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© C in a Circle: From Piano Rolls to Ringtones: 100 years with Compulsory Mechanical Licenses

The compulsory license only is available to be used if a recording previously has been distributed in the U.S. with the permission of the copyright owner of the song.

Posted in Songwriter 101 on May 18, 2007 by

Owners of copyright rights usually have the latitude to refuse to license their property to third parties, and when they do issue a license, they have the right to set the terms. However, one important exception is in the licensing of songs to put on recordings. Congress gave song copyright owners a reproduction right in 1909, but in order to clamp down on exclusive contracts between major music publishers and a piano roll company that locked out other parties from reproducing songs, they compelled the owners to license their songs at rates set by law to anyone who wished to make a “mechanical” reproduction of them. The rate that is associated with that compulsory license (called the “statutory” rate) essentially operates as a ceiling, even if the recording companies are willing to negotiate a license with the copyright owner to get better reporting terms than the law requires.

The compulsory license (sometimes called the mechanical license or the compulsory mechanical license) only is available to be used if a recording previously has been distributed in the U.S. with the permission of the copyright owner of the song. Thus, the song’s copyright owner always has the right to refuse to license it to anyone for the first time. But once that first license is in fact issued, anyone who wants to make a new cover recording of that song can license it via the compulsory license rather than by seeking permission and negotiating with the copyright owner. Songwriters share mechanical licensing revenue with their publisher as provided in the agreement between them.

In addition, the compulsory license is only available when the primary purpose in making records (or “phonorecords” as the law calls them) is to distribute them (either as physical products such as CDs or through digital downloads) to the public for private use. However, music that is intended to go onto the soundtrack of an audio/visual work cannot be compulsory licensed, since the law’s definition of phonorecords excludes that.

To avail itself of the compulsory license, the potential reproducer must, before or within 30 days after the recording is made and before it is distributed, serve on the copyright owner what is called a Notice of Intention for each title, containing specific information required by Copyright Office regulations. If the public records of the Copyright Office don’t identify the copyright owner of the song and include an address, the Notice of Intention can be served on the Copyright Office instead.

The rules that the Copyright Office created for taking advantage of a compulsory license are technical and many, but here are a select few (quoted from the Copyright Office regulations) that relate to what has to go into the Notice of Intention:

A Notice of Intention shall be clearly and prominently designated, at the head of the notice, as a “Notice of Intention to Obtain a Compulsory License for Making and Distributing Phonorecords,’’ and shall include a clear statement of the following information:
  (i) The full legal name of the person or entity intending to obtain
the compulsory license, together with all fictitious or assumed names
used by such person or entity for the purpose of conducting the
business of making and distributing phonorecords;
  (ii) The telephone number, the full address, including a specific
number and street name or rural route of the place of business, and an
e-mail address, if available, of the person or entity intending to
obtain the compulsory license, and if a business organization intends
to obtain the compulsory license, the name and title of the chief
executive officer, managing partner, sole proprietor or other person
similarly responsible for the management of such entity. A post office
box or similar designation will not be sufficient for this purpose
except where it is the only address that can be used in that geographic
location.
(iv) The fiscal year of the person or entity intending to obtain
the compulsory license. If that fiscal year is a calendar year, the Notice shall state that this is the case;
  (v) For each nondramatic musical work embodied or intended to be
embodied in phonorecords made under the compulsory license:
  (A) The title of the nondramatic musical work;
  (B) The name of the author or authors, if known;
  (C) A copyright owner of the work, if known;
  (D) The types of all phonorecord configurations already made (if
any) and expected to be made under the compulsory license (for example:
single disk, long-playing disk, cassette, cartridge, reel-to-reel, a
digital phonorecord delivery, or a combination of them);
  (E) The expected date of initial distribution of phonorecords
already made (if any) or expected to be made under the compulsory
license;
  (F) The name of the principal recording artist or group actually
engaged or expected to be engaged in rendering the performances fixed
on phonorecords already made (if any) or expected to be made under the
compulsory license;
  (G) The catalog number or numbers, and label name or names, used or
expected to be used on phonorecords already made (if any) or expected
to be made under the compulsory license; and
  (H) In the case of phonorecords already made (if any) under the
compulsory license, the date or dates of such manufacture.
  (vi) In the case where the Notice will be filed with the Copyright
Office pursuant to paragraph (f)(3) of this section, the Notice shall
include an affirmative statement that with respect to the nondramatic
musical work named in the Notice of Intention, the registration records
or other public records of the Copyright Office have been searched and
found not to identify the name and address of the copyright owner of
such work.

