‘Landmark Victory’: Copyright Office Finalizes Rule Change On Streaming Royalties

The U.S. Copyright Office has finalized a new rule aimed at ensuring that songwriters who invoke termination rights to regain control of their music will actually start getting paid streaming royalties after they do so.

The provision, issued on Tuesday, will overturn what the Copyright Office called an “erroneous” earlier policy by the Mechanical Licensing Collective, which critics feared would have kept sending money from streamers like Spotify to former owners in perpetuity, long after a songwriter took back ownership.

Proposals to force the MLC to change that approach, first reported by Billboard in 2022, were supported by a slew of songwriters like Don Henley, Sheryl Crow and Sting, who feared they would be “deprived of the rights afforded to them by copyright law.” The effort was led by groups including the Music Artists Coalition, Songwriters of North America, Black Music Action Coalition and the Recording Academy.

In a statement on Tuesday, Music Artists Coalition board member Jordan Bromley called the Copyright Office’s new termination rule a “landmark victory for songwriters.”

“This decision not only ensures fair compensation for songwriters who reclaim their rights, but also sets a precedent that strengthens the very foundation of copyright law in the digital age,” Bromley said. “It’s a clear message that in the evolving landscape of music streaming and licensing, the rights of creators must be protected and respected.”

A spokeswoman for the MLC did not return a request for comment.

HOW IT WORKS

The new rule issued Tuesday addresses complex questions about how MLC’s blanket license for streaming royalties, created by the Music Modernization Act in 2018, interacts with so-called termination rights – a federal provision that empowers authors to reclaim the rights to their copyrighted works decades after selling them away.

Though a powerful tool for songwriters, termination comes with an important exception. Even though a publisher must hand back the rights to the original song, they’re entitled to keep selling any existing “derivative works” they created when they owned it. Those continue to be fair game, and any fees under existing licenses keep flowing back to their old publisher.

That exception makes practical sense: It would be unfair to let a terminating songwriter suddenly send cease-and-desists over a famous sample that had been legal when it was initially cleared, or sue over a movie that featured the song under a synch license. But it also creates difficult ambiguity for the MLC and the blanket license.

Say a songwriter terminates their publisher’s control of their music. The writer is now the owner of those songs — that’s easy to figure out. But by paying the MLC for access to the blanket license, Spotify arguably already has an existing license in place with the old publisher. So, isn’t the copy of the song on Spotify an existing derivative work? And shouldn’t the royalties from it continue to go to the old publisher under that license?

Under a dispute resolution policy issued by MLC in 2021, that appeared to be the case. The rules seemed to choose who to pay based on when a song was uploaded to a digital streamer’s servers; if it was uploaded prior to when a songwriter invoked their termination right, the royalties would keep going to the old owner — seemingly forever.

The MLC’s approach was not intended as a scheme to hurt songwriters. According to the Copyright Office, the group saw it as a “middle ground,” aimed at preventing drawn-out disputes that would lock up royalty payments “to the disadvantage of both songwriters and publishers.” But advocates argued that it would undermine the very purpose of termination rights, which were created to level the playing field for small creators who sold their works away to powerful companies.

In October 2022, the Copyright Office largely agreed. In a proposed new rule, the agency said the MLC’s policy was based on an “erroneous understanding and application of current law.” Ordering the group to “immediately repeal its policy in full,” the proposal said that when a songwriter gets their rights back, they should obviously start getting the royalties, too.

Nearly two years later, that rule was finalized on Tuesday. The final version retains most of the core features of the original proposal, though certain elements have been changed to address “practical and administrative concerns” raised by industry groups. In particular, the agency said it had modified how the rule identifies the payee to whom the MLC must distribute royalties, and pushed back deadlines to give the MLC more time to “update its processes and systems.”

QUIETING THE CRITICS

Over the past two years, the proposed rule underwent a so-called public comment period, during which it was met with both support and criticism from outside groups. According to Tuesday’s final rule, one of the “principal critics” was the National Music Publisher’s Association, which argued that the MLC’s original approach had been supported by historical precedent in industry practice.

In the new rule, the Copyright Office said it was “not persuaded by NMPA’s argument” on that issue.

“We do not dispute NMPA’s assertion that certain publishers may have adopted a different approach to termination, but this approach is not supported by the law in the context of the blanket license,” the agency wrote. “The Office is not adopting a new position, or changing the law as it relates to termination or the exception. Nor are we contending that the MMA or blanket license altered the law as it relates to the exception. The Office is merely stating what the law is and has always been.”

The Copyright Office also rejected separate arguments from the NMPA that the new rule was an impermissible “retroactive” rule, or even an unconstitutional “taking” that violated the Fifth Amendment. In doing so, the agency said that “these royalties always belonged to the post-termination copyright owner” and that the new rule simply “implements the law as it already existed.”

Despite earlier disagreements, NMPA President & CEO David Israelite celebrated the final enactment of the rule in a statement Tuesday, saying the group was pleased with a policy that “ensures songwriters are properly and expediently paid post termination.”

“Having clear guidance on this issue will make the MLC and larger industry even more efficient as it gives a clear roadmap to those who have decided to reclaim their copyrights,” Israelite said. “The songwriter groups deserve much credit for working with the Copyright Office and music publishers to push for this decision.”

A spokesperson for the NMPA declined to comment the Copyright Office’s decisions on the group’s specific objections.

Notably, the new rule will not just change the MLC’s approach going forward, but also require “corrective royalty adjustments” to address any money that was paid improperly under the old policy. But such payments are likely to be relatively small: In filings, the MLC has said that it voluntarily suspended the old termination policy while the case played out at the Copyright Office, and that it expects any corrections to total “less than $2 million.”

You can read the entire new rule here.

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