SUPPLEMENTARY INFORMATION:

Background

Section 115 of the Copyright Act, title 17 of the United States Code, requires a copyright owner of a nondramatic musical work to grant a license (also known as the “mechanical” compulsory license) to any person who wants to make and distribute phonorecords of that work, provided that the copyright owner has allowed phonorecords of the work to be produced and distributed, and that the licensee complies with the statute and regulations. In addition to the production or distribution of physical phonorecords (compact discs, vinyl, cassette tapes, and the like), section 115 applies to digital transmissions of phonorecords, including permanent digital downloads and ringtones.

Chapter 8 of the Copyright Act requires the Copyright Royalty Judges (Judges) to conduct proceedings every five years to determine the rates and terms for the section 115 license. 17 U.S.C. 801(b)(1), 804(b)(4). Accordingly, the Judges commenced the current proceeding in January 2021, by publishing notice of the commencement and a request that interested parties submit petitions to participate. See86 FR 25 (Jan. 5, 2021).

The Judges received petitions to participate in the current proceeding from Amazon.com Services LLC, Apple Inc., Copyright Owners (joint petitioners Nashville Songwriters Association International (NSAI) and National Music Publishers Association (NMPA)), Google LLC, George Johnson, Joint Record Company Participants (filed by Recording Industry Association of America, Inc. for joint petitioners Sony Music Entertainment, UMG Recordings, ( printed page 33602) Inc., and Warner Music Group Corp.), Pandora Media, LLC, David Powell, SoundCloud Operations Inc.,^[1] Spotify USA Inc., and Brian Zisk.

The Judges gave notice to all participants of the three-month negotiation period required by 17 U.S.C. 803(b)(3) and directed that, if the participants were unable to negotiate a settlement, they should submit Written Direct Statements no later than September 10, 2021. On May 25, 2021, the Judges received a motion stating that several participants ^[2] had reached a partial settlement regarding the rates and terms under Section 115 of the Copyright Act, namely, for physical phonorecords, permanent downloads, ringtones, and music bundles for the 2023-2027 rate period and seeking approval of that partial settlement. See Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21-CRB-0001-PR (2023-2027) at 1 (May 25, 2021) (Motion). The movants state that “the settlement represents the consensus of buyers and sellers representing the vast majority of the market for `mechanical' rights for [the 37 CFR 385] Subpart B Configurations.” ^[3] Motion at 4.

The settlement proposes that “Subpart B Configuration Rates and Terms presently set forth in 37 CFR part 385 subpart B . . . continue to be applicable to the Record Company Participants and all other licensees of `mechanical' rights in musical works for the Subpart B Configurations, for the rate period covered by the Proceeding, with only a few minor editorial changes to the applicable regulations.” Motion at 3.

The proposed editorial changes apply to §§ 385.10 and 385.11 of Subpart B and to two definitions in Subpart A and would clarify the regulations. For example, the definition of Licensed Activity needs to be changed to remove the reference to Subpart B because the term Licensed Activity does not appear in Subpart B. See37 CFR 385.2, 385.10-11; Motion at 6-7 (redline of regulations with rationale for changes).

Section 801(b)(7)(A) of the Copyright Act authorizes the Judges to adopt rates and terms negotiated by “some or all of the participants in a proceeding at any time during the proceeding” provided they are submitted to the Judges for approval. This section provides that the Judges shall provide notice and an opportunity to comment on the agreement to (1) those that would be bound by the terms, rates, or other determination set by the agreement and (2) participants in the proceeding that would be bound by the terms, rates, or other determination set by the agreement. See section 801(b)(7)(A). The Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants not party to the agreement if any participant objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory terms or rates. Id.

If the Judges adopt rates and terms reached pursuant to a negotiated settlement, those rates and terms are binding on all copyright owners of musical works and those using the musical works in the activities described in the proposed regulations.

The Judges propose an additional minor revision to change an outdated cross reference. They propose to shorten the cross reference 17 U.S.C. 115(c)(3)(C) and (D) to 17 U.S.C. 115 because the section no longer has a subsection (c)(3). See17 U.S.C. 115; Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Public Law 115-264, 132 Stat. 3676, 3679-3684 (Oct. 11, 2018).

The Judges solicit comments on whether they should adopt the proposed regulations as statutory rates and terms relating to the making and distribution of physical or digital phonorecords of nondramatic musical works.

Comments and objections regarding the rates and terms and the minor revisions must be submitted no later than July 26, 2021.

Proposed Regulations

For the reasons set forth in the preamble, the Copyright Royalty Judges propose to amend 37 CFR part 385 as follows:

1. The authority citation for part 385 continues to read as follows:

Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).

2. In § 385.2 revise the introductory text of the definition for “Eligible Limited Download”, the definition for “Licensed Activity”, and the fourth sentence for definition “ Sound Recording Company” to read as follows:

3. Revise § 385.10 to read as follows:

4. Revise § 385.11 paragraph (a) to read as follows: