company, taxes the human 
resources of my team and creates an unwanted liability for us 
without any benefit.''); Me Gusta Music SNPRM Initial Comments at 2; 
Relative Music Grp. SNPRM Initial Comments at 1. By including these 
royalties within the MLC's default distribution provision, it allows 
publishers to choose for themselves how they would like to handle 
these situations. They can do nothing, and the royalties will be 
distributed to the post-termination owner. Or, if they wish to 
assert their entitlement to the royalties, they can defeat the 
default distribution provision and obtain them by simply notifying 
the MLC, as discussed below.

---------------------------------------------------------------------------

[[Page 56601]]

    However, the Office recognizes that there may be instances where 
the MLC's distribution of royalties to the owner at the time of the 
payment under the default distribution provision would result in an 
improper party being paid. Therefore, the Office has included 
clarifications and limitations. First, any distribution made by the MLC 
is not a determination of a party's legal entitlement to the royalties 
and does not prejudice any such party's legal claim. The purpose of the 
default distribution provision is to reduce burdens, gain efficiencies, 
and enhance accuracy by applying industry practice to the MLC's 
distributions. It does not alter anyone's underlying legal rights--
especially if the MLC, in relying on this provision, ends up 
distributing royalties to an individual or entity who is not legally 
entitled to them. The MLC specifically supported the inclusion of such 
a provision.\221\
---------------------------------------------------------------------------

    \221\ MLC Ex Parte Letter at 2 (Feb. 21, 2024).
---------------------------------------------------------------------------

    Second, the default distribution provision does not apply where 
there is a dispute between parties or an investigation by the MLC 
covering the applicable works (or shares) or payees. The reference to 
an investigation is meant to include situations where the MLC may be 
looking into, for example, a potentially fraudulent registration or 
claim. The purpose is to make clear that where the MLC has knowledge 
that there is a cloud over the ownership of the relevant work (or 
share), it must continue holding royalties until that cloud has 
cleared.
    Third, the default distribution provision does not apply if the MLC 
has been ``notified otherwise.'' This language is meant to cover 
circumstances where the MLC receives information that would indicate to 
a reasonable person that the payee identified in its records is not in 
fact entitled to the royalty distribution. In enacting the statutory 
requirement for the MLC to distribute royalties pursuant to its 
records, Congress did not intend for the MLC to knowingly make 
inaccurate payments after being expressly informed otherwise.\222\ 
Whether particular information received is sufficient, or whether any 
such information is adequately substantiated, for the MLC to actually 
be ``notified'' is a matter the Office leaves to the MLC's reasonable 
discretion based on its experience, practices, and policies, subject to 
the Office's guidance.\223\
---------------------------------------------------------------------------

    \222\ See H.R. Rep. No. 115-651, at 9 (referring to ``the 
efficient and accurate collection and distribution of royalties'' as 
the MLC's ``highest responsibility''); S. Rep. No. 115-339, at 9 
(same); Conf. Rep. at 7 (same).
    \223\ While the MLC suggested that such notifications will 
always take the form of disputes, the Office cautions that this 
might not always be the case. See MLC Ex Parte Letter at 1-2 (Mar. 
22, 2024). That is why the final rule provides separate explicit 
provisions for both disputes and where the MLC is notified 
otherwise. The notification provision is meant to be broader to 
encompass other possible scenarios outside of a formal dispute. 
While the degree of overlap between the two provisions may be 
substantial, it is not necessarily total.
---------------------------------------------------------------------------

ii. The Default Distribution Provision Does Not Change the MLC's Duty 
To Verify the Accuracy of Royalty Distributions
    The next part of the provision states that despite the default 
distribution provision, the MLC must continue to engage in reasonable 
efforts to verify the information provided to it and to combat against 
fraudulent registrations and claims. This provision is not intended to 
require the MLC to engage in additional efforts beyond those it 
currently undertakes, but rather to ensure that it continues to engage 
in such efforts after the rule is enacted.\224\ An examination of the 
MLC's current such efforts and their sufficiency is beyond the scope of 
this proceeding.
---------------------------------------------------------------------------

    \224\ See MLC Ex Parte Letter at 5 (Feb. 21, 2024) (explaining 
that the MLC ``has substantial review processes in place to prevent 
fraudulent or improper claiming and diversion of royalties''); see 
also U.S. Copyright Office, Unclaimed Royalties: Best Practice 
Recommendations for the Mechanical Licensing Collective iii, 60 
(2021), https://copyright.gov/policy/unclaimed-royalties/unclaimed-royalties-final-report.pdf (``[T]he MLC should have mechanisms in 
place to help review, verify, and quality-check information, and 
recognize problems like conflicts, inconsistencies, inaccuracies, 
and potential fraud.'').
---------------------------------------------------------------------------

iii. The MLC Must Still Correct Its Own Errors
    The final part of the provision is meant to codify and clarify a 
point made in the SNPRM that ``[w]here the MLC distributes royalties to 
the wrong payee due to an error on the MLC's part . . . , the MLC must 
correct its error in a timely fashion.'' \225\ The regulation makes 
clear that the applicable type of error is one caused by the MLC's 
actions, as opposed to where the MLC acts in accordance with the 
default distribution provision or otherwise reasonably relies on 
information provided to it by others that turns out to be 
inaccurate.\226\ The reference to the MLC's actions encompasses the 
actions of its employees, but the Office also intends for it to cover 
actions of others acting on its behalf.
---------------------------------------------------------------------------

    \225\ 88 FR 65908, 65918 n.137.
    \226\ See MLC Ex Parte Letter at 2 (Mar. 22, 2024).
---------------------------------------------------------------------------

C. Matched Historical Royalties

    Outside the context of the owner at the time of the use versus the 
owner at the time of the payment issue, the Office received few 
comments regarding our proposal that the MLC report and distribute 
matched historical royalties in the same manner and subject to the same 
requirements that apply to the reporting and distribution of blanket 
license royalties.\227\ Notably, the MLC supported this proposal by 
including it in its own regulatory proposal and no commenters appear to 
have objected.\228\ The Office is, therefore, adopting this portion of 
the SNPRM as final for the reasons stated in the SNPRM.\229\
---------------------------------------------------------------------------

    \227\ See 88 FR 65908, 65914.
    \228\ See MLC SNPRM Reply Comments, App. A. at iii-iv.
    \229\ 88 FR 65908, 65914.
---------------------------------------------------------------------------

D. Ownership Transfers and Royalty Payee Changes

    The final rule retains the overall framework and structure from the 
SNPRM with respect to the provisions governing notice to and 
implementation by the MLC of ownership transfers and other royalty 
payee changes.\230\ The Office, however, has made several changes from 
the SNPRM.
---------------------------------------------------------------------------

    \230\ See id.
---------------------------------------------------------------------------

1. Notice of a Change to the MLC
    The SNPRM contained detailed and tailored notice requirements based 
on the type of payee change at issue. It proposed such requirements for 
the following circumstances: (1) transfers of copyright ownership other 
than by will or operation of law; (2) transfers of copyright ownership 
by statutory termination; (3) other transfers of copyright ownership; 
and (4) designations of alternative royalty payees.\231\
---------------------------------------------------------------------------

    \231\ Id. at 65914-17.
---------------------------------------------------------------------------

    In response to the SNPRM, several commenters criticized the non-
termination-related notice requirements, including on the ground that 
the Office does not need to regulate standard operational processes, 
like those concerning contractual transfers and letters of direction, 
for which the MLC has well-functioning systems in place.\232\ 
Commenters also contended

[[Page 56602]]

that the SNPRM's requirements were unworkable or unduly 
burdensome.\233\
---------------------------------------------------------------------------

    \232\ See e.g., Kobalt Music SNPRM Initial Comments at 3; Spirit 
Music Grp. SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM 
Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 10.
    \233\ See e.g., NMPA SNPRM Initial Comments at 4, 14-15; Spirit 
Music Grp. SNPRM Initial Comments at 2; Farris, Self & Moore, LLC 
SNPRM Initial Comments at 1; Warner Chappell Music SNPRM Reply 
Comments at 7-8; Universal Music Publ'g Grp. SNPRM Reply Comments at 
2 n.1; Reservoir Media Mgmt. SNPRM Initial Comments at 2.
---------------------------------------------------------------------------

    The MLC echoed these comments and submitted a regulatory proposal 
that largely retained the Office's proposed requirements for 
termination-related transfers, but replaced the other notice 
requirements with a catch-all provision providing that such notice be 
made in accordance with requirements established by the MLC.\234\ Few 
commenters supported the Office's proposal with respect to non-
termination-related notices.\235\
---------------------------------------------------------------------------

    \234\ MLC SNPRM Reply Comments at 3-5, App. A at iv-xii; MLC 
SNPRM Initial Comments at 18-20; MLC Ex Parte Letter at 2 (Mar. 22, 
2024) (explaining ``the need for flexibility to incorporate evolving 
industry practices into processes to effectuate the various types of 
transfers and payee changes that occur in the normal course of 
business for rightsholders'').
    \235\ See, e.g., Promopub SNPRM Initial Comments at 5.
---------------------------------------------------------------------------

    Based on these comments, the Office has scaled back the notice 
requirements, generally in line with the MLC's proposal. Outside of the 
termination context, it does not appear that regulation is currently 
necessary. Instead, the Office is issuing a rule directing the MLC to 
adopt a written policy reflecting its practices and requirements for 
non-termination-related notices. The Office will monitor this area and 
will consider potentially adopting regulations in the future if 
presented with a record reflecting a need to intervene.
i. Non-Termination-Related Transfers of Copyright Ownership and Royalty 
Payee Changes
    As discussed above, the final rule omits the previously proposed 
requirements for non-termination-related notices and replaces them with 
a directive for the MLC to adopt and publish requirements for such 
notices. More specifically, the final rule provides that parties 
seeking to make payee changes outside the context of a termination must 
notify the MLC pursuant to such reasonable requirements as it 
establishes and makes publicly available on its website. To the extent 
the MLC does not already have such a policy on its website as of the 
date this final rule is published in the Federal Register, the MLC will 
have 60 days to adopt one and make it public, unless the Office permits 
an extension.
    Additionally, there is one aspect of the SNPRM regarding non-
termination-related notices that the final rule retains. In response to 
the NPRM, the Songwriters Guild of America et al. (``SGA et al.'') 
proposed specific requirements to apply where the MLC is asked by the 
terminating party to implement an agreement directing it to pay post-
termination royalties to the pre-termination copyright owner.\236\ SGA 
et al. was concerned about contractual overreach by publishers 
requiring the execution of anticipatory letters of direction as part of 
publishing deals.\237\ The Office included the proposal as part of the 
SNPRM, explaining that ``[b]ased on the current record, the proposal 
seems to be a reasonable safeguard, even if there is no such overreach 
at present.'' \238\ No commenter specifically opposed this proposal, 
and the MLC included it in its regulatory proposal.\239\ The Office 
has, thus, retained most of the proposal in the final rule with some 
minor conforming edits.\240\
---------------------------------------------------------------------------

    \236\ 88 FR 65908, 65917.
    \237\ Id.
    \238\ Id.
    \239\ MLC SNPRM Reply Comments, App. A. at vi-vii.
    \240\ The final rule does not include the requirement that such 
a notice must include ``a clear statement stipulating that neither 
the notice nor the distribution of royalties by the mechanical 
licensing collective in accordance with the notice prejudices the 
rights of either party'' as such a requirement would be unnecessary, 
considering that the regulations also require the notice to be 
signed after the effective date of termination.
---------------------------------------------------------------------------

ii. Transfers of Copyright Ownership by Statutory Termination
    In contrast to the Office's proposal on non-termination-related 
notices, commenters generally did not oppose the Office's proposal on 
notices to the MLC about payee changes resulting from statutory 
terminations. Indeed, multiple commenters affirmatively supported 
it.\241\ For example, MAC et al. said that they ``fully support the 
Office's proposal,'' calling it ``simple, practical and efficient.'' 
\242\ The MLC ``welcome[d] regulatory clarity from the Office'' on this 
topic \243\ and said that ``[m]uch of the provisions concerning 
termination procedure are consistent with MLC practice, or could be 
implemented.'' \244\ The MLC and other commenters, however, proposed 
modifications to the Office's proposal to address discrete concerns.
---------------------------------------------------------------------------

    \241\ See, e.g., MLC SNPRM Initial Comments at 20; MLC SNPRM 
Reply Comments at 3; MAC et al. SNPRM Initial Comments at 2-3; 
Promopub SNPRM Initial Comments at 5. Despite its general support, 
Promopub also expressed concern that ``[i]f the terminating party 
has already been subjected to a dispute process at the MLC, the pre-
termination copyright owner/prior payee should not have another 
opportunity to add salt to the wound by way of the proposed Rule 
creating another notification and dispute cycle.'' Promopub SNPRM 
Initial Comments at 5. To clarify, these notice requirements and the 
dispute mechanism contained within them are only effective 
prospectively. This means that if a terminating party previously 
notified the MLC about an effective termination and the MLC 
acknowledged the sufficiency of that notice, then nothing in the 
final rule would require the terminating party to submit a new 
notice to the MLC.
    \242\ MAC et al. SNPRM Initial Comments at 2-3.
    \243\ MLC SNPRM Reply Comments at 3.
    \244\ MLC SNPRM Initial Comments at 20.
---------------------------------------------------------------------------

    Based on the comments and the discussion in the SNPRM, the Office 
is adopting as final the proposed notice requirements regarding payee 
changes resulting from statutory terminations with the modifications 
discussed below.
a. Whether the Notice Requirements Should Be a Floor
    The Office disagrees with the MLC's proposal to turn the notice 
requirements into a floor.\245\ While the Office acknowledged in the 
SNPRM that the proposed information that must be submitted to the MLC 
might not provide sufficient information to process and implement the 
ownership change in some cases, the Office also proposed a means by 
which the MLC could obtain the minimum necessary information to 
implement the change.\246\ In doing so, the Office explained that 
``[t]his may be a better approach than requiring terminating parties to 
provide additional information to the MLC at the outset that they may 
not readily have and which may not be needed to implement the change.'' 
\247\
---------------------------------------------------------------------------

    \245\ See MLC SNPRM Reply Comments, App. A at v.
    \246\ 88 FR 65908, 65915-16.
    \247\ Id. at 65916.
---------------------------------------------------------------------------

    The Office continues to believe that this is the most appropriate 
approach. Turning the requirements into a floor would allow the MLC to 
request additional and potentially unnecessary information that may be 
challenging to produce up front, which was precisely the concern that 
led to the Office's proposal.\248\ As further discussed below, if the 
initial submission to the MLC lacks what it needs, the MLC can request 
additional information at that point.
---------------------------------------------------------------------------

    \248\ Id. at 65915-16.
---------------------------------------------------------------------------

b. Treatment of Notices Containing Multiple Works
    The Office agrees with Linda Edell Howard that the rule should be 
clarified to recognize that a single notice--whether a change notice to 
the MLC or a statutory notice of termination submitted to the Office 
for recordation--may identify more than one musical

[[Page 56603]]

work, and that the relevant statuses of those works may be 
different.\249\ The final rule makes clear that, in such cases, any 
implication as to one work does not affect another listed in the same 
notice. Each work must be treated independently. This is clarified 
throughout the final rule, including in the notice, implementation, and 
dispute provisions.
---------------------------------------------------------------------------

    \249\ See Howard SNPRM Initial Comments at 4, 6, 8.
---------------------------------------------------------------------------

    For example, if there is a dispute as to one work, but not another 
in the same change notice submitted to the MLC, the MLC must still 
implement and give effect to the change with respect to the work that 
is not in dispute (assuming that there are no other issues). The same 
is true where the MLC has sufficient information to implement the 
change as to one work, but not for another from the same notice. As 
another example, if a notice of termination identifying multiple 
musical works is timely recorded in the Office as to some works but not 
others, assuming that there are no other issues, the MLC should 
implement the termination of those as to which the notice is timely 
recorded, even though the works with untimely recorded notices cannot 
be terminated.
c. Requirement To Provide the Statutory Notice of Termination
    Linda Edell Howard asserted that it can sometimes be difficult or 
expensive to obtain a copy of the notice of termination submitted to 
the Office for recordation.\250\ She did not, however, make any 
alternative suggestions. The Office continues to believe that providing 
a copy of the actual notice of termination is reasonable and not unduly 
burdensome.
---------------------------------------------------------------------------

    \250\ Id. at 4.
---------------------------------------------------------------------------

d. Requirement To Provide Proof of Recordation or Proof of Submission 
to the Office for Recordation
    The Office agrees with the MLC's proposal to clarify that the proof 
of submission of the statutory notice of termination to the Office must 
reflect that it was submitted before the effective date of 
termination.\251\ For a notice of termination to be timely recorded, it 
must be received by the Office before the effective date.\252\
---------------------------------------------------------------------------

    \251\ See MLC SNPRM Reply Comments, App. A at v.
    \252\ See 37 CFR 201.10(f)(1)(ii)(A), (f)(3).
---------------------------------------------------------------------------

    The Office disagrees with ClearBox Rights that the proof of 
recordation requirement should be dropped because it is ``cumbersome 
and potentially not necessary.'' \253\ ClearBox Rights made three 
arguments to support its position. First, it contended that it ``would 
prove to be an administrative burden on the MLC to maintain a schedule 
of such notices to be delivered.'' \254\ This argument is unpersuasive 
given that the MLC did not object to this requirement and included it 
in its regulatory proposal.\255\ Moreover, the rule does not require 
the MLC to maintain any such schedule.
---------------------------------------------------------------------------

    \253\ See ClearBox Rights SNPRM Reply Comments at 9-10.
    \254\ Id. at 9.
    \255\ See MLC SNPRM Reply Comments, App. A at v.
---------------------------------------------------------------------------

    Second, ClearBox Rights asserted that ``there may be instances 
where the Copyright Office has not yet recorded such documents for 
various reasons, including that perhaps one copyright out of many on 
the notice is under review or possibly not valid.'' \256\ It argued 
that the ``lack of recordation or delay of recordation of one document 
with many copyrights because one or more copyrights is in question for 
further review should not negatively impact the other copyrights on 
that document.'' \257\ The Office does not believe that these concerns 
are grounds for eliminating the proof of recordation requirement. While 
the Office agrees, as discussed above, that the rule should accommodate 
notices identifying multiple works and that each work should be handled 
individually, timely recordation is still required by the statute ``as 
a condition to [the termination] taking effect.'' \258\ Thus, the MLC 
should not implement a change as to a particular work until proof of 
recordation of the relevant notice of termination for that work is 
delivered.
---------------------------------------------------------------------------

    \256\ ClearBox Rights SNPRM Reply Comments at 10.
    \257\ Id.
    \258\ See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A).
---------------------------------------------------------------------------

    Third, ClearBox Rights noted that ``recordation of the termination 
at the Office may never happen.'' \259\ It said that it has ``seen 
instances where a notice of termination was filed, and the pre-
termination owner acknowledges the termination to be effective even 
though there was an issue in the notice filing or recordation.'' \260\ 
ClearBox Rights explained that ``[s]ometimes the pre-termination owner 
will simply overlook the technical issues of the termination process 
and grant the rights back to the post-termination party.'' \261\ Linda 
Edell Howard made similar statements, noting that sometimes the pre-
termination copyright owner ``waives the recordation requirement.'' 
\262\
---------------------------------------------------------------------------

    \259\ ClearBox Rights SNPRM Reply Comments at 10.
    \260\ Id.
    \261\ Id.
    \262\ Howard SNPRM Initial Comments at 4.
---------------------------------------------------------------------------

    The Office does not believe that these possible problems provide 
any basis to not require proof of recordation. As noted above, timely 
recordation is a statutory condition for the termination to be 
effective.\263\ If the termination is not effective, no rights change 
hands pursuant to section 203 or 304. To the extent the pre-termination 
copyright owner nevertheless acquiesces to the attempted termination, 
that may simply result in an ordinary transfer of copyright ownership 
from the pre-termination copyright owner to the terminating party. As 
such, it would be subject to the requirements for notifying the MLC 
about a non-termination-related change, rather than a termination-
related change.
---------------------------------------------------------------------------

    \263\ 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A).
---------------------------------------------------------------------------

    Based on the foregoing discussion, however, the Office concludes 
that the final rule should clarify that a termination-related payee 
change notice submitted to the MLC can be withdrawn or converted into a 
non-termination-related payee change notice pursuant to such reasonable 
requirements as the MLC establishes and makes publicly available on its 
website. The scenarios raised by the commenters demonstrate a need for 
flexibility.
    Regarding Ms. Howard's question about what proof will qualify if 
notices of termination are recorded with the Office though electronic 
means,\264\ the Office reiterates that ``[a]dequate proof of timely 
recordation could be demonstrated by either providing the MLC with a 
copy of the certificate of recordation or the record as reflected in 
the Office's online public catalog,'' and that ``[a]dequate proof of 
submission to the Office for recordation could take the form of courier 
tracking or a delivery confirmation, a return receipt from the Office, 
or some other communication from the Office confirming receipt.'' \265\ 
The eventual ability to submit notices of termination through the 
Office's online Recordation System will not impair the availability of 
adequate proof. For example, while courier tracking or delivery 
confirmation would not be available, the remitter would instead have 
such proof in the form of an electronic communication from the Office 
confirming receipt.
---------------------------------------------------------------------------

    \264\ Howard SNPRM Initial Comments at 4.
    \265\ 88 FR 65908, 65915.
---------------------------------------------------------------------------

e. Requirement To Identify the Relevant Works
    The Office declines the MLC's proposal to add a requirement to

[[Page 56604]]

provide ``[a] satisfactory identification of all musical works subject 
to the notice of termination identified by appropriate unique 
identifiers.'' \266\ The MLC said that this is needed because it 
``cannot implement a change in ownership of musical works without 
knowing which musical works are subject to the change in ownership.'' 
\267\ As the Office previously explained in the SNPRM, the regulations 
governing the content of statutory notices of termination (which must 
be submitted to the MLC as part of the change notice) already provide 
for an identification of each work.\268\ While the Office acknowledged 
in the SNPRM that such identification might not provide the MLC with 
sufficient information to process and implement the ownership change in 
some cases, the Office also proposed a means, further discussed below, 
by which the MLC could obtain the minimum necessary information.\269\ 
The Office agrees with other commenters ``that the default position 
should be to make it as easy as possible for a terminating songwriter 
to comply with processes to effect their right.'' \270\ Thus, we 
decline to include a requirement that unique identifiers for all 
musical works must be provided up front. As further discussed below, if 
the MLC ultimately needs them for certain works, it can request them 
after attempting to implement the change based on the information in 
the notice.
---------------------------------------------------------------------------

    \266\ MLC SNPRM Reply Comments, App. A at v.
    \267\ Id. at 3.
    \268\ 88 FR 65908, 65915 & n.112 (citing 37 CFR 
201.10(b)(1)(iii), (b)(2)(iv)).
    \269\ Id. at 65915-16.
    \270\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024).
---------------------------------------------------------------------------

f. The MLC's Duty To Request Additional Necessary Information
    In the SNPRM, the Office proposed that where a compliant 
termination-related change notice does not provide the MLC with 
sufficient information to process and implement the ownership change, 
the MLC should engage in best efforts to identify the minimum necessary 
information, including through correspondence with both the terminating 
party and pre-termination copyright owner (or their respective 
representatives).\271\ The MLC expressed concern with this proposal, 
stating that it is ``not clear if this reference to `best efforts' is 
meant to imply a responsibility to make findings as to what works are 
subject to termination.'' \272\ The MLC said that the requirement to 
correspond with the relevant parties ``is a reasonable step'' and that 
it ``does not object to making reasonable efforts to reach out to 
parties where paperwork is incomplete.'' \273\ It said, however, that 
it ``cannot itself identify the `relevant musical works,' make 
decisions itself about what is contained in private contracts that may 
be subject to termination, or determine what works are, or are not, 
subject to termination in any particular disputed case.'' \274\
---------------------------------------------------------------------------

    \271\ 88 FR 65908, 65915-16.
    \272\ MLC SNPRM Initial Comments at 20.
    \273\ Id. at 20-21.
    \274\ Id. at 21.
---------------------------------------------------------------------------

    The Office is clarifying this portion of the rule in light of the 
MLC's comments. To eliminate any confusion, the ``best efforts'' 
language has been eliminated in the final rule, while the requirement 
to correspond has been retained. In doing so, the Office emphasizes 
that the final rule's reference to information that is ``insufficient 
to enable the [MLC] to implement and give effect to the termination'' 
is meant to be interpreted narrowly. In some cases, submitted 
information can be sufficient to enable the MLC to act, even if it must 
undertake certain reasonable efforts. For example, even if the 
identification of the works in the notice of termination does not 
appear sufficient on its face, perhaps lacking unique identifiers, the 
information is nevertheless considered sufficient if the MLC can act on 
the information after undertaking reasonable efforts to attempt to 
match the works identified in the notice of termination with the 
corresponding works in its records. The Office is not mandating that 
the MLC engage in exhaustive efforts or do this in all cases, but in 
the termination context, it should provide assistance within reason.
    Additionally, Promopub noted that there is no time limit on the MLC 
in this provision and said that ``delay should be assiduously 
avoided.'' \275\ It proposed that ``the MLC give notice of receipt of 
an appropriately documented claim within 15 calendar days of receipt'' 
and that, ``[i]f more information is required to process the claim, 
that explanatory notice should be given within 30 calendar days of 
receipt.'' \276\ It also wanted the MLC to establish a ``hot line'' and 
dedicated web pages that terminating parties can access for 
assistance.\277\ The Office agrees that the MLC should have dedicated 
web pages and other member support for terminating parties, and 
strongly encourages it to provide such support as soon as reasonably 
possible. The final rule adds the word ``promptly'' to signal that the 
MLC should move expeditiously, since, as discussed above, the Office 
expects the MLC to undertake some reasonable efforts in addition to 
correspondence. Should the Office become aware of widespread 
unreasonable delays, we can reconsider a specific timing requirement at 
a later date.
---------------------------------------------------------------------------

    \275\ Promopub SNPRM Initial Comments at 5-6.
    \276\ Id. at 6.
    \277\ Id.
---------------------------------------------------------------------------

    Lastly, the Office understands that this approach may lead to 
longer lead times before the MLC ends up implementing a change than if 
additional information were required to be submitted at the outset. As 
discussed above and in the SNPRM,\278\ the Office continues to believe 
that this is the better approach. However, we wish to encourage 
terminating parties to voluntarily provide additional useful 
information to the MLC, such as unique identifiers, as part of their 
initial notice submission if it is possible to do so. To that end, in 
amending its form for submitting termination-related payee change 
notices based on the final rule, the MLC could include fields for 
additional information it believes would be helpful in implementing the 
change, provided that the form clearly identifies those non-required 
fields as being optional.
---------------------------------------------------------------------------

    \278\ 88 FR 65908, 65915-16.
---------------------------------------------------------------------------

g. The Meaning of ``Terminating Party''
    The final rule clarifies the definition of ``terminating party.'' 
Throughout the rule, this term is used to refer to parties entitled to 
royalties from the MLC based on an effective termination and who may 
notify the MLC of such entitlement. This term is not defined by 
reference to who singed and served the statutory notice of termination.
    The SNPRM defined the term as ``the new musical work copyright 
owner.'' \279\ That language did not, however, account for the fact 
that the termination may not yet be effective at the time the payee 
change notice is submitted to the MLC, meaning that the relevant party 
is not the new owner at that point in time. The SNPRM's definition also 
did not clearly provide that a successor in interest to a terminating 
author or heir (e.g., their new publisher or administrator) can also be 
a ``terminating party'' within the meaning of the rule. Including 
successors in interest is necessary because there may be times where 
the termination becomes effective and reverted rights are re-granted 
before the MLC is notified. The final rule makes these clarifications.
---------------------------------------------------------------------------

    \279\ Id. at 65924.
---------------------------------------------------------------------------

    The Office disagrees with Linda Edell Howard that the term 
``terminating party'' ``should include only those who signed the notice 
of termination, not

[[Page 56605]]

those non-signatory heirs or authors,'' because ``[t]he non-signatory 
statutory heirs or authors are represented by those who signed and 
served the notice of termination.'' \280\ As noted above, this 
misunderstands the way the term ``terminating party'' is used 
throughout the rule.
---------------------------------------------------------------------------

    \280\ See Howard SNPRM Initial Comments at 6.
---------------------------------------------------------------------------

    The Office also disagrees that ``[i]nformation concerning non-
signatories should not be required to implement a change in copyright 
ownership and payee status, or reduce the percentage to be paid out.'' 
\281\ Each terminating party must be treated independently, just like 
any other copyright owner when there is more than one. That is why the 
MLC is only required to implement a change as to those terminating 
parties whose information is provided in the notice of change. That 
being said, to the extent a particular terminating party is in fact 
represented by another terminating party, as Ms. Howard suggested, or 
by someone else, then the information provided to the MLC would be for 
that representative.\282\
---------------------------------------------------------------------------

