How will the Music Modernization Act affect music-related litigation?

Last month, President Donald Trump signed into law the Music Modernization Act. Much of the coverage focused on the performers in attendance (including Kid Rock and Mike Love of the Beach Boys), as well as a post-signing White House meeting with Kanye West. However, the MMA is more notable both for the rare show of bipartisanship that led to its passage and for the significant impact it is likely to have on the music industry. Among other things, the MMA will affect music-related litigation, both directly and indirectly.

Some of the consequences for litigation are obvious. Among the MMA's most notable accomplishments is the formation of a "Mechanical Licensing Collective" that can grant blanket mechanical licenses to digital music providers for the use of compositions in streams and digital downloads, in exchange for payment of a statutory royalty. These provisions -- which will help ensure compensation to publishers and songwriters while at the same time providing digital music services protection against lawsuits -- are (at least in part) a response to claims made in litigation that has bedeviled Spotify over the past several years. In a series of lawsuits, Spotify was accused of infringing the copyright in musical compositions by streaming those compositions without obtaining a mechanical license or paying a royalty, in part because it apparently could not identify the songwriter or publisher. Although Spotify previously settled certain of these claims, other litigation remains pending.

While the MMA did not entirely immunize Spotify (and others) from these lawsuits, it did grant some relief: With respect to any such lawsuits filed on or after Jan. 1, 2018, the sole and exclusive remedy (assuming certain conditions are met) is the statutory royalty payable under the MMA. Given the potential damages otherwise available under the Copyright Act -- many of the lawsuits sought up to $150,000 per infringement -- this retroactive limitation on liability is significant. More fundamentally, the existence of the Mechanical Licensing Collective is likely to make the process of accounting to songwriters and publishers easier, and to therefore reduce litigation over royalty claims.

The MMA addresses another issue that has been the subject of extensive litigation over recent years -- sound recordings first "fixed" or created prior to Feb. 25, 1972, the date on which federal copyright protection was extended to sound recordings. Numerous lawsuits have been filed against digital music services with respect to pre-72 sound recordings under state laws that provide protection for such works, and the courts continue to address the scope of such protection. The MMA creates a digital performance right with respect to such sound recordings and provides a mechanism for the corresponding calculation and payment of royalties under a statutory licensing scheme.

Accordingly, at least on a going-forward basis, the digital music services have a means to protect themselves against litigation (assuming compliance with the terms of the MMA), and record companies and artists have a means under federal law to get compensated for this form of exploitation. The MMA also includes a provision preempting state copyright claims for digital audio transmissions that occurred prior to enactment of the MMA, if the transmissions would have qualified for the statutory license for post-1972 recordings, and the digital music service pays the required royalty within 270 days after enactment of the MMA. Whether and to what extent parties will take advantage of this provision remains to be seen.

The MMA includes subtler changes affecting litigation as well. Under the Copyright Act, the statutory rates that so-called "pre-existing" satellite radio pays for the use of sound recordings are set by Copyright Royalty Judges in extended adversarial proceedings that occur every five years. In a compromise that provides greater rate certainty, the rates that have been adopted for the period from 2018-2022 will remain in place through 2027, thereby eliminating entirely one piece of substantial "litigation."

The MMA also adjusts the procedures for the rate proceedings surrounding public performance licenses issued by ASCAP and BMI, two of the largest performance royalty organizations. ASCAP and BMI are the subject of consent decrees with the Department of Justice that require a federal judge to set the rate for a performance license if the performance royalty organization and a licensee cannot agree to terms. Prior to the MMA, a single judge was assigned to administer the ASCAP consent decree and another to administer the BMI consent decree; in each case, the assigned judge was also assigned to resolve all rate disputes. The MMA precludes this assignment process, requiring that each new rate case be assigned to a judge who is neither the judge administering the consent decree nor a judge who is then handling another rate proceeding. Only time will tell whether this change has any meaningful impact on performance royalties or the rates that are set.

In short, some of the changes adopted in the MMA are likely to have broad-ranging impact, while others are narrower in scope. But given the broad industry support for the legislation, it appears that the MMA may reflect that rare instance in which everyone is a winner.