Copyright Office undertakes public study to identify best practices for unclaimed royalties of musical works

In an effort to identify and locate those copyright owners with unclaimed royalties still floating out there in the ether, the US copyright office is holding public consultation to identify the best practice for making this happen.

Guest post by Emmanuel Legrand of the Legrand Network

The US Copyright Office is undertaking a public study, in consultation with the Government Accountability Office, to recommend best practices that the Mechanical Licensing Collective (MLC) may implement to “effectively identify and locate copyright owners with unclaimed royalties of musical works, encourage copyright owners to claim accrued royalties, and ultimately reduce the incidence of unclaimed royalties.” 

  The MLC started operating on January 1, 2021. The USCO will hold virtual public round-tables as part of its study on March 25-26, 2021. It has also released a report commissioned to Music Confidential’s Susan Butler on matching and royalty distribution practices of certain collective management organisations (CMOs) around the world. 

  “Ms. Butler’s report contains information about various CMOs’ approaches to obtaining ownership information, reducing the instance of unclaimed royalties, and royalty distribution,” said the USCO in a statement, adding that the report is being provided so that it may be considered by the public in submitting comments for the Office’s policy study. 

An anomaly within CMOs

  Music Confidential’s Butler surveyed and interviewed select CMOs around the world that represent musical works (whether performing rights, mechanical rights, or both) or public performance rights in recordings (neighbouring rights). 

  “The Mechanical Licensing Collective is an anomaly within the global network of CMOs,” noted Butler. “As such, the MLC faces challenges in setting up and operating a collective that meets the needs and desires of the relevant rights holders around the world and DSPs. As an anomaly, the MLC also has opportunities to combine information about the experiences of others with new strategic thinking to form a best-of-breed collective. Neither overcoming the great challenges nor taking effective and efficient advantage of the great opportunities will be simple or easy.”

  Some of the report’s findings include:

  > Notable differences in how the MLC will operate, compared to the existing CMO network, including that: 

  – the MLC will be responsible for administering licenses limited to a singular and narrow right concerning one type of work (musical works) and one type of use (the blanket mechanical license for digital phonorecord deliveries), while CMOs may represent works for many different types of uses and frequently many different types of authors; 

  – and the MLC does not have members who choose to join the collective, while CMOs are membership- or affiliate-based.     

  > CMOs can obtain information from different sources, including songwriter or performer members through work or performance registrations or notices, publisher or record label members through work or recording registrations or notices, agreements with other CMOs (domestic or foreign), and with existing music ownership databases or database networks.

  > CMOs may require or recommend to be provided information related to musical works or sound recordings, including to facilitate payment of royalties.

  > CMOs may not process usage reports and may instead resort to sampling (also called using a “proxy” or “benchmark”) to pay certain royalties.

  > CMOs may not be able to link a recording title reported by a digital music provider in a usage report to a specific work or specific rights holders to be able to distribute money to those rights holders.

  > CMOs use various methods to match works to recordings and rights holders, including routine automated and manual methods to match works to recordings and rights holders, but also by sharing lists of unidentified works with members and others, inquiries from rights holders, posting lists on the CMO’s website or on a claiming portal, placing advertisements in official journals or newspapers, and use of audio fingerprinting.

 Outlining distribution rules

  The report also outlines the various distribution rules that CMOs have developed over decades, in particular distribution rules that have developed with respect to the distribution of royalties accrued for unidentified or unclaimed works.

  Regarding distribution of unclaimed royalties, Butler writes that for the MLC, the Music Modernisation Act “already provides that copyright owners’ payment shares for unclaimed accrued royalties for particular reporting periods shall be determined in a transparent and equitable manner based on data indicating the relative market shares of such copyright owners as reflected in usage reports from DSPs for covered activities for the periods in question.” 

  The usage data to be considered includes data provided by the DSPs to the MLC as well as usage data related to voluntary licenses for covered activities and download licenses, to the extent such information is available to the MLC. 

Various systems to deal with unclaimed royalties

  However, the report states that CMOs who took part in the research “most often do not use copyright owner market share calculations to distribute royalties accrued for unidentified or unclaimed works” and “their distribution rules do not align perfectly with the MLC or with the obligations set out in the MMA.” 

  The report identified the following ways CMOs use for determining their distributions of unclaimed royalties: 

  > Allocated across a representative dataset of individual works, rather than rights holders, related to the source and time period for that component of unidentified earnings; 

  > Paid to all of the rights holders in that distribution stream over the same time period; 

  > Calculated pro-rata based on the amount paid per year to all rights holders; 

  > Calculated primarily by work, and only then by individual rights holders based on rights holders’ shares of the work; 

  > Calculated for distribution without mixing different years of collections together; 

  > Made part of the pool for the next distribution for the same type of use and shared among the current earners of that upcoming pool;

  > If identified in some way as a foreign work from a particular country, but without enough information to identify the foreign copyright holder or the local representative of the foreign copyright holder, distributed to the CMO in that country. 

  “The Copyright Office is confident that these observations may aid the public as they consider issues with respect to the Office’s Unclaimed Royalties Study,” said the USCO.