    \281\ See id.
    \282\ The Office further declines Ms. Howard's proposal to make 
the identification of the terminating party plural throughout the 
rule because ``[r]arely is the terminating party one individual.'' 
Howard SNPRM Initial Comments at 4. There are already specific 
provisions in the rule speaking to the case of multiple terminating 
parties (e.g., 37 CFR 210.30(c)(2)(v)), which means that the rest of 
the rule contemplates the possibility of there being more than one. 
Moreover, ``[i]n determining the meaning of any Act of Congress, 
unless the context indicates otherwise,'' ``words importing the 
singular include and apply to several persons, parties, or things.'' 
1 U.S.C. 1.
---------------------------------------------------------------------------

h. Verification Obligations
    In the SNPRM, the Office proposed that where the MLC has good 
reason to doubt the authenticity of the information submitted, such as 
the statutory notice of termination or proof of recordation, it should 
seek verification from the Office.\283\ The MLC proposed instead to 
require the submitter to seek verification from the Office and deliver 
documentation of such verification to the MLC.\284\ The MLC asserted 
that ``it would be inappropriate to shift to The MLC the role of 
monitoring and obtaining ownership documentation,'' and that 
``[m]embers must remain primarily responsible for the completeness and 
accuracy of their works registrations and claims, and it would be 
inefficient to shift this task to The MLC.'' \285\
---------------------------------------------------------------------------

    \283\ 88 FR 65908, 65915.
    \284\ MLC SNPRM Reply Comments at 3-4, App. A at v.
    \285\ Id. at 4.
---------------------------------------------------------------------------

    The Office agrees with the MLC's position. While we have endeavored 
to minimize the burden on a terminating party to have their termination 
implemented by the MLC, on reflection, it is more appropriate for the 
submitter to obtain whatever verification may be necessary. Therefore, 
the final rule provides that where authenticity is in doubt, the MLC 
shall either seek verification from the Office or request that the 
submitter provide such verification.
i. Dispute-Related Issues
    In the SNPRM, the Office proposed that where the MLC receives a 
payee change notice from the terminating party, it must inform the pre-
termination copyright owner within 15 days of receiving either the 
notice or the last piece of information necessary to implement the 
change, whichever is later.\286\ After being so notified, a pre-
termination copyright owner who disputes the termination would have 30 
days to initiate its dispute with the MLC before the MLC must implement 
the change.\287\ The Office agrees with Linda Edell Howard that the 
terminating party should be contemporaneously alerted when the MLC 
informs the pre-termination copyright owner.\288\ This way, the 
terminating party will know when the 30-day dispute period commences. 
We disagree, however, with Ms. Howard's proposal to shorten the 30-day 
period to 15 days.\289\ While the pre-termination copyright owner 
should already be on notice about the termination generally, the Office 
believes that 30 days is a reasonable amount of time after being 
notified that a change is being sought at the MLC, in case they wish to 
initiate a dispute, which requires providing specific documentation to 
the MLC that may take time to assemble.
---------------------------------------------------------------------------

    \286\ 88 FR 65908, 65916.
    \287\ Id.
    \288\ See Howard SNPRM Initial Comments at 5.
    \289\ See id.
---------------------------------------------------------------------------

2. Implementation of a Change by the MLC
    The SNPRM proposed various requirements to govern how the MLC 
implements and gives effect to a payee change, both in termination and 
non-termination contexts.\290\ Commenters generally did not oppose 
these requirements, though some raised discrete questions.\291\ The MLC 
generally supported the proposed requirements, including those for non-
termination-related changes.\292\ Based on the comments and the 
discussion in the SNPRM, the Office is adopting the proposed 
implementation requirements as final with the modifications discussed 
below.
---------------------------------------------------------------------------

    \290\ 88 FR 65908, 65917-18.
    \291\ See, e.g., MAC et al. SNPRM Initial Comments at 3; Howard 
SNPRM Initial Comments at 8-9.
    \292\ MLC SNPRM Reply Comments at 5, App. A at vii-ix, xi-xii; 
MLC SNPRM Initial Comments at 18 n.25.
---------------------------------------------------------------------------

i. Prospective Versus Retroactive Implementation
    In the SNPRM, the Office proposed that, where a relevant change is 
effective prior to the MLC's implementation, the MLC should be 
permitted, but not required, to implement it going back to its 
effective date, if requested in the notice to the MLC.\293\ In 
response, MAC et al. said that ``the MLC can and should implement payee 
changes going back to the date of the change, regardless of when 
implemented,'' and disagreed that it is too burdensome for the MLC to 
do so.\294\ Linda Edell Howard raised concerns about lag times in 
notifying the MLC in the termination context.\295\ The MLC 
``welcome[d]'' the Office's proposal.\296\
---------------------------------------------------------------------------

    \293\ 88 FR 65908, 65918.
    \294\ MAC et al. SNPRM Initial Comments at 3.
    \295\ Howard SNPRM Initial Comments at 9.
    \296\ MLC SNPRM Reply Comments at 5.
---------------------------------------------------------------------------

    The Office is not persuaded to alter the rule. In the SNPRM, the 
Office considered similar comments and weighed them against the MLC's 
concerns about such a requirement being overly burdensome.\297\ We were 
``inclined to agree with the MLC that retroactive implementation may be 
too administratively burdensome to require for every payee change,'' 
and noted that our regulations require only prospective implementation 
by the MLC in processing DMP voluntary licenses.\298\ The Office also 
``welcome[d] further comments on this issue,'' including on ``what is 
standard in the industry.'' \299\ The minimal comments received in 
response to the SNPRM do not meaningfully grow the record in a way that 
persuades the Office to impose this requirement on the MLC at this 
time.
---------------------------------------------------------------------------

    \297\ 88 FR 65908, 65918.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

ii. Timing
    In its regulatory proposal, the MLC proposed to soften the 
implementation deadlines the Office proposed, by replacing requirements 
to implement a change within a specified period of time with language 
requiring only ``reasonable efforts to'' do so.\300\ While the MLC's 
comments do not explain why they requested this change,

[[Page 56606]]

presumably it is to avoid technical violations of the regulations, such 
as due to circumstances beyond its control or where it inadvertently 
makes a mistake without realizing it (e.g., where an employee 
accidentally fails to enter the change into the system).\301\
---------------------------------------------------------------------------

    \300\ MLC SNPRM Reply Comments, App. A at vii.
    \301\ If the MLC wanted more time for all implementations, the 
Office believes it would have made that request more specifically. 
Notably, the SNPRM proposed to give the MLC at least 30 days to 
implement all changes, which was in line with an earlier request 
from the MLC. See MLC NPRM Initial Comments at 10-11. The proposal 
was also in line with the Office's rules governing the MLC's 
processing of DMP voluntary licenses. See 37 CFR 210.24(f).
---------------------------------------------------------------------------

    The Office declines to adopt the MLC's proposal, but has modified 
the final rule to address this issue. The provision's purpose is to set 
expectations for how the MLC will act, and that entails meaningful 
deadlines that parties to a payee change can rely on in conducting 
their business. The Office has imposed deadlines on the MLC's actions 
in other contexts and sees no reason not to do so here. We are not 
opposed, however, to providing the MLC with some leeway if an 
implementation deadline is accidentally missed.
    Under the final rule, in such a situation, the MLC must implement 
the change as soon as reasonably practicable, but no later than the 
next regular monthly royalty distribution that occurs either: (1) after 
the original implementation deadline; or (2) at least 30 days after the 
date that the MLC learns that the change was not implemented on time--
whichever is later. The Office believes that this solution gives the 
MLC reasonable flexibility without being so open-ended that the parties 
to a change have no idea when their change will be implemented.
    Importantly, the rule further provides that if the MLC is late in 
implementing the change, it must do so retroactively to the date of the 
original implementation deadline. The rule does not provide a separate 
deadline for making any corrective royalty adjustment. Rather, the 
Office expects the MLC to make any such adjustments in accordance with 
its regular practices. Regardless of any associated burdens, we believe 
this is a fair burden to place on the MLC when it fails to meet the 
rule's deadlines, even if that failure is accidental.
iii. Additional Provisions for Termination-Related Changes
    In the SNPRM, the Office proposed that where a compliant notice is 
accompanied by proof that the statutory notice of termination was 
submitted to the Office for recordation, but not proof that it was 
timely recorded, the MLC should hold applicable royalties pending 
receipt of proof of timely recordation.\302\ After the MLC receives 
proof of timely recordation, it would need to implement the change, 
which would include distributing the held funds to the terminating 
party.\303\ If, on the other hand, the Office refuses to record the 
notice or it is recorded on or after the effective date of termination, 
the MLC would need to release the funds to the pre-termination 
copyright owner.\304\ The Office further proposed that if proof of 
timely recordation is not received within 6 months, the MLC should 
contact the Office to confirm the status of the relevant recordation 
submission.\305\
---------------------------------------------------------------------------

    \302\ 88 FR 65908, 65917-18.
    \303\ Id. at 65918.
    \304\ Id.
    \305\ Id.
---------------------------------------------------------------------------

    No commenter objected to this proposal, but the MLC took exception 
to the part requiring it to contact the Office to confirm the status of 
the recordation submission.\306\ For the same reasons discussed above 
in Part III.D.1.ii.h., it proposed instead that the submitter be 
required to check the status with the Office and provide the MLC with 
documentation of the confirmed status.\307\ The MLC proposed that if 
the submission still remains pending, the submitter should provide 
monthly updates to the MLC.\308\ It further proposed that if the 
submitter fails to provide a monthly status confirmation, the MLC must 
then act in accordance with the other implementation provisions.\309\
---------------------------------------------------------------------------

    \306\ MLC SNPRM Reply Comments at 3-4, App. A. at viii-ix.
    \307\ Id.
    \308\ Id. at App. A at viii-ix.
    \309\ Id.
---------------------------------------------------------------------------

    On reflection, as with the provision discussed above in Part 
III.D.1.ii.h., the Office agrees with the MLC's general position that 
the obligation to confirm the status of the submission is more 
appropriately placed on the submitter. The Office, however, disagrees 
with the MLC's specific proposal. It would be unnecessary and overly 
burdensome for the terminating party to be required to contact the 
Office and provide the MLC with monthly updates. Instead, the final 
rule provides that the MLC may request periodic updates at its 
discretion.
    Additionally, the Office disagrees that if the terminating party 
fails to provide an update, the MLC should simply act in accordance 
with the rest of the implementation regulations. That would result in 
the funds being released to the pre-termination copyright owner. The 
Office does not believe the MLC should release the funds while the 
recordation status remains pending. Instead, the final rule provides 
that the MLC must hold the funds until it is informed of the notice of 
termination's final recordation status and then act accordingly. The 
rule purposefully does not specify who must provide that final status 
to the MLC. Where the result is a timely recordation, the terminating 
party will be incentivized to provide confirmation of the final status, 
but in other situations (e.g., where recordation is refused), the pre-
termination copyright owner would be incentivized to provide it so that 
the royalties do not remain on hold. Additionally, nothing prevents the 
MLC from contacting the Office directly, if it chooses to.
    Though not raised by commenters, the final rule also clarifies that 
the royalty hold should be lifted where the recordation submission to 
the Office is withdrawn by the remitter. There is no reason to hold 
royalties pending recordation where the recordation submission has been 
resolved. The omission of that scenario from the SNPRM was an 
unintentional oversight.

E. Disputes

1. Process and Documentation for Termination-Related Disputes
    The Office received few comments on our proposal for the handling 
of termination-related disputes. The MLC generally supported this 
aspect of the SNPRM.\310\ Another commenter, Linda Edell Howard took 
issue with the idea that the MLC could substantiate a dispute claim 
without hearing from the terminating party, and raised concerns about 
the power imbalance between the pre-termination copyright owner and 
terminating party in this context.\311\ While the Office appreciates 
these concerns, we decline to address these broader issues in the 
current proceeding for the reasons discussed in Part III.E.2. below. 
Moreover, some of Ms. Howard's concerns are connected to a subject of 
inquiry in a separate, open proceeding reviewing the MLC's statutory 
designation.\312\
---------------------------------------------------------------------------

    \310\ Id. at 5, App. A at ix-x.
    \311\ Howard SNPRM Initial Comments at 5-6 & n.3, 8 (discussing, 
among other things, how there is a one-sided ability to hold up 
royalties in a dispute to give the pre-termination copyright owner 
leverage over the terminating party).
    \312\ See 89 FR 5940, 5943 (Jan. 30, 2024) (requesting 
``information regarding: (1) any steps that the [MLC] is taking to 
protect against the incidence of fraudulent ownership claims and 
frivolous ownership disputes; and (2) whether these steps have been 
successful'').
---------------------------------------------------------------------------

    Based on the comments and the discussion in the SNPRM, the Office 
is adopting the proposed requirements

[[Page 56607]]

pertaining to termination-related disputes as final. In doing so, and 
as discussed above in Part III.A.3., we have added language to clarify 
the operation of the provision in the context of disputes concerning 
the application of the Exception to voluntary licenses.
    In adopting the final rule, the Office requests that the MLC's 
dispute resolution committee, which the MMA tasks with establishing the 
MLC's dispute policies, promptly establish a new policy for 
termination-related disputes that adheres to the requirements adopted 
in this final rule. The final rule sets certain key requirements based 
on the issues raised by commenters, but it is not a substitute for a 
comprehensive dispute policy.
2. Dispute Resolution
    The Office has decided to omit the proposed provisions about how 
disputes should be resolved from the final rule.\313\ Instead, unless 
and until the Office regulates in this area, disputes are to be 
resolved pursuant to the MLC's dispute policies. No one specifically 
supported the SNPRM proposal, and some commenters raised concerns with 
it.\314\ Other commenters raised other concerns and sought various 
regulations to address them. For example, North Music Group asked for 
the MLC to ``be prohibited from creating disputes on its own motion,'' 
or for there to at least be ``some process and constraints applicable 
to its actions.'' \315\ The record on these issues, however, is thin.
---------------------------------------------------------------------------

    \313\ See 88 FR 65908, 65919-20.
    \314\ See, e.g., MLC Ex Parte Letter at 5 (Feb. 5, 2024); Kobalt 
Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial 
Comments at 2; MAC et al. SNPRM Initial Comments at 3; Howard SNPRM 
Initial Comments at 8-9.
    \315\ North Music Grp. SNPRM Initial Comments at 3; see also, 
e.g., Howard SNPRM Initial Comments at 6, 8-9 (discussing concerns 
with power imbalances and how disputes could affect litigation with 
respect to ripeness and the statute of limitations).
---------------------------------------------------------------------------

