Music Modernization Act Overhauls Music Licensing and Royalty Payments

October 2018

Songs and musical works have been protected under the intellectual property laws of the United States since the 1830s, and third parties who wish to use or perform songs written by others must first get permission from the songwriter to do so. However, sound recordings did not enjoy federal copyright protection until 1972, resulting in older songs being subject to a patchwork of state copyright laws governing recordings, and new song recordings being treated differently under the law than the songs themselves.

Further, when the last major overhaul of the Copyright Act was passed in 1976, the concerns of the day were licensing and royalties for phonograph records, eight tracks, cassette tapes, and terrestrial radio and television broadcasts. The emergence of the Internet in the 1990s, and later wide-scale rollout of broadband access and multi-purpose mobile devices, fundamentally changed how music is distributed and consumed. Twenty-first century technologies, such as Apple iTunes, satellite radio, and streaming services, have proven challenging to fit into the legal framework of the 1976 Copyright Act. In addition to lacking federal copyright protection for pre-1972 sound recordings, the 1976 Act lacked a uniform method for ensuring payment of royalties for music producers, sound engineers, or mixers.

This is all about to change. The Music Modernization Act (MMA), signed into law on October 11, 2018, addresses each of these problems, changing royalty and licensing rules to accommodate both digital and non-digital music distribution channels, extending federal copyright protection to pre-1972 sound recordings, and adopting current industry practices concerning royalty payments to individuals that assist performers in creating new recordings.

The MMA contains three separate bills combined into one. The first is the original Music Modernization Act of 2018, originally proposed by Senator Orrin Hatch, which makes significant modifications to the 1976 Copyright Act and allows digital music providers (e.g., Spotify, Apple Music, Google Play) to obtain compulsory licenses to music without affecting the ability of traditional record labels to obtain their own compulsory licenses to distribute the same songs. Under prior law, compulsory licenses were available only for producing physical copies, such as CDs. A single non-profit music licensing collective (“MLC”) will be created to administer a comprehensive licensing system for all.

Under such a system, digital music providers may obtain licenses to publicly perform copyrighted music and pay royalties to the MLC, which in turn is responsible for distributing those royalties to the copyright owners. To facilitate this process, a comprehensive database of musical works will be created and maintained. In situations where a copyright owner cannot be immediately identified, royalties must still be paid, and the MLC will hold those royalties for at least three years while attempting to identify the creator. The bill also provides a safe harbor for digital music providers, insulating them from copyright infringement lawsuits so long as they fully adhere to the requirements of the new law.

The second portion of the MMA is the Classics Protection and Access Act, or as it is sometimes referred to, the Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society (CLASSICS) Act. As noted above, under prior law, sound recordings produced prior to February 15, 1972 received no federal copyright protection, resulting in a patchwork of state laws providing limited protection. The CLASSICS Act pre-empts all existing state copyright protections (without affecting any agreed-upon royalty payments or settlements), provides federal copyright protection for 95 years after publication of the recording, and allows copyright holders of these recordings to receive royalties from music services, including digital music providers.

Finally, the MMA includes the Allocation for Music Producers (AMP) Act. Under prior law, royalties typically were paid to songwriters (who owned the copyrights to the songs themselves) or performing artists (who owned the copyrights to recordings of their performances), but music producers, mixers, and engineers had no statutory right to royalties from the creation of recordings, and relied on performing artists to make payments under separate contracts, resulting in a de facto industry standard practice as to who is compensated, and at what rate. The AMP Act essentially codifies the music industry’s existing practice as practiced by SoundExchange, the largest domestic distributor of music royalties, and requires artists to maintain “Letters of Direction” to ensure payment to producers, mixers, and sound engineers.

Copyright law, particularly with regard to the use of music and sound recordings, is one of the most complex and widely misunderstood areas of law. If you have questions about protecting your own musical works, sound recordings, or other intellectual property, or using such works written by others, please contact one of Lewis Rice’s intellectual property or media law attorneys.