Digital Applications of the Compulsory License

A class action lawsuit filed this past May by a small group of independent music publishers against major online music services for failing to secure licenses to sell downloadable versions of certain songs brought to light what could be a crack in the way labels, digital content distributors and online music services clear music for digital distribution. The publisher’s copyright infringement lawsuit names as defendants Apple, AOL Music Now., Microsoft, Napster, Real Networks, Yahoo and others.

The standard practice for most labels, digital content distributors or online music services is to secure a license to digitally distribute a song by going through the Harry Fox Agency, the largest mechanical licensing, collection, and distribution agency for U.S. music publishers. (The license to distribute the sound recording itself is obtained from the record label or other owner of the sound recording.) The Harry Fox Agency grants licenses for a variety of digital formats, including full-length permanent digital downloads, limited use digital downloads, on-demand streaming, and more. Most labels and digital content providers prefer going through Harry Fox. However, certain publishers such as those who filed suit don’t use Harry Fox as a mechanical licensing agent, but instead grant mechanical licenses themselves.

Labels and digital content providers can always attempt to negotiate directly with publishers that don’t use the Harry Fox Agency. Most labels and digital content providers don’t particularly like this alternative as it could end up being very time consuming. A label could spend a fair amount of time negotiating the terms of a direct mechanical license only to have the deal implode at the last minute. Fortunately, the Copyright Act provides an alternative for labels and digital content providers seeking to obtain a license to digitally distribute a song – the compulsory license.

The Copyright Act provides for the compulsory licensing of songs (not the sound recording) for the making and distribution of “phonorecords.” Section 115 of the Copyright Act provides that, once a “phonerecord” (which includes within its definition digital phonorecords) of a musical work has been publicly distributed in the United States with the copyright owner’s consent, anyone else may, under certain circumstances and subject to limited conditions, obtain a compulsory license to make and distribute “phonorecords” (including a digital phonorecord) of the song without express permission of the copyright owner.

The first step in obtaining a compulsory license for the manufacture and distribution of phonorecords is to identify the copyright owner of the composition. This can be done by personally searching the Copyright Office, or requesting the Copyright Office to conduct the search. Additionally, there are services that perform these type of searches for a fee.

If the name and address of the copyright owner are located, the party seeking the compulsory license must send, by certified mail, a Notice of Intention to Obtain a Compulsory License to the copyright owner. A separate Notice of Intention is required for each title for which a compulsory license is sought. The notice must be sent either before or no more than thirty days after making a phonorecord of the song, and before the distribution of any such phonorecord. The Notice of Intention need not be filed with the Copyright Office.

After the Notice of Intention is sent and the distribution of the phonorecord commences, the compulsory license holder must make royalty payments accompanied by a monthly statement of account on or before the 20th day of each month for every phonorecord made and distributed in accordance with the license.

If the party seeking the compulsory license is not able to locate the name and address of the copyright owner, the license seeker must file the Notice of Intention with the Licensing Division of the Copyright Office, along with the applicable statutory fee. The compulsory license holder is not required to file a monthly statement of account with the Copyright Office. Any royalties due the copyright owner should be held on account by the compulsory license holder as the Copyright Office will not accept any royalty fees. The compulsory license holder should check the records of the Copyright Office on a periodic basis to see if the unidentifiable copyright owners are later identified. Once they are, the compulsory license owner should make all royalty payments directly to the copyright owner.