    We do not take these dispute-related concerns lightly, but given 
the record of the proceeding, we decline to take up these issues at 
this time. The Office may, however, consider addressing them in a 
future proceeding where they can be more fully explored to determine 
whether any regulatory action may be needed. In the meantime, the 
Office requests that the MLC's dispute resolution committee consider 
the concerns raised by commenters, as well as the SNPRM's proposal to 
require ongoing active dispute resolution. In doing so, the Office asks 
the committee to: (1) examine whether such issues are arising in 
connection with disputes initiated with the MLC; (2) evaluate how these 
issues are addressed elsewhere in the industry; and (3) determine 
whether the MLC's dispute policies should be amended to address any of 
them.
3. Disclosure and Confidentiality
    In responding to the NPRM, the MLC asked for guidance about whether 
it ``should be required to disclose information about the royalties 
being held to the parties involved'' and stated that it ``typically 
does not disclose the amount of royalties on hold to the parties in a 
dispute pending agreement or resolution of a dispute.'' \316\ ClearBox 
Rights stated that the MLC should disclose the royalties on hold to 
parties involved in a dispute.\317\
---------------------------------------------------------------------------

    \316\ MLC NPRM Initial Comments at 13-14.
    \317\ ClearBox Rights NPRM Reply Comments at 6.
---------------------------------------------------------------------------

    Based on these comments, the SNPRM proposed amending the Office's 
confidentiality regulations to require that the MLC ``disclose the 
amount being held and reason for the hold to any individual or entity 
with a bona fide legal claim to such funds or a portion thereof.'' 
\318\ The Office reasoned that this requirement would put the parties 
``on equal footing in developing a strategy for resolving the dispute, 
including the negotiation of a settlement.'' \319\ The Office also 
proposed that the MLC ``provide the equivalent of monthly royalty 
statements for the amounts held along with monthly updates concerning 
the status of the hold.'' \320\ These proposed disclosure requirements 
were not exclusive to termination-related disputes.
---------------------------------------------------------------------------

    \318\ 88 FR 65908, 65919, 65927.
    \319\ Id. at 65919.
    \320\ Id.
---------------------------------------------------------------------------

    Commenters on this provision generally supported it, recognizing 
the value of disclosing the amount of royalties on hold to parties 
involved in the dispute.\321\ The MLC, however, voiced concerns over 
administrability and potential misuse.
---------------------------------------------------------------------------

    \321\ See Spirit Music Grp. SNPRM Initial Comments at 2 (``We do 
agree with the [Office's] position to disclose earnings and to 
provide royalty statements that are in suspense due to conflicts and 
disputes. We also agree the MLC portal should make this information 
visible.''); Promopub SNPRM Initial Comments at 7 (``In the context 
of a dispute, we agree with the Office that if royalties are being 
held, the MLC should disclose the held amounts to the parties and 
provide updates as necessary during the pendency of the dispute. 
This information may be valuable to the parties for purposes of 
resolving the dispute.'').
---------------------------------------------------------------------------

    The MLC stated that the proposed rule would be burdensome, involve 
significant manual processing, and divert resources from other 
duties.\322\ The MLC also stated that providing ``every party to a 
dispute'' with ``confidential information could . . . result in 
disclosure of confidential information to improper parties in some 
situations, and would be ripe for abuse,'' \323\ and that it had not 
received member complaints ``around such disclosures in the context of 
disputes or holds.'' \324\ Further, the MLC was concerned that the 
proposed regulation's use of the term ``bona fide legal claim'' was not 
a clear enough standard to administer, and that passing judgment on 
what is ``bona fide'' could expose it to liability.\325\ Finally, the 
MLC shared a general preference for prioritizing confidentiality and 
claimed that parties could obtain confidential information by agreement 
or via the legal process.\326\
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    \322\ MLC SNPRM Reply Comments at 8; MLC Ex Parte Letter at 4 
(Feb. 21, 2024). But see MLC Ex Parte Letter at 4-5 (Feb. 21, 2024) 
(suggesting that the MLC regularly discloses total amounts of 
royalties on hold to interested parties).
    \323\ MLC SNPRM Reply Comments at 7.
    \324\ MLC Ex Parte Letter at 3 (Mar. 22, 2024).
    \325\ MLC SNPRM Reply Comments at 7-8.
    \326\ Id. at 6-7.
---------------------------------------------------------------------------

    The MLC later stated that, in the context of a termination-related 
dispute, it could ``provide summary-level information to both the pre- 
and post-termination copyright owners'' at ``the outset of a dispute.'' 
\327\ This information would ``identify the approximate amount of 
royalties to be distributed to a work in the first distribution 
occurring after the hold is requested and will be based upon 
information in the monthly reports of usage that The MLC received and 
processed at the time of the request.'' \328\ The MLC noted its 
preference that the Office not include provisions governing periodic 
(or initial) updates, including until it ``has time to scope and 
develop a workable, systematic way to provide this information.'' \329\ 
If the Office were to retain such a requirement, those updates ``should 
be limited to where a disclosure has been affirmatively requested and 
should not be more frequently than quarterly, to limit the burden and 
diversion of resources from critical path activities.'' \330\
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    \327\ MLC Ex Parte Letter at 2 (Mar. 22, 2024). The MLC 
previously stated that it could ``provide the total amount of 
royalties being held in connection with disputed works'' in certain 
``discrete and low-volume'' circumstances, namely ``situations of 
agreement or legal process.'' MLC SNPRM Reply Comments at 8.
    \328\ MLC Ex Parte Letter at 2 (Mar. 22, 2024); see also MLC Ex 
Parte Letter at 4-5 (Feb. 21, 2024). Notwithstanding this offer, the 
MLC reiterated its concern that providing this information to 
parties for all disputes--i.e., not limited to parties in a 
termination-related dispute--would be burdensome. MLC Ex Parte 
Letter at 5 (Feb. 21, 2024).
    \329\ MLC Ex Parte Letter at 2 (Mar. 22, 2024).
    \330\ Id.
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    Based on the foregoing, the Office is retaining a version of this 
rule, while

[[Page 56608]]

narrowing its scope to make it easier for the MLC to administer. The 
final rule only applies to termination-related disputes, and limits 
disclosure requirements to the total amount of royalties being held and 
not the more granular information that would be contained in a royalty 
statement. It also reduces the periodic update requirement to apply 
only when requested by either party and only once a quarter. As the 
final rule applies to royalties being held pursuant to a termination-
related dispute, the phrase ``bona fide legal claim'' was eliminated 
from the regulatory text.

F. Corrective Royalty Adjustment

1. Background
    In the NPRM, the Office proposed a corrective royalty adjustment 
that would have ``require[d] the MLC to adjust any royalties 
distributed under [its now-suspended Termination Policy], or 
distributed in a similar manner if not technically distributed pursuant 
to the [Termination Policy], within 90 days.'' \331\ At the outset, the 
Office notes that the MLC estimates the corrective adjustment to 
involve ``less than $2 million'' and the ``total amounts that would 
likely change hands'' to terminating songwriters ``would be less than 
$1 million.'' \332\
---------------------------------------------------------------------------

    \331\ 87 FR 64405, 64412.
    \332\ MLC Ex Parte Letter at 4 (Feb. 21, 2024).
---------------------------------------------------------------------------

    The NPRM explained that the adjustment provision was intended ``to 
make copyright owners whole for any distributions the MLC made based on 
an erroneous understanding and application of current law.'' \333\ 
Responding to the NPRM, parties asked the Office for further guidance 
regarding ``how the proposed corrective royalty adjustment should 
work'' in practice.\334\ The SNPRM subsequently proposed ``a more 
detailed [regulation] that would lay out the operational procedures for 
the corrective royalty adjustment.'' \335\
---------------------------------------------------------------------------

    \333\ 87 FR 64405, 64412.
    \334\ 88 FR 65908, 65920 (citing MLC NPRM Initial Comments at 6-
8; ClearBox Rights NPRM Reply Comments at 3-4; ClearBox Rights Ex 
Parte Letter at 2-4 (June 28, 2023); Howard NPRM Initial Comments at 
6; Promopub NPRM Initial Comments at 2; Promopub NPRM Reply Comments 
at 3; North Music Grp. NPRM Reply Comments at 2).
    \335\ 88 FR 65908, 65920.
---------------------------------------------------------------------------

    The SNPRM proposed that ``the corrective adjustment would apply 
where the MLC's prior erroneous application of the Exception, whether 
or not through its [Termination Policy], affected: (1) the distribution 
of blanket license royalties or matched historical royalties; (2) the 
holding of such royalties; or (3) the deduction from a DMP's payable 
blanket license royalties made by matching usage to voluntary licenses 
or individual download licenses.'' \336\ For previously distributed 
overpayments made pursuant to the Termination Policy, the MLC would be 
required to notify the prior payee of the overpayment within thirty 
days, the prior payee would have thirty days to return the overpayment, 
and then the MLC would distribute those royalties to the proper payee 
with the next regular monthly royalty distribution. If the prior payee 
failed to repay the MLC, then the MLC would debit the prior payee's 
future royalties--up to 50% of payable royalties each month--until it 
recovered the overpayment.\337\ The SNPRM also proposed that the 
royalty recovery and distribution instructions would apply where the 
MLC matched usage to a voluntary licensee or individual download 
licensee who was not the proper payee under the rule.\338\ For 
royalties that were held by the MLC following the suspension of its 
Termination Policy, the SNPRM proposed that they would be paid to the 
proper payee no later than thirty days after the final rule's effective 
date.\339\ Finally, the SNPRM included a savings clause that would 
preserve the proper payee's right to recover the overpayment outside of 
the corrective adjustment process.\340\
---------------------------------------------------------------------------

    \336\ Id. at 65921.
    \337\ Id.
    \338\ Id. at 65923.
    \339\ Id.
    \340\ Id.
---------------------------------------------------------------------------

    The SNPRM did not propose ``any specific procedures'' addressing 
circumstances where ``a publisher [e.g., a prior payee] has already 
distributed a portion of the applicable royalties to its songwriters'' 
because that ``is a possibility with any type of adjustment for an 
overpayment.'' \341\ The Office, however, expressly sought further 
comments on that issue, including on a commenter's proposal that the 
MLC only recoup the publisher's share of those royalties.\342\
---------------------------------------------------------------------------

    \341\ Id. at 65921.
    \342\ Id. (citing ClearBox Rights Ex Parte Letter at 3-4 (June 
28, 2023); ClearBox Rights NPRM Reply Comments at 3-4).
---------------------------------------------------------------------------

2. Comments
    Several commenters, including songwriters, publishers, and others, 
favored a rule that includes a corrective adjustment.\343\ Promopub 
suggested a relatively more aggressive approach to the corrective 
adjustment. First, where ``a prior payee's accrued royalties for a 
month exceed the full amount owed to the proper payee by at least 
twenty-five [percent],'' it would require the MLC ``to deduct the full 
amount owed to the proper payee from such monthly accrued royalties.'' 
\344\ It also proposed that, if the proper payee was not paid back in 
full within six months of the MLC's initial corrective adjustment 
payment, the Office ``should require the terminated publisher to repay 
the balance to the MLC within 30 calendar days for the MLC to, in-turn, 
distribute to the proper payee within 30 calendar days of receipt.'' 
\345\
---------------------------------------------------------------------------

    \343\ See, e.g., BMG NPRM Initial Comments at 2 (``BMG fully 
supports . . . the requirement[] that . . . the MLC must pay post-
termination royalties to those parties who own the U.S. copyrights 
in the works at issue and adjust these parties' accounts in order 
that they may receive every dollar previously paid in error to 
terminated publishers.''); BMG NPRM Reply Comments at 1; Christian 
Castle NPRM Reply Comments at 4-5 (``Any curative action required by 
the Office should, of course, be retroactive.''); Promopub NPRM 
Reply Comments at 1-2 (noting that it ``fully supports the proposed 
repeal of the [MLC's Termination] Policy and the corresponding 
proposed royalties adjustments'' and that ``other collecting 
organizations regularly employ retroactive royalty adjustments when 
music publishing royalties have been paid erroneously''); North 
Music Grp. NPRM Reply Comments at 2 (supporting the rule's 
corrective adjustment); Miller NPRM Initial Comments at 1 
(supporting 90-day adjustment period for the MLC); NSAI SNPRM 
Initial Comments at 2 (supporting corrective adjustments made 
``retroactively''); SONA et al. NPRM Reply Comments at 3 (supporting 
the rule's corrective adjustment); ClearBox Rights NPRM Reply 
Comments at 3-4 (supporting the rule's corrective adjustment 
provision and noting disagreement with NMPA and CMPA); McAnally & 
North Ex Parte Letter at 3-4 (Mar. 14, 2023) (voicing that these 
parties ``categorically disagree'' that the rule should not be 
``retroactive''); MAC et al. SNPRM Initial Comments at 3-4; Howard 
SNPRM Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 
8-9.
    \344\ Promopub SNPRM Initial Comments at 3. Promopub suggested 
these amendments, based on its concern that publishers may not 
return overpayments immediately and would ``instead rely on the 
piecemeal monthly process offered.'' Id.
    \345\ Id.; see also Spirit Music Grp. SNPRM Initial Comments at 
3 (``[A]pplying 50% of the debt to the erroneous party, who may be 
earning only a few dollars, will result in never ending debt for the 
erroneously paid party. We realize the USCO is concerned with the 
financial impact to the incorrect party, but it is at the expense of 
the entitled party.'').
---------------------------------------------------------------------------

    Other commenters, however, disagreed that there should be a 
corrective adjustment, even though some of them supported post-
termination copyright owners receiving post-termination royalties going 
forward.\346\ These commenters' concerns focused on the burdens 
associated with administering a corrective adjustment and the Office's 
authority to require such an adjustment. Regarding the Office's 
authority, NMPA had concerns that the corrective

[[Page 56609]]

adjustment would be an impermissible ``retroactive'' rule and may also 
be an unconstitutional ``taking.'' \347\
---------------------------------------------------------------------------

    \346\ See, e.g., CMPA NPRM Initial Comments at 1-2; NMPA NPRM 
Initial Comments at 4-6; NMPA Ex Parte Letter at 2 (Feb. 6, 2023); 
NMPA SNPRM Initial Comments at 1-2 & n.2; NMPA Ex Parte Letter at 2 
(Jan. 24, 2024); Warner Chappell Music SNPRM Reply Comments at 2-3.
    \347\ NMPA NPRM Initial Comments at 2, 4-6; see also NMPA Ex 
Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 
n.2.
---------------------------------------------------------------------------

