By: Perry Maybrown

Copyright law in the digital age is tricky, to say the least. Scrolling through blog posts on WJLTA’s own website will demonstrate that fact; when you search the keyword “copyright” there are over 100 related posts. Music copyright law is no exception. Since October 2022, the U.S. Copyright Office has been working through the long and arduous process of formal rulemaking (also called notice and comment rulemaking) to pass a rule clarifying who should receive royalties from blanket licenses after a copyright transfer is terminated. A blanket license is a set amount of money (currently 9.1 cents per play) that a composer gets whenever his or her work is performed. This can be through plays from a streaming service or a recording broadcast in a public place, for example. The Copyright Office’s stance is that authors, not publishers, should receive the royalties after the copyright is terminated. 

Relatedly, a right found in the Copyright Act of 1976 has recently begun to slowly creep into relevance. According to 17 U.S.C. § 203, authors have the right to terminate the transfer of a copyright (except in specific circumstances like work made for hire) between 35 and 40 years after the transfer occurred This allows artists and their heirs to reclaim copyrights that were transferred in raw deals and renegotiate for better terms. However, in the case of music rights, this may not always be a clean break.

The issue is: who receives the royalty once the copyright transfer is terminated? Theoretically, the royalty rights should revert to the author or their heirs. Still, some loopholes allow companies to keep raking in profits even after the right has terminated. 

There is, however, an exception in the termination statute:

(1)A derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination, but this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant. 

A derivative work is ‘‘a work based upon one or more preexisting works, such as a . . . musical arrangement, . . . sound recording, . . . or any other form in which a work may be recast, transformed, or adapted.’’ In plain English – if the copyright holder makes a derivative work before the copyright is terminated, then they can use that derivative work the same way they have been using the original, but they cannot continue making derivative works.

For example, let’s say Musician A makes a beautiful song and then signs their rights to the song over to Company B. Company B starts making derivative works, such as a parody or a movie, based on Musician A’s beautiful song. Musician A decides that they do not like the deal they made with Company B and, after 35 years, terminates the copyright transfer. Company B can now no longer do anything in relation to that specific copyright. But, they can keep making money from the derivative works they made prior to the termination of the transfer.

Unfortunately, reality is often more complicated than the example given above. Rather than creating something themselves, companies will pass the license on to other more specialized groups in order to create a derivative work. Does the exception still apply under these circumstances? Take the example of Mills Music, Inc. v. Snyder, a 1985 case that involved this issue. There, a musician signed over their copyright to a publisher, who in turn granted a blanket license to recording companies. The publishing company was able to collect royalties through that license. But then the musician terminated the copyright transfer, posting the question of who should keep getting the royalties? The publisher didn’t make the derivative work themselves; they just licensed the work out to another company that then made the new work. In this case, the court found that the chains of licenses were protected by the exception and therefore the publisher got to keep the royalties.

However, things have changed since the 1980’s. Currently, the issue surrounds a type of blanket licenses introduced in 2018 that only apply to digital distribution of music. The Copyright Office’s view is that the exception does not apply to this newer type of digital licenses. To clarify its stance, the copyright office is working to promulgate a new rule. The three reasons the copyright office believes that the exception does not apply are:

1. The blanket license is not something that can be “terminated.” Rather, it is a statutory license that is “self-executing.” Because it cannot be terminated, it would not make sense for a termination exception to apply.
2. For the exception to apply, there must be a derivative work prepared “under the authority of the grant.” Under the new blanket licenses there is a presumption that digital music publishers are not creating their own derivative works, only obtaining and licensing sound recording derivatives from other companies. The blanket license that ties together the digital music publisher and company that made the derivative work is not one that is protected by the blanket license. 
3. If the exception were to apply to blanket licenses then it would apply to all terms, which could lead to a wider effect than intended. For example, if the termination exception is applied broadly then it could also impact statutory changes. If there is a termination and Congress changes the statute on blanket licenses, what laws would apply? Would it be the law in force at the time of the termination? Or the most up to date law?

The copyright office concludes their analysis by discussing the reasons why, if the exception did apply, it would be irrelevant. The wording of the statutes indicate that “copyright owner” receives the royalties, and this owner is subject to change for a variety of reasons. Thus, the copyright office claims, it would be unreasonable to assume that the music publisher would become the permanent recipient of royalties. This rule proposal is subject to notice and comment, which means it’s subject to change. The public was able to offer comments on the proposed rule, sharing their views on its impacts and why they disagreed or agreed with the copyright office’s proposal. The opportunity to comment closed January 5, 2023. The copyright office will now consider all comments before releasing a decision. From the discussion occurring around this rule change, this update is absolutely needed. However, formal rulemaking is a long process. As of right now it is unclear how long that may take and what exact impact this new rule will have on digital licenses.