Jun 4, 2024 5 min read

Change MLC dispute procedure so we don’t pay to sue ourselves, say streaming services

The streaming services have told the US Copyright Office that it should put in place new rules for how collecting society The MLC deals with disputes over the compulsory licence it administers. Under the current system, services can end up paying for lawsuits in which they are the defendants

Change MLC dispute procedure so we don’t pay to sue ourselves, say streaming services

The US Copyright Office is currently conducting a review to decide whether The MLC should continue to be the collecting society that administers the mechanical rights compulsory licence used by streaming services in the US. The compulsory licence sets out how - and how much - songwriters and music publishers are paid when songs are streamed. 

The Copyright Office will almost certainly conclude that The MLC should continue to do what it already does, but as part of the process the users and beneficiaries of the licence - so the digital music services on one side, and songwriters and publishers on the other - have an opportunity to set out their gripes and grievances with the current system. And we all know how much digital music services, songwriters and publishers enjoy a good gripe.

This all comes admist The MLC suing two of those digital services, Pandora and Spotify, who are members of the Digital Media Association, or DiMA, which made its submission to the review last week. This means, not entirely unsurprisingly, that key amongst the gripes raised by the digital services is that they are effectively underwriting the costs of the MLC suing them. This is because the money that funds the MLC’s operations - and, critically, any costs of legal action - comes from the digital services themselves. 

“Litigation should be a last resort”, declares DiMA’s submission. However, because “the MLC and its music publisher members do not expect to bear the cost of litigation” they “lack the normal financial disincentives to commence litigation without fulsome legal and business analysis or without attempting to resolve the matter in a less costly way”. 

Or, in plain English, DiMA reckons that the MLC is a bit trigger happy when it comes to suing people, because it knows that the publishers and writers on its board aren’t going to have to pick up the costs.

As a result, DiMA wants the Copyright Office to put in place new dispute resolution mechanisms which would make it harder for the MLC to go straight to litigation. But the National Music Publishers Association opposes such proposals. 

The Music Modernization Act and creation of The MLC

When US Congress passed the Music Modernization Act in 2018, the NMPA writes in its submission, Congress “authorised the MLC to protect the interests of copyright owners through enforcement”. That the MLC has that power - including recourse to legal action - is, the NMPA argues, crucial - otherwise publishers and songwriters “will be left with no protection against bad faith by digital music providers”, because they are compelled to operate “under a compulsory license which they cannot negotiate or refuse”. 

Prior to the MMA, digital platforms relying on the compulsory licence had to undertake a lot of administration, including sending paperwork to each rightsholder. Primarily because of data issues on the songs side of the music industry, a lot of that admin didn’t happen. Which meant lots of song copyrights were being infringed, which, in turn, resulted in litigation being filed by the publishers and songwriters. 

The MMA was the result of a compromise between the streaming services and the music publishers, to try and avoid that sort of messy situation which benefited no one. 

The services would pay for the creation and running of a collecting society to administer the compulsory licence, removing their administrative burden and the risk of songs being unlicensed. That, in turn, reduced the risk of them being sued for copyright infringement, which benefited everyone - though maybe not the lawyers.

The MMA set out how this new collecting society should work. The Copyright Office then appointed the MLC to undertake that role. It is that appointment - or ‘designation’ to use the technical term - that is currently being reviewed. 

The MLC as a "neutral administrator"

“The deal struck between music publishers, songwriters and digital music providers is working well for all parties”, declares the NMPA’s submission. “The benefits that parties sought when negotiating the MMA are being realised as the MLC continues to develop and improve its capabilities”. 

At a basic level, DiMA agrees. “Since its enactment in 2018, the MMA has dramatically transformed the mechanical licensing landscape, resulting in immeasurable benefits to stakeholders throughout the music industry”, it writes. 

However, the digital platforms think that the MLC's role should be as a “neutral administrator” and “steward” of the compulsory licence, even though it is headed up by a board made up of publishers and songwriters. Yet, they argue,the MLC has not been sufficiently neutral when it comes to disputes over how the compulsory licence should be interpreted. 

One such dispute is whether Pandora needs to pay mechanical royalties on its ad-funded personalised radio service, because there’s an option for users to get more interactivity in return for watching an advert. Another is whether Spotify can reclassify its main subscription product as a music and audiobooks bundle and benefit from a bundling provision that reduces its royalty obligations. 

The MLC’s argument is that you can’t just pick and choose the rules that benefit you and ignore the ones that don’t, while the digital services argue that what they are doing is within the terms of the compulsory licence and the MLC is being unreasonable.

The MLC has sued both services over those disputes. In its response, Pandora argued that it’s not the MLC’s role to interpret the compulsory licence, and that its decision to sue Pandora is a “a wild overreach” - before adding that it and the other digital platforms do not fund the organisation to indulge in the pursuit of “legal frolics and detours”. 

This is why, DiMA says, the Copyright Office should establish “an alternative, preliminary process for dispute resolution” that would need to be undertaken before everyone starts filing lawsuits. While DiMA’s statement doesn't provide much detail on how that might work, or what it might involve, it does highlight alternative dispute resolution mechanisms that are present under the European Union’s Collective Rights Management Directive. 

If dispute resolution were to fail and the MLC did decide to take legal action against a digital service, adds DiMA, there should be new rules governing the process and funding of any litigation. Not least that the costs of any legal action should only come from the funding provided by the digital services if the courts find in the MLC’s favour. Which DiMA presumably feels might somewhat moderate the MLC’s proclivity for expensive legal action. 

Of course, what DiMA wants and what the publishers want are two very different matters. Criticising the proposals, the NMPA sternly says in its own submission that it “cautions against bad-faith proposals by digital music providers and their representatives to erode the MLC’s authority to enforce against noncompliance with the terms of the blanket licence, which is a key protection given to copyright owners under the MMA”.

To add to the merriment, it’s not just the streaming services that have a list of gripes about the way the MLC is conducting itself. A number of songwriters have also raised various issues - and we’ll take a look at those in more detail later in the week.

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