    Regarding songwriters' and publishers' ability to engage in a 
corrective adjustment, commenters stated that portions of these 
royalties would have already been distributed to songwriters and would 
be difficult to recover.\348\ Warner Chappell added that ``retroactive 
debits would wreak havoc where songwriter contracts are royalty- or 
recoupment-based, as when recoupment has triggered the end of a 
contract's term, or when a publisher has paid a contractually-due 
advance or bonus because the writer received a certain sum of 
royalties,'' and that ``[p]ublishers, songwriters, and others who'd 
received such payments would also bear tax and accounting obligations 
on income `wrongly' received and already spent.'' \349\
---------------------------------------------------------------------------

    \348\ CMPA NPRM Initial Comments at 2; Warner Chappell Music 
SNPRM Reply Comments at 2-3; see also NMPA NPRM Initial Comments at 
5; MLC Ex Parte Letter at 3 (Mar. 22, 2024).
    \349\ Warner Chappell Music SNPRM Reply Comments at 2-3.
---------------------------------------------------------------------------

    Commenters further suggested that it would also be administratively 
burdensome for the MLC to carry out a corrective adjustment.\350\ The 
MLC requested that the Office ``take into consideration the impact of 
its rule on [its] regular royalty processing operations and 
timelines,'' which are ``orders of magnitude larger than the total sums 
that would be involved in corrective adjustments for statutory 
terminations.'' \351\ The MLC suggested a ``more efficient'' solution 
that ``would avoid the problems associated with clawing back royalties 
from songwriters.'' \352\ This ``alternative approach'' would involve 
the MLC providing information to the prior payee and proper payee 
regarding the royalties distributed to the prior payee for post-
termination periods.\353\ The parties would then voluntarily be able to 
make any corrective royalty adjustments themselves (a ``voluntary 
adjustment'').\354\ The MLC also said that a ``claw-back and 
redistribution approach'' could be used in combination with its 
proposal to incentivize compliance ``if a significant period elapsed 
without resolution by the parties.'' \355\
---------------------------------------------------------------------------

    \350\ NMPA NPRM Initial Comments at 5 (noting that a corrective 
adjustment ``would create a significant administrative and financial 
burden on the MLC, as well as on publishers or other recipients of 
these royalty payments who likely already distributed some portion 
of those amounts pursuant to their contractual obligations with 
their songwriters''); CMPA NPRM Initial Comments at 2 (explaining 
that ``retroactive accounting might cause an undue hardship on The 
MLC as it would be well above its normal workload''); see also MLC 
Ex Parte Letter at 3-4 (Feb. 21, 2024); MLC Ex Parte Letter at 3-5 
(Mar. 22, 2024).
    \351\ MLC SNPRM Reply Comments at 2-3.
    \352\ MLC Ex Parte Letter at 4 (Feb. 21, 2024).
    \353\ Id.
    \354\ Id. at 4-5.
    \355\ Id. at 5.
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3. The Final Rule's Approach
    Having considered all comments on this issue, the Office is 
adopting a final rule with an approach to corrective royalty 
adjustments that is similar to the SNPRM's proposal for the reasons 
stated in the NPRM and SNPRM, but with certain modifications, as 
discussed below. Other corrective adjustment provisions proposed in the 
SNPRM are included in the final rule, with minor conforming 
adjustments.
    While the Office appreciates concerns regarding potential 
administrative burdens associated with a corrective adjustment, we 
continue to ``disagree with commenters suggesting that there should not 
be any corrective adjustment because of the potential burdens 
involved.'' \356\ As the Office previously explained, ``[c]orrective 
royalty adjustments are common in the music industry and explicitly 
contemplated by the statute and the Office's existing regulations.'' 
\357\
---------------------------------------------------------------------------

    \356\ 88 FR 65908, 65920-21.
    \357\ Id. at 65921; see MAC et al. SNPRM Initial Comments at 3-
4; Howard SNPRM Initial Comments at 2 (agreeing with Office's 
position).
---------------------------------------------------------------------------

    The Office notes that the MLC already has guidelines to address the 
circumstances when it needs to make royalty distribution adjustments, 
including, for example:
     when there was ``an incorrect match of a sound recording 
to a [musical work] registration'';
     where there was an under- or overpayment ``attributable to 
a clerical or administrative error''; or
     in ``other situations that The MLC may determine from time 
to time in its discretion.'' \358\
---------------------------------------------------------------------------

    \358\ The MLC, Guidelines for Adjustments secs. 2.1, 3.4 (Jan. 
2022), https://f.hubspotusercontent40.net/hubfs/8718396/files/2022-02/MLC%20Guidelines%20for%20Adjustments.pdf.
---------------------------------------------------------------------------

    These guidelines allow the MLC to adjust royalty distributions for 
uses going back to the first date the blanket license was available 
(i.e., January 1, 2021).\359\
---------------------------------------------------------------------------

    \359\ Id. at sec. 3.4.
---------------------------------------------------------------------------

    Moreover, the Office must consider not only the burdens to the MLC 
and publishers, but also fairness to terminating songwriters, and the 
comparative efficiency associated with the corrective adjustment. 
Without a corrective adjustment, proper payees could be forced to bring 
their terminated publishers to court to unwind the MLC's erroneous 
payments. This would lead to a multiplicity of lawsuits and associated 
unnecessary costs incurred by songwriters and publishers. It may also 
be illusory, as songwriters who were proper payees are less likely to 
sue to recover royalties that, in total, may be less than the cost of 
hiring an attorney to litigate the matter.\360\
---------------------------------------------------------------------------

    \360\ See U.S. Copyright Office, Copyright Small Claims 1 (2013) 
(noting that ``federal litigation is expensive and time-consuming, 
and therefore out of reach for many copyright owners'' and that the 
problems of enforcement of modest claims ``appears to be especially 
acute for individual creators''); id. at 118 (noting that 
songwriters would benefit from an alternative to Federal court to 
enforce the Copyright Act's termination provisions (citing statement 
of Charles Sanders, SGA)); see also, e.g., Howard SNPRM Initial 
Comments at 6 (noting perceived power and sophistication imbalances 
between authors and publishers).
---------------------------------------------------------------------------

i. Voluntary Adjustments
    The first modification adopts the MLC's suggestion to build in a 
voluntary process to reduce potential burdens on the parties or the MLC 
associated with any corrective adjustment. The initial step in this 
process is for the MLC to notify the relevant parties (i.e., the prior 
payee, proper payee, and any successors in interest) of the overpayment 
within 30 days of the final rule's effective date. Such notice must 
include: (1) a summary of the Office's conclusions regarding the 
Exception; (2) a description of the corrective adjustment process laid 
out in the final rule, including the option for the parties to engage 
in a voluntary adjustment in lieu of an MLC-administered adjustment; 
(3) for each musical work at issue, the amounts that were erroneously 
paid to the prior payee that are subject to being adjusted; and (4) the 
respective contact information for the parties contained in the MLC's 
records. With this information, the parties will have the opportunity 
to make the corrective adjustment themselves.
    The parties would notify the MLC within another 30 days regarding 
whether the parties are engaging in a voluntary adjustment, were unable 
to reach such an agreement, or are still attempting to do so. If the 
parties engaged in a voluntary adjustment, the MLC will not make any 
adjustments in connection with the overpayment, but will retain records 
related to the voluntary adjustment. If the parties do not elect the 
voluntary adjustment option or if the MLC does not receive the required 
notice from the parties, the MLC will commence implementing the 
adjustment process within 30 days of

[[Page 56610]]

the end of the voluntary adjustment period. If the parties notify the 
MLC that they are continuing efforts to reach an agreement, the MLC 
will not commence the corrective adjustment process unless and until it 
receives a subsequent notice that the parties were unable to reach an 
agreement. If such a subsequent notice is received more than 18 months 
after the effective date of the rule, the MLC may, but is not required 
to, adjust the overpayment.
    The Office believes that it is reasonable to give the prior and 
proper payees an opportunity to engage in the adjustment process 
themselves, but that option would be ineffective without also requiring 
the MLC to implement a corrective adjustment as an alternative. 
Further, even if one party was willing to engage in a voluntary 
adjustment, the other party may wish to have the MLC implement the 
corrective adjustment for tax or accounting purposes.\361\
---------------------------------------------------------------------------

    \361\ See Warner Chappell Music SNPRM Reply Comments at 2-3.
---------------------------------------------------------------------------

    While parties should jointly be able to determine the method they 
want to pursue to complete the adjustment, the Office does not believe 
that decision should be unbounded in time. Parties must decide whether 
the MLC is going to engage in a corrective adjustment (and notify the 
MLC of that decision) within 18 months of this rule's effective date. 
After that time, the MLC will not be required to initiate the 
corrective adjustment process.\362\ The Office believes that the MLC 
should not be required to undertake the corrective adjustment 
indefinitely.
---------------------------------------------------------------------------

    \362\ As the final rule makes clear, the MLC will discontinue 
any recovery efforts if it is notified that the overpayment was 
recovered outside of the corrective adjustment process (e.g., where 
there was a subsequent agreement or settlement) or a legal 
proceeding was commenced seeking recovery of the overpayment.
---------------------------------------------------------------------------

    Finally, the Office is not adopting Promopub's repayment proposals 
for the corrective adjustment, as it wishes to first monitor how the 
adjustment process is working in practice, before making any 
significant amendments. We are, however, incorporating in the final 
rule Promopub's requested clarification that the MLC must provide 
royalty statements to proper payees when it makes a corrective 
adjustment.\363\
---------------------------------------------------------------------------

    \363\ Promopub SNPRM Initial Comments at 3.
---------------------------------------------------------------------------

ii. Limiting Recovery of the Overpayment to the Publisher's Share
    The Office did not receive significant comments directly responding 
to ClearBox Rights' proposal that the MLC may only recover the 
publisher's share of the overpayment to make the corrective 
adjustment.\364\ Consequently, that provision is not included as a 
requirement in the final rule. The Office, however, sees no reason why 
songwriters, publishers, and the MLC could not agree to this type of 
agreement as a type of voluntary solution. Nothing in this rule 
prohibits the prior payee, proper payee, and MLC from all agreeing to 
engage in a corrective adjustment that only recovers and distributes 
the publisher's share of the overpayment.
---------------------------------------------------------------------------

    \364\ 88 FR 65908, 65921. But see MAC et al. SNPRM Initial at 3-
4 (stating that `` `where a publisher has already distributed a 
portion of the applicable royalties to its songwriters,' we believe 
the Office's proposal regarding recovery of overpayment by the MLC 
is the proper course'' (quoting 88 FR 65908, 65921)).
---------------------------------------------------------------------------

    The Office notes that the MLC stated that the rule envisioned a 
process that ``requires a songwriter to pay back royalties to the pre-
termination publisher'' before that publisher returns funds to the 
MLC.\365\ The MLC claimed that this could be problematic for 
songwriters as ``the process could lead to songwriters having to use 
funds to temporarily pay back royalties paid to them years ago, and 
then wait several months or more to get those funds back.'' \366\ It 
also noted that it does not ``know the terms of the private contracts 
between the parties or how much was paid to the songwriter out of the 
total initial distribution,'' \367\ making it problematic to recover 
only the publisher's share in any corrective adjustment procedure.
---------------------------------------------------------------------------

    \365\ MLC Ex Parte Letter at 4 (Feb. 21, 2024).
    \366\ Id.
    \367\ Id.
---------------------------------------------------------------------------

    The MLC's comments imply that the rule requires songwriters (or 
other downstream royalty payees) to repay the prior payee before that 
prior payee would need to remit royalties to the MLC for further 
processing and distribution to the proper payee. Such an initial 
songwriter-repayment procedure, however, was not a requirement of the 
proposed rule and is not included in the final rule.
iii. Voluntary Licenses
    The final rule does not require the MLC to make a corrective 
adjustment with respect to any amounts deducted, or held pending 
deduction, in connection with voluntary licenses. As discussed in Part 
III.A.3. above, the Office believes that voluntary licenses should be 
treated differently than section 115 statutory licenses.
3. The Final Rule Is Not an Impermissible Retroactive Rule or an 
Unconstitutional Taking
    As an initial matter, the Office recognizes the unusual 
circumstances that led to this rule, namely that a government-
designated collective adopted and distributed royalties pursuant to a 
policy that embodied a legal interpretation of the Exception, in 
conflict with the Office's prior guidance. While the MLC may have 
intended to ensure ``prompt and uninterrupted royalty payments'' with 
its actions,\368\ it is the Office (and not the MLC) that has authority 
to interpret the Copyright Act, including with respect to the Act's 
termination provisions in the context of the blanket license.\369\ As 
discussed at length above, the Office finds that the MLC's Termination 
Policy was based on an unreasonable reading of the Act, specifically 
regarding its understanding of the Exception. The final rule's 
corrective adjustment fixes that legal error.\370\
---------------------------------------------------------------------------

    \368\ 87 FR 64405, 64407 (noting that ``[i]n meetings with the 
Office, the MLC described its policy as a middle ground and 
explained that the policy was intended, in part, to avoid 
circumstances where parties' disputes could cause blanket license 
royalty payments to be held, pending resolution of the dispute, to 
the disadvantage of both songwriters and publishers'').
    \369\ While the Office acknowledges that, in the notice of 
proposed rulemaking in the earlier rulemaking proceeding about DMP 
reporting obligations, we suggested that the ``MLC's interpretation 
of the [Exception] seems at least colorable,'' the Office's 
intention was to ``give interested persons an opportunity to 
participate in the rule making through submission of written data, 
views, or arguments,'' 5 U.S.C. 553(c), without prejudging the 
rulemaking's outcome, especially as termination was ``one of the 
more complicated [topics] in [that earlier] proceeding'' and parties 
had not provided much commentary on the MLC's theory. 85 FR 22518, 
22532 n.210, 22533.
    \370\ See, e.g., Farmers Tel. Co. v. FCC, 184 F.3d 1241, 1250 
(10th Cir. 1999) (holding that when the FCC established an 
organization to prepare and file access tariffs, whose board was 
comprised of industry participants, and that organization issued an 
interpretation of a regulation which was later overruled by the 
agency, the agency's interpretation did not implicate the 
prohibition on retroactive rulemaking, including because the 
organization had ``no authority to perform any adjudicatory or 
governmental functions'').
---------------------------------------------------------------------------

