<b>Commentary: </b>Proposed Digital-Music Licensing Legislation Presents Problems for Songwriters, Publishers

The Section 115 Reform Act of 2006 (SIRA), H.R. 5553, proposes an entirely new structure for the way digital rights will be licensed and online royalties will be collected. The proposed federal legislation to revise Sec. 115 of the Copyright Act may in fact turn out to be the landmark Internet blanket-licensing legislation some claim that it will be. Major record labels, large on-demand streaming services such as AOL Music, Napster and MusicNet, and cellphone companies such as Verizon, believe that the centralized clearance system that SIRA would create streamlines their business model.

However, those who represent songwriters as well as large independent publishers and copyright administrators should be concerned that the bill currently pending in the House of Representatives is flawed in several significant ways, and requires substantial amendment in order to better protect the interests of music creators and rights owners.

Single Agency?

One of the provisions that should be of grave concern to independent music publishers and self-published songwriters is the proposed concept of the General Designated Agent (GDA) for the digital licenses. Contrary to the existing tried-and- true concept of free enterprise and individual owners making decisions about their works subject to certain copyright 'compulsory-license provisions,' the legislation proposes a single, centralized company ' expected to be the Harry Fox Agency (HFA) ' to unilaterally make the decisions and grant the digital licenses. The Copyright Office could certify other agents, but only if they represent the reproduction and distribution of at least 15% of all published compositions. Other than possibly EMI and Warner/Chappell, all other companies and individuals would either be required to affiliate with the HFA database, or HFA would be entitled to simply grant the license in absencia, requiring the rights holder to go to HFA to collect whatever amount had already been agreed to and collected for the digital license, less whatever fees HFA unilaterally deducted for its services. This monopolistic practice would effectively give all the power to HFA (or possibly one or two other large, corporate conglomerates designated as GDAs) and would strip all the independent companies and individual songwriters of any control over the rates set and the digital uses of their songs.

Another problem with centralized corporate power is the inability of the 'little guy' to effectively collect a fair share from the one holding his or her monies ' not an uncommon problem throughout the history of the record industry. A songwriter or rights administrator should be able to obtain the same usage data and royalty collection information applicable to obtain them that the GDA provides to the music publishers it represents. Songwriters need to be able to verify that the royalty payments they receive correlate to the actual royalties earned. In addition, the proposed legislation doesn't require the distribution of royalties to the copyright owners collected by the appointed GDA by a certain date following receipt of such royalties. This is of great concern given that participation by the copyright owner in this system isn't voluntary.

No Help for Independents

The Recording Industry Association of America and the major record labels it represents, as well as large on-demand streaming services and the big cell phone companies, believe that this centralized clearance arrangement will expedite use and exploitation of music in new mediums. Although the new proposals would certainly streamline the process for the large corporate interests, it wouldn't necessarily benefit songwriters or independent publishers in any meaningful way.

Moreover, while statutory revisions are being discussed, some contentious issues beyond the issue of digital licensing are also being proposed for the legislation. For example, songwriters who are also recording artists should be gravely concerned about the proposed provisions requiring songwriter/recording artists with unrecouped recording-artist advances to direct the GDA to divert their entire digital-music-publishing royalty payments to record labels, pursuant to 'letters of direction.' This provision also appears to indicate that if a label, prior to June 1, 2006, hadn't been able to negotiate such a recoupment provision in the recording contract with the songwriter/artist, the proposed statute would provide the label with such cross-collateralization rights as an unprecedented matter of law.

Another controversial issue that is also under discussion concerns a provision for non-payment of mechanical royalties on promotional and free goods that would break a 97-year statutory requirement that mechanical royalties be paid on all copies distributed, going back to the 1909 Copyright Act.

'Unbridled Authority'

With respect to the overall legislative proposal, as a matter of basic fairness, if the GDA is going to have the extraordinary power to bind a songwriter who would otherwise object to such representation, then the songwriter should at least have the right to appoint a representative to that GDA's governing board. Music publishers may own 50%-100% of the copyright to a musical work in a significant number of cases, but publishing contracts typically define the royalty stream as 50%-75% to the writer, and 25%-50% to the publisher. Many songwriters are also co-publishers of their compositions and have merely assigned administration rights to a music publisher. The party with an average of approximately two-thirds of the royalty stream at stake ' songwriters ' should reasonably have at least one seat on the GDA Board.

The unbridled authority to deduct and spend administrative fees for almost any initiative the GDA wishes ' as granted to a GDA under the current bill ' has already been labeled 'unconscionable' by the U.S. Copyright Office. The current bill language, for example, would allow the GDA to hold a meeting on 'current legislative and litigation issues' at some exotic location anywhere in the world, without any restraint on the cost, and charge writers and publishers for this event. Under the current provisions of the bill, songwriters would in essence be paying for two-thirds of the GDA's activities on average (which could in some extreme circumstances be in conflict with the priorities, rights and interests of creators) ' without the authority to limit in any way the GDA's discretionary spending

Songwriters Should Fight

Songwriters and their respective publishing administrators would be well-advised to strongly oppose this legislation until some of the foregoing issues are resolved in their favor; just as they have long objected to other issues related to the application of controlled-composition clauses to music-publishing rights in general. The fight against monopoly control of individual property rights is one that should resonate with every fair-minded person. Otherwise, it would seem that the giant cellular companies and other digital licensees with lobbying muscle in Washington, DC, could strong-arm Congress into enacting legislation that strips control of property rights from songwriters for the foreseeable future ' under the guise of simplifying the business model in order to make licensing digital rights easier and less costly for themselves. This wasn't the original intent of the Copyright Act, one of the few statutes standing between songwriters and the loss of their intellectual property rights.