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I quoted the above to show you the specificity required by the law. There are many more rules, including how and when to send the Notice, and if you are really interested, here is the link to the entire regulation: http://www.copyright.gov/fedreg/2004/69fr34578.html

The fact that a Notice of Intention can be filed in the Copyright Office in the absence of an identifying registration for the song is a good reason for copyright owners of musical works to register their material as soon after the first record of a song is released. If, for example, you made and distributed a recording of your own song and someone else heard it and wanted to do a cover, if the song is not registered, the compulsory license can be triggered unbeknownst to you by a filing in the Copyright Office. Because a compulsory licensee does not have to pay the copyright owner royalties until it is identified in the Copyright Office records, failure to register could cost you money.

The statutory rate is payable for the song on every record made and distributed, which would cover both those sold and given away, as well as those that are rented, leased or loaned out, although the latter three acts trigger a proportionate payment. The statutory rate is set for a period of years every so often, and currently is the larger of 9.1 cents per song or 1.75 cents per minute of playing time. The fee will remain at that rate until the Copyright Royalty Board sets new rates. Given that the first statutory rate was 2 cents, the current rate obviously is far lower than it should be taking into account normal inflationary and valuation considerations over the last 98 years.

The Act requires compulsory licensees to account to copyright owners by the 20th of every month for the previous month and requires cumulative annual certified statements for every compulsory license sought. If the copyright owner doesn’t get the payments and statements when they are due, the owner can give the compulsory licensee notice that it has 30 days to cure its default or the compulsory license will automatically be terminated, making future distributions of the recording infringements.

Perhaps most significant for the realities of the music industry, the law specifically recognizes that voluntary negotiations between copyright owners and parties who could avail themselves of a compulsory license will be effective instead of the statutory provisions. Most recordings today are, in fact, licensed via negotiated licenses, where the reporting and accounting provisions of the law and regulations are relaxed and no Notice of Intention is required. But, as I mentioned, the mere existence of a statutory rate as a fallback for the record company keeps the negotiated rate artificially low. Note also that it is not uncommon for “controlled” compositions, those written or owned by an artist, to be contractually licensed to a record company at less than the full statutory rate, usually 75%.

Finally, a very 21st-century controversy is brewing as to what the statutory provisions regarding compulsory licenses mean in connection with ringtones. The Register of Copyrights believes that the language of the law is sufficient to bring ringtones under the compulsory license, meaning that the companies that offer them for downloading to your phone can pay the statutory rate to copyright owners for each song. Most song copyright owners believe that the nature and use of ringtones are outside the scope of the compulsory license scheme, and that they must be licensed via negotiations at market rates without the compulsory license ceiling as a fallback. Although the Register’s comments don’t have the force of law, they certainly could persuade a court that addresses the issue, so it remains to be seen once the dust settles whether copyright owners of musical works will be receiving a statutory rate or higher market rates for ringtones.

With the compulsory license nearing its 100-year anniversary and the world of piano rolls long gone, it may only be a matter of time before the mechanical license is changed or eliminated to reflect today’s digital environment. Copyright owners would like to see it gone because they think the rates are too low. Recording companies (and online services) are happy to keep it with some changes so that they can license music easily and cheaply. The Register of Copyrights would like it to be modernized so that the licensors and licensees both get some of what they want. Which way will it go? Only a future Congress knows for sure.

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