    With that background, the Office now turns to the NMPA's objection 
that promulgating the proposed corrective adjustment provision is 
outside the Office's authority. First, NMPA suggested that this 
provision ``may arguably be an unconstitutional taking in violation of 
the Fifth Amendment,'' as ``it effectively takes property interests 
that pre-termination copyright owners may have had and transfers them 
to the post-termination copyright owner.'' \371\ Second, it stated that 
a rule that required the MLC to make an

[[Page 56611]]

adjustment to previously distributed royalties would be an 
impermissibly ``retroactive'' rule because it would ``expressly undo 
royalty payments already made under the Blanket License pursuant to the 
MLC's [then-]current [Termination Policy].'' \372\
---------------------------------------------------------------------------

    \371\ NMPA NPRM Initial Comments at 12.
    \372\ Id. at 5. NMPA also argued that directing the MLC to pay 
the copyright owner at the time of the use would ``impact all 
subsequent adjustments and accrued interest payments made based on 
usage not only prior to a valid termination, but also prior to any 
other type of ownership transfer.'' Id. This second point is 
discussed in depth in Part III.B. above.
---------------------------------------------------------------------------

i. ``Takings'' Concerns
    The Constitution's Takings Clause prohibits the government from 
``depriving private persons of vested property rights except for a 
`public use' and upon payment of `just compensation.' '' \373\ It is 
self-evident that, for there to be a taking, a party must possess (and 
then be deprived of) a vested property right.
---------------------------------------------------------------------------

    \373\ Landgraf v. USI Film Prods., 511 U.S. 244, 266 (1994) 
(referencing U.S. Const. Amend. V).
---------------------------------------------------------------------------

    That is not what the corrective adjustment does. It merely applies 
the law as it existed at the time the MLC made the royalty 
distributions at issue. As the Office's legal analysis in the NPRM, 
SNPRM, and Part III.A.1. above make clear, prior payees never had a 
vested property right to the post-termination royalties the MLC 
distributed to them. These royalties always belonged to the post-
termination copyright owner. Because prior payees have no vested 
property right in the erroneous overpayments they received, recovering 
those amounts so they can be properly distributed in accordance with 
the law is not a ``taking'' within the meaning of the Takings 
Clause.\374\
---------------------------------------------------------------------------

    \374\ See Lucas v. South Carolina Coastal Council, 505 U.S. 
1003, 1027 (1992) (observing that, under a takings claim, 
compensation is not owed where the government is depriving a person 
of something that they were not entitled to in the first place).
---------------------------------------------------------------------------

ii. ``Retroactivity'' Concerns
    The Office disagrees that the final rule's corrective adjustment 
process to remedy improper prior MLC distributions constitutes an 
impermissible retroactive rule. NMPA is correct that, generally, a 
``statutory grant of legislative rulemaking authority will not . . . be 
understood to encompass the power to promulgate retroactive rules 
unless that power is conveyed by Congress in express terms.'' \375\ The 
Office is not, however, adopting a new retroactive rule regarding the 
effect of termination on section 115 statutory licenses. Instead, we 
are adopting a rule applying the law as it existed at the time that the 
improper royalty distributions were made, and implementing the law by 
requiring parties to act in accordance with their legal obligations.
---------------------------------------------------------------------------

    \375\ NMPA NPRM Initial Comments at 5, n.8 (quoting Bowen v. 
Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)).
---------------------------------------------------------------------------

    Promulgating the corrective adjustment process is the most 
efficient, reasonable, and least burdensome, means of fixing the MLC's 
legal error. Far from establishing new obligations, the Office is 
merely enforcing preexisting obligations to ensure that parties who 
should have received the applicable payments from the start can obtain 
them.\376\
---------------------------------------------------------------------------

    \376\ Moreover, this rule does not alter any party's royalty 
entitlements. Although the Copyright Office is directing the MLC to 
adjust the amounts distributed to various entities, the MLC's 
distributions do not constitute a final determination of the amounts 
to which any entity is entitled.
---------------------------------------------------------------------------

    In promulgating this rule, the Office has considered any reasonable 
reliance interests and expectations of the prior payee and proper 
payee. We conclude that any disruption caused by the corrective 
adjustment process adopted in this rule is likely to be modest, and 
that any reliance interests or expectations are minimized by several 
factors. First, the MLC's interpretation of the law was in doubt no 
later than September 2020, when the Office warned that parties viewed 
its interpretation as being ``legally erroneous.'' \377\ Second, as the 
SNPRM noted, ``[c]orrective royalty adjustments are common in the music 
industry and explicitly contemplated by the statute[,] the Office's 
existing regulations,'' and the MLC's own guidelines.\378\ Third, the 
MLC only started distributing royalties in 2021, its Termination Policy 
reflects a September 2021 date,\379\ and it was suspended in November 
2022.\380\ To the extent that the corrective adjustment is potentially 
burdensome to prior payees, as discussed in Part III.F.2. above, the 
Office has both weighed that burden against the proper payees' 
interests and taken steps to alleviate those burdens by adjusting the 
rule's regulatory language. We believe that the final rule's corrective 
adjustment provision embodies the most reasonable course of action, as 
it implements the law as it already existed, while accounting for 
various administrability concerns.
---------------------------------------------------------------------------

    \377\ 87 FR 64405, 64407.
    \378\ 88 FR 65908, 65921.
    \379\ The original version of the MLC's Termination Policy has a 
September 2021 date, The MLC, Notice and Dispute Policy: Statutory 
Terminations (Sept. 2021), https://www.themlc.com/hubfs/Marketing/website/Original.pdf, while the current version has an August 2022 
date, The MLC, Notice and Dispute Policy: Statutory Terminations 
(Aug. 2022), https://www.themlc.com/hubfs/Marketing/website/MLC%20Statutory%20Terminations%20Policy%20v1.2.pdf. The Office is 
not aware when the MLC started making distributions based on an 
erroneous view of the Exception.
    \380\ The MLC, October Member Updates (Nov. 1, 2022) (on file 
with the Office) (noting that ``The MLC is immediately suspending 
its [Termination] Policy pending the outcome of the rulemaking 
proceeding initiated by the U.S. Copyright Office'' and that it 
would be placing all royalties associated with work shares 
previously subject to that policy on hold ``effective with the first 
distribution of blanket license royalties related to October 
2022'').
---------------------------------------------------------------------------

G. Effective Date and Compliance Deadline

    As is typical for many rules enacted by the Office, this final rule 
is effective 30 days after being published in the Federal Register. 
However, because the Office agrees with the MLC that it will need more 
than 30 days to update its processes and systems before it can 
reasonably be expected to implement most of the final rule,\381\ its 
compliance deadline is extended to the first distribution of royalties 
based on its first payee snapshot after the date that is 90 days after 
the rule is published in the Federal Register. This deadline is based 
on the timing requested by the MLC \382\ and is consistent with the 
Office's practice of providing reasonable transition periods where MMA-
related rules necessitate significant process changes and system 
updates and development.\383\
---------------------------------------------------------------------------

    \381\ See MLC Ex Parte Letter at 3-4 (Mar. 22, 2024) (``This 
estimated timeframe accounts for basic code development, testing 
phases, and the general integration of new processes into The MLC's 
end-to-end overlapping distribution cycle process. This estimate 
also recognizes that, particularly regarding the distribution of 
royalties from periods after the effective date, the rule as 
currently proposed requires The MLC to operationalize nuanced 
practices and processes including requirements that must be met 
before implementing a change, requirements for confirming receipt of 
appropriate notice of a change, and timelines for implementing a 
change (among others).'').
    \382\ Id. The Office does not believe the MLC needs the longer 
transition period it requested ``[i]f the final rule directs The MLC 
to distribute royalties to a pre-termination owner and/or a post-
termination owner, depending on when corresponding usage occurred, 
regardless of which party is the current payee registered in The MLC 
database.'' See id. at 4. While that might be a possibility under 
the final rule going forward, it would appear to only arise in the 
context of adjustments, which the MLC is only required to make once 
annually. See 37 CFR 210.29(b)(2). Thus, the MLC has ample time to 
complete those particular updates.
    \383\ See, e.g., 37 CFR 210.27(e)(2)(i), (e)(3)(ii), (e)(5).
---------------------------------------------------------------------------

    This later compliance deadline does not apply to four sections of 
the final rule: (1) the provision embodying the Office's legal 
conclusions about how the Exception operates in connection with blanket 
licenses; (2) the provision embodying the Office's legal conclusions 
about how the Exception operates in connection with individual download 
licenses; (3) the corrective royalty adjustment remedying the MLC's 
previous misapplication of the

[[Page 56612]]

Exception; and (4) the provision requiring the MLC to adopt notice 
requirements for non-termination-related payee changes.
    The first two provisions are carved out because they state the 
accurate interpretation of the law with respect to the Exception and 
section 115 statutory licenses. Because the MLC has already suspended 
its Termination Policy and, to the best of the Office's knowledge, is 
not currently making distributions in a manner inconsistent with these 
provisions, it should not need any additional time to comply with the 
prohibitions they contain.
    The second two provisions are carved out because those provisions 
have their own separate timing requirements written into the regulatory 
text. With respect to the corrective adjustment, the MLC is required to 
send and receive certain notices sooner than the general compliance 
deadline, which the Office believes is reasonable to require given the 
relatively low burden involved. Additionally, the rule requires the MLC 
to distribute amounts currently on hold sooner than the general 
compliance deadline because it did not explain why it needed more time 
for that particular action and the equities weigh in favor of 
terminating parties obtaining their royalties in a timely manner.
    The Copyright Office may, upon the MLC's request, extend the 
compliance deadlines in our discretion by providing public notice 
through our website.\384\
---------------------------------------------------------------------------

    \384\ Any extensions will be reflected on the Copyright Office's 
website at https://copyright.gov/rulemaking/mma-termination/.
---------------------------------------------------------------------------

List of Subjects in 37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Final Regulations

    For the reasons set forth in the preamble, the U.S. 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.


0
2. Amend Sec.  210.22 as follows:
0
a. Redesignate paragraphs (d), (e), (f), (g), (h), (i), and (j) as 
paragraphs (e), (g), (h), (i), (j), (n), and (p), respectively; and
0
b. Add new paragraphs (d) and (f) and paragraphs (k), (l), (m) and (o).
    The additions read as follows:


Sec.  210.22  Definitions.

* * * * *
    (d) The term derivative works exception means the limitations 
contained in 17 U.S.C. 203(b)(1) and 304(c)(6)(A).
* * * * *
    (f) The term historical unmatched royalties means the accrued 
royalties transferred to the mechanical licensing collective by digital 
music providers pursuant to 17 U.S.C. 115(d)(10) and Sec.  210.10.
* * * * *
    (k) The term matched historical royalties means historical 
unmatched royalties attributable to a musical work (or share thereof) 
matched after being transferred to the mechanical licensing collective.
    (l) The term payee snapshot means the royalty payee information in 
the mechanical licensing collective's records as of a particular date 
used for a particular monthly royalty distribution.
    (m) The term pre-termination copyright owner means the owner of the 
relevant copyright immediately prior to:
    (1) The effective date of termination for an effective termination 
under 17 U.S.C. 203 or 304; or
    (2) The purported effective date of termination for a claimed, 
disputed, or invalid termination under 17 U.S.C. 203 or 304.
* * * * *
    (o) The term terminating party means:
    (1) A party entitled under 17 U.S.C. 203 or 304 to terminate a 
grant, who is seeking to terminate such a grant under such provisions;
    (2) A party who has effectuated termination of a grant under 17 
U.S.C. 203 or 304;
    (3) A party to whom rights have reverted or are expected to revert 
pursuant to the effective termination of a grant under 17 U.S.C. 203 or 
304; or
    (4) A successor in interest to a party identified in paragraph 
(o)(1), (2), or (3) of this section (e.g., a subsequent publisher or 
administrator).
* * * * *

0
3. Amend Sec.  210.27 by redesignating paragraph (g)(2)(ii) as 
paragraph (g)(2)(ii)(A) and adding paragraph (g)(2)(ii)(B).
    The addition reads as follows:


Sec.  210.27  Reports of usage and payment for blanket licensees.

* * * * *
    (g) * * *
    (2) * * *
    (ii)(A) * * *
    (B) To the extent applicable to the mechanical licensing 
collective's efforts under paragraph (g)(2)(ii)(A) of this section:
    (1) The derivative works exception does not apply to any individual 
download license and no individual or entity may be construed as the 
copyright owner or royalty payee of a musical work (or share thereof) 
used pursuant to any such license based on the derivative works 
exception.
    (2) The derivative works exception does not apply to any voluntary 
license and no individual or entity may be construed as the copyright 
owner or royalty payee of a musical work (or share thereof) used 
pursuant to any such license based on the derivative works exception, 
unless and only to the extent that the mechanical licensing collective 
is directed otherwise pursuant to:
    (i) The resolution of a dispute regarding the application of the 
derivative works exception to a particular voluntary license or its 
underlying grant of authority; or
    (ii) A notice submitted under Sec.  210.30(c)(1).
* * * * *

0
4. Amend Sec.  210.29 as follows:
0
a. In paragraph (a), remove ``reporting obligations'' and add in its 
place ``reporting and payment obligations'' and add two sentences at 
the end; and
0
b. Add paragraphs (b)(4), (j), and (k).
    The additions read as follows:


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

    (a) * * * This section also prescribes reporting and payment 
obligations of the mechanical licensing collective to copyright owners 
for the distribution of matched historical royalties. This section does 
not apply to distributions of unclaimed accrued royalties under 17 
U.S.C. 115(d)(3)(J).
    (b) * * *
    (4)(i)(A) The copyright owner of a musical work (or share thereof) 
as of the last day of a monthly reporting period in which such musical 
work is used pursuant to a blanket license is entitled to all royalty 
payments and other distributable amounts (e.g., accrued interest), 
including any subsequent adjustments, for the uses of that musical work 
occurring during that monthly reporting period, unless such entitlement 
has been transferred to another individual or entity. As used in the 
previous sentence, the term uses means all covered activities engaged 
in under blanket licenses as reported by blanket licensees to the 
mechanical licensing collective.
    (B)(1) For the purpose of making any distribution of royalties or 
other amounts (e.g., accrued interest), as a matter of reasonable 
administrability, the mechanical licensing collective, in

