Transition Period Cumulative Reporting and Transfer of Royalties to the Mechanical Licensing Collective

Pursuant to the Musical Works Modernization Act, title I of the Music Modernization Act (MMA), the U.S. Copyright Office has amended its regulations pertaining to cumulative statements of account required to be submitted by digital music providers to the mechanical licensing collective (MLC), in order for such providers to be eligible for the statutory limitation on liability for unlicensed uses of musical works prior to the January 1, 2021, license availability date.

To be eligible for this limitation on liability, qualifying digital music providers must engage in good-faith, commercially reasonable efforts to locate, identify, and pay musical work copyright owners for covered uses of their works and must accrue and hold royalties for uses of any unmatched musical works. If a musical work copyright owner remains unidentified as of January 1, 2021, the digital music provider must transfer all accrued royalties to the MLC along with a cumulative statement of account. The MLC can use the information contained in those cumulative statements to engage in additional matching efforts to identify and locate musical work copyright owners entitled to royalties.

Following enactment of the MMA, the Office issued a technical rule to conform its regulations to account for new statutory requirements, including for cumulative statements of account. After additional rounds of public comment, the Office subsequently published a final rule updating the content and submission requirements for cumulative statements of account. This rule is designed to be consistent with the statute while furthering the congressional intent to encourage digital music providers to participate in the limitation on liability by transferring accrued royalties for past uses of works for payment to copyright owners.

The rule addresses the formats for submission of cumulative statements and provides for the MLC to receive metadata, including through supplemental reporting, to enable it to match past uses so it can distribute royalties to the matched copyright owners. It also adopts a mechanism for digital music providers to rely upon royalty input estimations and make subsequent adjustments once inputs are finalized. This includes allowing digital music providers to employ good-faith estimates in calculating total accrued royalties, subject to subsequent adjustments, to reflect the potential effect of pre-existing private agreements upon the provider’s reporting obligations. It also allows relevant copyright owners to notify the MLC of a good-faith dispute over reliance on such an agreement and establishes a process for the MLC to invoice and hold the disputed royalties once the MLC is otherwise ready to distribute the funds.