The Section 115 Reform Act of 2006 (SIRA), H.R. 5553, proposes an entirely new structure for the way digital rights will be licensed and online royalties will be collected. The proposed federal legislation to revise Sec. 115 of the Copyright Act may in fact turn out to be the landmark Internet blanket-licensing legislation some claim that it will be. Major record labels, large on-demand streaming services such as AOL Music, Napster and MusicNet, and cellphone companies such as Verizon, believe that the centralized clearance system that SIRA would create streamlines their business model.

However, those who represent songwriters as well as large independent publishers and copyright administrators should be concerned that the bill currently pending in the House of Representatives is flawed in several significant ways, and requires substantial amendment in order to better protect the interests of music creators and rights owners.

Single Agency?

One of the provisions that should be of grave concern to independent music publishers and self-published songwriters is the proposed concept of the General Designated Agent (GDA) for the digital licenses. Contrary to the existing tried-and- true concept of free enterprise and individual owners making decisions about their works subject to certain copyright 'compulsory-license provisions,' the legislation proposes a single, centralized company ' expected to be the Harry Fox Agency (HFA) ' to unilaterally make the decisions and grant the digital licenses. The Copyright Office could certify other agents, but only if they represent the reproduction and distribution of at least 15% of all published compositions. Other than possibly EMI and Warner/Chappell, all other companies and individuals would either be required to affiliate with the HFA database, or HFA would be entitled to simply grant the license in absencia, requiring the rights holder to go to HFA to collect whatever amount had already been agreed to and collected for the digital license, less whatever fees HFA unilaterally deducted for its services. This monopolistic practice would effectively give all the power to HFA (or possibly one or two other large, corporate conglomerates designated as GDAs) and would strip all the independent companies and individual songwriters of any control over the rates set and the digital uses of their songs.

Another problem with centralized corporate power is the inability of the 'little guy' to effectively collect a fair share from the one holding his or her monies ' not an uncommon problem throughout the history of the record industry. A songwriter or rights administrator should be able to obtain the same usage data and royalty collection information applicable to obtain them that the GDA provides to the music publishers it represents. Songwriters need to be able to verify that the royalty payments they receive correlate to the actual royalties earned. In addition, the proposed legislation doesn't require the distribution of royalties to the copyright owners collected by the appointed GDA by a certain date following receipt of such royalties. This is of great concern given that participation by the copyright owner in this system isn't voluntary.

No Help for Independents

The Recording Industry Association of America and the major record labels it represents, as well as large on-demand streaming services and the big cell phone companies, believe that this centralized clearance arrangement will expedite use and exploitation of music in new mediums. Although the new proposals would certainly streamline the process for the large corporate interests, it wouldn't necessarily benefit songwriters or independent publishers in any meaningful way.

Moreover, while statutory revisions are being discussed, some contentious issues beyond the issue of digital licensing are also being proposed for the legislation. For example, songwriters who are also recording artists should be gravely concerned about the proposed provisions requiring songwriter/recording artists with unrecouped recording-artist advances to direct the GDA to divert their entire digital-music-publishing royalty payments to record labels, pursuant to 'letters of direction.' This provision also appears to indicate that if a label, prior to June 1, 2006, hadn't been able to negotiate such a recoupment provision in the recording contract with the songwriter/artist, the proposed statute would provide the label with such cross-collateralization rights as an unprecedented matter of law.

Another controversial issue that is also under discussion concerns a provision for non-payment of mechanical royalties on promotional and free goods that would break a 97-year statutory requirement that mechanical royalties be paid on all copies distributed, going back to the 1909 Copyright Act.

'Unbridled Authority'

With respect to the overall legislative proposal, as a matter of basic fairness, if the GDA is going to have the extraordinary power to bind a songwriter who would otherwise object to such representation, then the songwriter should at least have the right to appoint a representative to that GDA's governing board. Music publishers may own 50%-100% of the copyright to a musical work in a significant number of cases, but publishing contracts typically define the royalty stream as 50%-75% to the writer, and 25%-50% to the publisher. Many songwriters are also co-publishers of their compositions and have merely assigned administration rights to a music publisher. The party with an average of approximately two-thirds of the royalty stream at stake ' songwriters ' should reasonably have at least one seat on the GDA Board.

The unbridled authority to deduct and spend administrative fees for almost any initiative the GDA wishes ' as granted to a GDA under the current bill ' has already been labeled 'unconscionable' by the U.S. Copyright Office. The current bill language, for example, would allow the GDA to hold a meeting on 'current legislative and litigation issues' at some exotic location anywhere in the world, without any restraint on the cost, and charge writers and publishers for this event. Under the current provisions of the bill, songwriters would in essence be paying for two-thirds of the GDA's activities on average (which could in some extreme circumstances be in conflict with the priorities, rights and interests of creators) ' without the authority to limit in any way the GDA's discretionary spending

Songwriters Should Fight

Songwriters and their respective publishing administrators would be well-advised to strongly oppose this legislation until some of the foregoing issues are resolved in their favor; just as they have long objected to other issues related to the application of controlled-composition clauses to music-publishing rights in general. The fight against monopoly control of individual property rights is one that should resonate with every fair-minded person. Otherwise, it would seem that the giant cellular companies and other digital licensees with lobbying muscle in Washington, DC, could strong-arm Congress into enacting legislation that strips control of property rights from songwriters for the foreseeable future ' under the guise of simplifying the business model in order to make licensing digital rights easier and less costly for themselves. This wasn't the original intent of the Copyright Act, one of the few statutes standing between songwriters and the loss of their intellectual property rights.