[[Page 56613]]

the absence of a dispute or investigation, shall treat the individual 
or entity identified in its records as of the date of the payee 
snapshot used by the mechanical licensing collective for the applicable 
distribution as legally authorized to receive such distribution, unless 
the mechanical licensing collective is notified otherwise.
    (2) Nothing in paragraph (b)(4)(i)(B)(1) of this section shall be 
construed as absolving the mechanical licensing collective of its 
responsibility to engage in reasonable verification and antifraud 
efforts in connection with the registration and claiming of musical 
works (or shares thereof).
    (3) No distribution made by the mechanical licensing collective 
shall alter or prejudice any party's legal entitlement to any of the 
distributed funds or such party's ability to collect such funds from 
someone other than the mechanical licensing collective if such funds 
were not distributed to such party by the mechanical licensing 
collective.
    (4) Notwithstanding any other provision of this section, where the 
mechanical licensing collective distributes royalties to the wrong 
party and that error is caused by the actions of the mechanical 
licensing collective, the mechanical licensing collective shall 
promptly correct its error upon learning of it. For purposes of this 
paragraph (b)(4)(i)(B)(4), an error is not caused by the mechanical 
licensing collective where it acts in accordance with paragraph 
(b)(4)(i)(B)(1) of this section or otherwise reasonably relies on 
information provided to it by others that turns out to be inaccurate.
    (C) The derivative works exception does not apply to any blanket 
license and no individual or entity may be construed as the copyright 
owner or royalty payee of a musical work (or share thereof) used 
pursuant to a blanket license based on the derivative works exception.
    (ii) Subject to the requirements of and except to the extent 
permitted by Sec.  210.30, the mechanical licensing collective shall 
not distribute royalties in a manner inconsistent with paragraph 
(b)(4)(i) of this section.
* * * * *
    (j) Matched historical royalties. The mechanical licensing 
collective shall report and distribute matched historical royalties and 
related accrued interest and adjustments in the same manner and subject 
to the same requirements that apply to the reporting and distribution 
of royalties for musical works licensed under the blanket license, as 
if such matched historical royalties were royalties payable for musical 
works licensed under the blanket license, but subject to the following 
clarifications:
    (1) Matched historical royalties shall be treated as accrued 
royalties distributable under paragraph (b)(1)(ii) of this section and 
shall be separately identified in applicable royalty statements.
    (2) With respect to the requirements of paragraph (b)(2) of this 
section, royalty distributions based on adjustments to matched 
historical royalties reflected in cumulative statements of account 
delivered to the mechanical licensing collective by digital music 
providers pursuant to Sec.  210.10(b)(3)(i) shall be made by the 
mechanical licensing collective at least once annually, upon submission 
of one or more statements of adjustment delivered to the mechanical 
licensing collective by digital music providers pursuant to Sec.  
210.10(k), to the extent any such statement of adjustment is delivered 
to the mechanical licensing collective during such annual period.
    (k) Corrective royalty adjustment. Any distribution under paragraph 
(b) of this section (including any distribution of matched historical 
royalties, or related accrued interest or adjustments) or deduction 
under Sec.  210.27(g)(2)(ii) (other than a deduction related to a 
voluntary license) made by the mechanical licensing collective before 
August 8, 2024 and based on an application of the derivative works 
exception that is inconsistent with paragraph (b)(4)(i)(C) of this 
section (including as such paragraph applies to matched historical 
royalties through paragraph (j) of this section) or Sec.  
210.27(g)(2)(ii)(B)(1), as each of those provisions exist on August 8, 
2024, shall be subject to adjustment by the mechanical licensing 
collective. Any amounts held by the mechanical licensing collective in 
connection with such application of the derivative works exception as 
of August 8, 2024 shall also be subject to adjustment. The adjustment 
process shall be as follows:
    (1)(i) To the extent required by this paragraph (k), where a 
royalty payee (the prior payee) received amounts from the mechanical 
licensing collective that such prior payee would not have received had 
the distribution been made in a manner consistent with the application 
of the derivative works exception embodied in paragraph (b)(4)(i)(C) of 
this section, the mechanical licensing collective shall, except as 
otherwise provided for by this paragraph (k), recover such overpayment 
from such prior payee and shall distribute it to the royalty payee (the 
proper payee) who is entitled to such funds under the application of 
the derivative works exception embodied in paragraph (b)(4)(i)(C) of 
this section.
    (ii) The mechanical licensing collective shall notify each prior 
payee and proper payee (collectively, the parties) of the overpayment 
no later than August 8, 2024. Such notice shall contain at least the 
following information:
    (A) A summary of the Copyright Office's conclusions embodied in 
paragraph (b)(4)(i)(C) of this section and Sec.  210.27(g)(2)(ii)(B);
    (B) A description of the adjustment process detailed in this 
paragraph (k), including the option for the parties to reach a 
voluntary agreement concerning the overpayment;
    (C) For each musical work (or share thereof) at issue, the amount 
of the overpayment; and
    (D) The respective contact information for each of the parties 
contained in the mechanical licensing collective's records.
    (iii) After receiving such notice, the parties may attempt to reach 
a voluntary agreement with respect to the overpayment. Before September 
9, 2024, the parties shall notify the mechanical licensing collective 
that:
    (A) The parties reached a voluntary agreement with respect to the 
overpayment;
    (B) The parties are in the process of attempting to reach a 
voluntary agreement with respect to the overpayment; or
    (C) The parties did not reach a voluntary agreement with respect to 
the overpayment.
    (iv) The mechanical licensing collective shall act as follows in 
connection with such notice:
    (A) If the mechanical licensing collective receives notice that the 
parties reached a voluntary agreement with respect to the overpayment, 
it shall not make any adjustment in connection with the overpayment.
    (B) If the mechanical licensing collective receives notice that the 
parties are in the process of attempting to reach a voluntary agreement 
with respect to the overpayment, it shall not take any action unless 
and until it receives a subsequent notice. If the subsequent notice 
states that the parties reached a voluntary agreement with respect to 
the overpayment, the mechanical licensing collective shall not make any 
adjustment in connection with the overpayment. If the subsequent notice 
states that the parties did not reach a voluntary agreement with 
respect to the overpayment, the mechanical licensing collective shall 
commence the adjustment process described in paragraph (k)(1)(v) of 
this

[[Page 56614]]

section. If such a subsequent notice is received after August 8, 2024, 
the mechanical licensing collective shall not be required to make any 
adjustment in connection with the overpayment.
    (C) If the mechanical licensing collective receives notice that the 
parties did not reach a voluntary agreement with respect to the 
overpayment, it shall commence the adjustment process described in 
paragraph (k)(1)(v) of this section.
    (D) If the mechanical licensing collective does not receive a 
timely notice under paragraph (k)(1)(iii) of this section, it shall 
commence the adjustment process described in paragraph (k)(1)(v) of 
this section.
    (v) Where, pursuant to paragraph (k)(1)(iv) of this section, the 
mechanical licensing collective is required to commence an adjustment 
process with respect to the overpayment, the following requirements 
shall apply:
    (A) Not later than October 7, 2024 or 30 calendar days after 
receiving an applicable subsequent notice under paragraph (k)(1)(iv)(B) 
of this section, whichever is later, the mechanical licensing 
collective shall notify the prior payee that the adjustment process has 
commenced and request that the prior payee return the overpayment no 
later than November 6, 2024 or 30 calendar days after receiving the 
notice, whichever is later. Any returned amounts shall be distributed, 
accompanied by an appropriate royalty statement, to the proper payee 
with the next regular monthly royalty distribution to occur at least 30 
calendar days after any such amounts are returned.
    (B) If such overpayment is not returned in full in accordance with 
paragraph (k)(1)(v)(A) of this section, then beginning with the first 
distribution of royalties to occur at least 30 calendar days after the 
deadline specified in that paragraph, 50 percent of any and all accrued 
royalties and other distributable amounts (e.g., accrued interest) that 
would otherwise be payable to the prior payee from the mechanical 
licensing collective each month, regardless of the associated work (or 
share), shall instead be distributed, accompanied by an appropriate 
royalty statement, to the proper payee until such time as the full 
amount of the overpayment is recovered. Where the amount to be 
recovered under this paragraph during a monthly royalty distribution 
constitutes less than 50 percent of the applicable accrued royalties 
and other distributable amounts, the mechanical licensing collective 
shall recover the full amount of the overpayment. Where more than one 
proper payee is entitled to a corrective royalty adjustment from the 
same prior payee for different musical works, any amounts recovered and 
distributed under this paragraph (k)(1)(v)(B) shall be apportioned 
equally among such proper payees.
    (2) Where, as of August 8, 2024, the mechanical licensing 
collective is holding amounts that would constitute an overpayment 
under paragraph (k)(1) of this section if such amounts had been 
distributed to the prior payee, such amounts shall be distributed, 
accompanied by an appropriate royalty statement, to the proper payee no 
later than the first distribution of royalties based on the first payee 
snapshot taken by the mechanical licensing collective at least 30 
calendar days after August 8, 2024.
    (3) The recovery and distribution processes described in paragraphs 
(k)(1) and (2) of this section shall also apply, as applicable, to 
amounts deducted, or held pending deduction, by the mechanical 
licensing collective under Sec.  210.27(g)(2)(ii), other than with 
respect to amounts relating to voluntary licenses, where the proper 
payee is not the payee to whom the relevant usage was originally 
matched. For purposes of this paragraph (k)(3), the payee to whom the 
relevant usage was originally matched shall constitute the prior payee 
as that term is used elsewhere in this paragraph (k).
    (4) Nothing in this paragraph (k) shall be construed as prejudicing 
the proper payee's right or ability to otherwise recover such 
overpayment from the prior payee outside of the adjustment process 
detailed in this paragraph (k). Where the overpayment is recovered 
outside of such adjustment process or a legal proceeding is commenced 
seeking recovery of the overpayment, the mechanical licensing 
collective must be notified. Upon receipt of such notice, the 
mechanical licensing collective shall discontinue any recovery efforts 
engaged in under this paragraph (k).
    (5) Notwithstanding the adjustment process detailed in this 
paragraph (k), the parties and the mechanical licensing collective may 
voluntarily agree to an alternative adjustment process.

0
5. Revise Sec.  210.30 to read as follows:


Sec.  210.30  Transfers of copyright ownership, royalty payee changes, 
and related disputes.

    (a) General. This section prescribes rules governing the mechanical 
licensing collective's administration of transfers of copyright 
ownership, other royalty payee changes, and related disputes.
    (b) Requirements for the mechanical licensing collective to 
implement a change. The mechanical licensing collective shall not take 
any action to implement or give effect to any transfer of copyright 
ownership (including a transfer resulting from an effective termination 
under 17 U.S.C. 203 or 304) or other change to a royalty payee, unless 
the requirements of paragraph (c) of this section are satisfied or the 
mechanical licensing collective is acting in connection with the 
resolution of a dispute. Where the requirements of paragraph (c) of 
this section are satisfied, the mechanical licensing collective shall 
implement and give effect to such transfer or other change in 
accordance with paragraph (d) of this section.
    (c) Notices of change. The mechanical licensing collective must be 
appropriately notified in writing with respect to any transfer or other 
change described in paragraph (b) of this section. Subject to the 
further requirements of this paragraph (c), such notice must comply 
with any reasonable formatting and submission requirements that the 
mechanical licensing collective establishes and makes publicly 
available on its website. No fee may be charged for submitting such a 
notice. Upon submitting such a notice, or any additional information 
related to such notice, the submitter shall be provided with a prompt 
response from the mechanical licensing collective confirming receipt of 
the notice, or any additional information related to such notice, and 
the date of receipt.
    (1)(i)(A) Subject to paragraph (c)(1)(ii) of this section, for any 
transfer or other payee change not addressed by paragraph (c)(2) of 
this section, the mechanical licensing collective shall be notified of 
such transfer or payee change in accordance with any reasonable 
requirements that the mechanical licensing collective establishes and 
makes publicly available on its website.
    (B) If such requirements are not publicly available on the 
mechanical licensing collective's website as of July 9, 2024, the 
mechanical licensing collective shall adopt such requirements and make 
them available as soon as reasonably practicable, but no later than 
September 9, 2024, unless the Copyright Office allows for an extension 
in its discretion. The mechanical licensing collective shall make such 
requirements publicly available on its website at least 30 calendar 
days before such requirements become effective.
    (C) The mechanical licensing collective shall make any amendment to 
such requirements publicly available on its website at least 30 
calendar days

[[Page 56615]]

before such amendment becomes effective, unless the mechanical 
licensing collective can articulate good cause for not providing such 
advanced notice. In no case shall an amendment be effective before 
being published on the mechanical licensing collective's website.
    (ii) Notwithstanding paragraph (c)(1)(i) of this section, any 
notice seeking to change the royalty payee from a terminating party (or 
its designee) to a corresponding pre-termination copyright owner (or 
its designee) is subject to the following additional requirements:
    (A) The notice must be signed after the effective date of 
termination.
    (B) The notice must set forth in plain language an acknowledgement 
that the requested action alters the royalty payee from that 
established by Sec.  210.29(b)(4)(i).
    (2) Specific requirements for notices about transfers of copyright 
ownership resulting from an effective termination under 17 U.S.C. 203 
or 304 are as follows:
    (i) The required notice shall include all of the following 
information:
    (A) A true, correct, complete, and legible copy of the signed and 
as-served notice of termination submitted to the Copyright Office for 
recordation pursuant to Sec.  201.10.
    (B) A true, correct, complete, and legible copy of the statement of 
service submitted to the Copyright Office for recordation pursuant to 
Sec.  201.10, if one was submitted.
    (C) Either:
    (1) Proof, as to a particular musical work, that the notice of 
termination was recorded in the Copyright Office before the effective 
date of termination. Where the notice of termination identifies more 
than one musical work, each musical work shall be treated 
independently; or
    (2) If the Copyright Office has not yet recorded the notice of 
termination, proof, as to a particular musical work, that the notice of 
termination was submitted to the Copyright Office for recordation 
before the effective date of termination, provided that proof, as to 
such musical work, that the notice of termination was recorded in the 
Copyright Office before the effective date of termination is delivered 
to the mechanical licensing collective at a later date. Where the 
notice of termination identifies more than one musical work, each 
musical work shall be treated independently.
    (D) The terminating party, identified by name and any known and 
appropriate unique identifiers, appropriate contact information for the 
terminating party or their administrator or other representative, and, 
if the terminating party is not already receiving royalty distributions 
from the mechanical licensing collective, any additional information 
that is necessary for the terminating party to receive royalty 
distributions from the mechanical licensing collective.
    (ii) With respect to the information required by paragraphs 
(c)(2)(i)(A) through (C) of this section, providing an official 
Copyright Office certification for any such information shall not be 
required. If the mechanical licensing collective has good cause to 
doubt the authenticity of any such information, the mechanical 
licensing collective shall either seek verification from the Copyright 
Office or request that such verification be provided to the mechanical 
licensing collective by the submitter.
    (iii) Where the information required by paragraph (c)(2)(i) of this 
section is insufficient to enable the mechanical licensing collective 
to implement and give effect to the termination with respect to a 
particular musical work, the mechanical licensing collective shall 
promptly correspond with the terminating party and the pre-termination 
copyright owner (or their respective representatives) to attempt to 
obtain the minimum necessary information.
    (iv) The required notice shall be submitted and signed by either 
the terminating party or the pre-termination copyright owner (or their 
respective duly authorized representatives). Such signature shall be 
accompanied by the name and title of the person signing the notice and 
the date of the signature. The notice may be signed electronically. The 
person signing the notice shall certify that they have appropriate 
authority to submit the notice to the mechanical licensing collective 
and that all information submitted as part of the notice is true, 
accurate, and complete to the best of the signer's knowledge, 
information, and belief, and is provided in good faith. If the notice 
is submitted by the terminating party, the following additional steps 
shall be required:
    (A) The mechanical licensing collective shall notify the pre-
termination copyright owner about the terminating party's notice within 
15 calendar days of receiving either the notice or the last piece of 
information necessary for the mechanical licensing collective to 
implement the change as to a particular musical work, whichever is 
later, and shall contemporaneously alert the terminating party that 
such notice was sent to the pre-termination copyright owner.
    (B) If the pre-termination copyright owner does not initiate a 
dispute with the mechanical licensing collective regarding the 
termination, in accordance with paragraph (e) of this section, within 
30 calendar days of receiving such notice, the mechanical licensing 
collective shall implement and give effect to the transfer of copyright 
ownership resulting from the termination, in accordance with paragraph 
(d) of this section. Nothing in this paragraph (c)(2)(iv)(B) shall 
prevent the pre-termination copyright owner from disputing the 
termination with the mechanical licensing collective at a later date or 
challenging the termination in a legal proceeding.
    (v) Where there is more than one terminating party or pre-
termination copyright owner, the required notice shall include a 
satisfactory identification of any applicable ownership shares for each 
musical work subject to the termination. Where there is more than one 
terminating party, the notice shall be effective only as to those 
terminating parties whose information is provided in accordance with 
paragraph (c)(2)(i)(D) of this section. Where there is more than one 
terminating party, a notice that is signed and certified by any one 
terminating party in accordance with paragraph (c)(2)(iv) of this 
section is sufficient as to all terminating parties.
    (vi)(A) A notice submitted to the mechanical licensing collective 
pursuant to this paragraph (c)(2) may be withdrawn in accordance with 
any reasonable requirements that the mechanical licensing collective 
establishes and makes publicly available on its website.
    (B) A notice submitted to the mechanical licensing collective 
pursuant to this paragraph (c)(2) may be converted into a notice under 
paragraph (c)(1) of this section in accordance with any reasonable 
requirements that the mechanical licensing collective establishes and 
makes publicly available on its website.
    (C) Such requirements shall comply with the requirements of 
paragraphs (c)(1)(i)(B) and (C) of this section.
    (d) Implementation of a change. Upon receiving a notice that 
complies with the requirements of paragraph (c) of this section, the 
mechanical licensing collective shall implement and give effect to the 
identified transfer or other payee change on a per work basis as 
follows:
    (1)(i) Except as provided by paragraph (d)(1)(ii) of this section, 
where the mechanical licensing collective receives the notice before 
the first day of the first monthly reporting period to commence

[[Page 56616]]

after the change is effective, the mechanical licensing collective 
shall implement and give effect to the change, on a prospective basis, 
beginning no later than the first distribution of royalties for such 
reporting period.
    (ii) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted by the terminating party under paragraph (c)(2) of this 
section, and the pre-termination copyright owner does not initiate a 
dispute as described in paragraph (c)(2)(iv)(B) of this section, where 
the mechanical licensing collective receives the notice at least 45 
calendar days before the first day of the first monthly reporting 
period to commence after the change is effective, the mechanical 
licensing collective shall implement and give effect to the change, on 
a prospective basis, beginning no later than the first distribution of 
royalties for such reporting period.
    (2)(i) Except as provided by paragraph (d)(2)(ii) of this section, 
where the mechanical licensing collective receives the notice on or 
after the first day of the first monthly reporting period to commence 
after the change is effective, the mechanical licensing collective 
shall implement and give effect to the change, on a prospective basis, 
beginning no later than the first distribution of royalties based on 
the first payee snapshot taken by the mechanical licensing collective 
at least 30 calendar days after the mechanical licensing collective 
receives the notice.
    (ii) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted by the terminating party under paragraph (c)(2) of this 
section, and the pre-termination copyright owner does not initiate a 
dispute as described in paragraph (c)(2)(iv)(B) of this section, where 
the mechanical licensing collective receives the notice less than 45 
calendar days before the first day of the first monthly reporting 
period to commence after the change is effective, the mechanical 
licensing collective shall implement and give effect to the change, on 
a prospective basis, beginning no later than the first distribution of 
royalties based on the first payee snapshot taken by the mechanical 
licensing collective at least 30 calendar days after the pre-
termination copyright owner's deadline to dispute under paragraph 
(c)(2)(iv)(B) of this section.
    (3) Where additional information related to the notice is required 
to enable the mechanical licensing collective to implement and give 
effect to the change, and such information is received after receipt of 
the notice, the timing requirements described in paragraphs (d)(1) and 
(2) of this section shall be based on the date that the last piece of 
necessary information is received by the mechanical licensing 
collective.
    (4) Where the change is effective as to one or more monthly 
reporting periods for which the mechanical licensing collective 
distributed royalties before implementing and giving effect to the 
change, the mechanical licensing collective may, but is not required 
to, make a corrective royalty adjustment if the notice requests one.
    (5) If the mechanical licensing collective does not implement and 
give effect to the change in accordance with the deadlines prescribed 
by paragraphs (d)(1) through (3) of this section, the mechanical 
licensing collective shall implement and give effect to the change as 
soon as reasonably practicable, provided that the change is implemented 
and given effect by the mechanical licensing collective no later than 
the next regular monthly royalty distribution to occur either after the 
implementation deadline that originally applied under paragraphs (d)(1) 
through (3) of this section, as applicable, or at least 30 calendar 
days after the date that the mechanical licensing collective learns 
that the change was not implemented on time, whichever is later. In 
such cases, the mechanical licensing collective shall implement and 
give effect to the change as of the implementation deadline that 
originally applied under paragraphs (d)(1) through (3) of this section, 
as applicable, including by making any necessary corrective royalty 
adjustments.
    (6) No action or inaction by the mechanical licensing collective 
with respect to implementing and giving effect to a transfer or other 
payee change shall alter or prejudice any party's rights to royalties 
pursuant to such change or such party's right to collect such royalties 
from someone other than the mechanical licensing collective if such 
royalties were not distributed to such party by the mechanical 
licensing collective.
    (7) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted under paragraph (c)(2) of this section, and the notice is 
accompanied by proof that the notice of termination was submitted to 
the Copyright Office for recordation, but the notice is not accompanied 
by proof that it was recorded in the Copyright Office before the 
effective date of termination, the mechanical licensing collective 
shall act as follows:
    (i) Upon subsequent receipt of proof that the notice of termination 
was recorded in the Copyright Office before the effective date of 
termination, the mechanical licensing collective shall treat the proof 
of recordation as a type of additional information under paragraph 
(d)(3) of this section. The mechanical licensing collective shall not 
implement or give effect to any such termination unless and until such 
proof is received.
    (ii) Until receipt of the proof described in paragraph 
(d)(7)(ii)(B) or (C) of this section, as the case may be, and subject 
to paragraph (d)(7)(ii)(D) of this section the mechanical licensing 
collective shall hold applicable accrued royalties and accrued interest 
pending receipt of proof that the notice of termination was recorded in 
the Copyright Office before the effective date of termination as 
follows:
    (A) The mechanical licensing collective shall commence holding such 
amount no later than the implementation deadline that would apply under 
paragraphs (d)(1) through (3) of this section, as applicable, if proof 
of recordation had been provided with the notice.
    (B) After receiving proof that the notice of termination was 
recorded in the Copyright Office before the effective date of 
termination is received, the mechanical licensing collective shall 
implement and give effect to the termination as provided by paragraphs 
(d)(1) through (5) and (d)(7)(i) of this section, as applicable.
    (C) After receiving proof that the Copyright Office refused to 
record the notice of termination, the recordation submission was 
withdrawn, or the notice of termination was recorded on or after the 
effective date of termination, the mechanical licensing collective 
shall release the held funds to the pre-termination copyright owner.
    (D) If the mechanical licensing collective does not receive the 
proof described in either paragraph (d)(7)(ii)(B) or (C) of this 
section within 6 months after the mechanical licensing collective 
commences holding applicable accrued royalties and accrued interest, 
the mechanical licensing collective shall request that the terminating 
party provide an update about the status of the relevant recordation 
submission. If the submission remains pending at that time, the 
mechanical licensing collective may continue to request periodic 
updates from the terminating party in its discretion. Upon receiving 
the proof described in either paragraph

[[Page 56617]]

(d)(7)(ii)(B) or (C), the mechanical licensing collective shall act in 
accordance with paragraph (d)(7)(ii)(B) or (C), as the case may be.
    (iii) Where a notice of termination identifies more than one 
musical work, whether the notice is timely recorded in the Copyright 
Office shall be determined on a per work basis with respect to each 
musical work identified in the notice.
    (e) Termination disputes. The following requirements shall apply to 
any dispute initiated with the mechanical licensing collective 
regarding a termination under 17 U.S.C. 203 or 304:
    (1) Such a dispute must be with regard to the validity of the 
termination or the application of the derivative works exception to a 
particular voluntary license or its underlying grant of authority.
    (2) Only a pre-termination copyright owner (or its representative) 
may initiate such a dispute.
    (3)(i) If a pre-termination copyright owner (or its representative) 
initiates such a dispute and delivers the information required to 
substantiate the dispute to the mechanical licensing collective under 
paragraph (e)(4) of this section, the mechanical licensing collective 
shall hold applicable accrued royalties and accrued interest pending 
resolution of the dispute.
    (ii) With respect to any dispute concerning the application of the 
derivative works exception to a particular voluntary license or its 
underlying grant of authority:
    (A) The mechanical licensing collective shall, as needed and on an 
ongoing basis, invoice any applicable digital music provider for the 
royalties associated with the dispute.
    (B) The mechanical licensing collective shall hold such royalties 
in the same manner and at the same interest rate as any other funds 
held pursuant to 17 U.S.C. 115(d)(3)(H)(ii).
    (C) Where the resolution of the dispute results in payment being 
made by the mechanical licensing collective pursuant to a blanket 
license, the payment must include any accrued interest. Where the 
resolution of the dispute results in a digital music provider paying a 
voluntary licensor, the mechanical licensing collective must promptly 
return the held amount, including any accrued interest, to the digital 
music provider accompanied by notice that the dispute has been resolved 
in such manner.
    (4) The minimum information that must be delivered to the 
mechanical licensing collective to substantiate a termination-related 
dispute shall consist of the following:
    (i) A cognizable explanation of the grounds for the dispute, 
articulated with specificity.
    (ii) Documentation sufficient to support the grounds for the 
dispute, which shall consist of the following:
    (A) A true, correct, complete, and legible copy of each grant in 
dispute.
    (B) A true, correct, complete, and legible copy of any other 
agreement or document necessary to support the grounds for the dispute.
    (C) Such other documentation or substantiating information as the 
mechanical licensing collective may reasonably require pursuant to a 
dispute policy adopted under 17 U.S.C. 115(d)(3)(K).
    (iii) A satisfactory identification of each musical work in 
dispute.
    (iv) A certification that the submitter has appropriate authority 
to initiate the dispute with the mechanical licensing collective and 
that all information submitted in connection with the dispute is true, 
accurate, and complete to the best of the submitter's knowledge, 
information, and belief, and is provided in good faith.
    (v) The following additional information if the dispute concerns 
the application of the derivative works exception to a particular 
voluntary license or its underlying grant of authority:
    (A) A true, correct, complete, and legible copy of each voluntary 
license at issue.
    (B) A satisfactory identification of each relevant sound recording 
that constitutes a derivative work within the meaning of 17 U.S.C. 101 
that was prepared pursuant to appropriate authority.
    (C) The date of preparation for each such sound recording, which 
must be before the effective date of termination.
    (5) Notwithstanding anything to the contrary that may be contained 
in Sec.  210.34, any and all documentation provided to the mechanical 
licensing collective pursuant to paragraph (e)(4) of this section shall 
be disclosed to all parties to the dispute. If a party to the dispute 
is not a party or successor to a party to an otherwise confidential 
document, such disclosure shall be subject to an appropriate written 
confidentiality agreement.
    (6) Any dispute initiated with the mechanical licensing collective 
under this paragraph (e) shall be limited to those musical works 
identified pursuant to paragraph (e)(4)(iii) of this section. The 
existence of such a dispute shall not affect the implementation of a 
change with respect to any other musical work identified in the same 
notice of change and that is not subject to a dispute.

0
6. Amend Sec.  210.34 as follows:
0
a. In paragraph (c)(5), remove ``to paragraph (c)(4) of'' and add in 
its place ``to paragraph (c)(4) or (6) of''; and
0
b. Add paragraph (c)(6).
    The addition reads as follows:


Sec.  210.34  Treatment of confidential and other sensitive 
information.

* * * * *
    (c) * * *
    (6) Notwithstanding paragraph (c)(1) of this section, where the 
mechanical licensing collective places any amount on hold pursuant to a 
dispute initiated under Sec.  210.30(e), the mechanical licensing 
collective shall promptly disclose the total amount held for each 
disputed work (or share thereof) to the parties to the dispute, which 
shall include an identification of the approximate amount of royalties 
expected to have been distributed for each disputed work (or share 
thereof) in the first monthly distribution to occur after the 
initiation of the hold. Upon the written request of any party to the 
dispute, the mechanical licensing collective shall provide an update 
about the amount held to all parties to the dispute within a reasonable 
period of time, except that the mechanical licensing collective is not 
required to provide such an update more frequently than once every 
three months.
* * * * *

    Dated: June 25, 2024.
Suzanne Wilson,
General Counsel and Associate Register of Copyrights.
    Approved by:
Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2024-14609 Filed 7-8-24; 8:45 am]
BILLING CODE 1410-30-P

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