The MLC License Availability Date Was January 1: What This Means

The saying goes that “good things come in threes.” That seems to be the case in copyright. We have already covered the first two good things — passage of the Copyright Alternative in Small-Claims Enforcement Act (the “CASE Act”) Act and the Protecting Lawful Streaming Act (PLSA) — so it’s time we cover the third good thing to happen in copyright in the last several weeks: The Mechanical Licensing Collective’s (MLC) License Availability Date. Just like we did for the CASE and PLSA Acts, we will run through some questions we have heard about the License Availability Date and provide you with some essential details.

Before we discuss the MLC, a little foundational information may be helpful to better understand its scope and impact.

• When it comes to music, there are two distinct copyrights: the musical composition (the notes, melody, rhythm and lyrics) and the sound recording (the fixation of sounds that you actually hear; a recording of a particular performance). The MLC only licenses music compositions, not sound recordings.
• A mechanical license refers to a license that allows a musical composition to be reproduced and distributed. The MLC offers only mechanical licenses, not performance licenses or other types of licenses, like a synchronization license (“sync” license) which is needed when music is used to accompany an audiovisual work.
• An interactive streaming service is it one where the user gets to choose the song (i.e., on demand, like Spotify). The other type of service is a non-interactive streaming service, which is one where user can select the station but not the song (e.g., Pandora radio or SiriusXM). The MLC offers licenses to interactive services.

With this background in place, let’s move on to a discussion of the MLC.

What is the MLC?

MLC stands for “The Mechanical Licensing Collective,” a new non-profit organization created under the auspices of the Music Modernization Act to administer a new blanket mechanical license for digital uses of musical compositions. The term “administers” means the act of licensing copyrighted works and collecting and distributing royalties from those licenses.

How and when was the MLC created?

The MLC was created under the auspices of the Music Modernization Act (MMA). The MMA made amendments to section 115 of the Copyright Act, which dictates the terms of compulsory license for making and distributing musical works, by replacing an existing song-by-song compulsory licensing structure for making and distributing musical compositions with a new blanket license for digital music providers to provide permanent downloads, limited downloads, and interactive streaming. The MMA directed the Register of Copyrights to designate an entity to administer the new blanket license, and to develop and maintain a comprehensive, publicly available database of musical works and sound recordings. In 2019, after soliciting proposals from entities seeking to be designated as the entity responsible for administering the new blanket license and input from other stakeholders, the Register of Copyrights officially designated the Mechanical Licensing Collective, Inc. (MLC) as the entity responsible for administering the new blanket license.

What type of license does the MLC administer?

The MLC administers blanket mechanical licenses for musical compositions to eligible digital streaming and download services. The blanket license covers interactive streams, limited downloads, and permanent downloads. The MLC does not administer performance licenses for musical compositions (including for digital radio, or “non-interactive” streaming), and does not administer any rights for sound recordings.

What is a blanket license?

A blanket license is a single license that allows the licensee to use any musical work in a catalogue. In the case of the MLC, the blanket license covers all musical works in the United States. The alternative to a blanket license is song-by-song licensing, which requires a licensee to obtain a license for every song they want to use on an individual basis. Blanket licenses are often a much more efficient licensing mechanisms for music users who are able to gain access to large repertories of works without having to locate and negotiate with numerous individual copyright owners.

What countries and territories does the MLC operate in?

The MLC only operates in the United States.

Who does the MLC collect royalties from?

The MLC collects digital mechanical royalties from digital music services that offer interactive streaming and downloads. For example, Spotify, Apple Music, Amazon Music, and Tidal. More information on what services qualify and how those services should connect with the MLC can be found here.

How are mechanical royalties set?
The royalty rates for Section 115 mechanical licenses, including the MLC blanket license, are determined by the Copyright Royalty Board, a tribunal located within the U.S. Copyright Office. The MMA requires the Copyright Royalty Board to set the mechanical royalties using a willing buyer/willing seller standard. This replaced the previous policy-based rate-setting standard, and aims to establish rates that most accurately reflect what would have been negotiated in a free market.

Who gets paid by the MLC?

Where a songwriter, composer, or lyricist has assigned his or her right to collect the mechanical royalties for their musical composition to a music publisher, the MLC will distribute the share of the royalties to that music publisher. Where the songwriter, composer, or lyricist has not assigned their rights, but instead has chosen to “self-publish” their rights, the MLC will distribute their share of the royalties directly to them or their representative (e.g., business manager or lawyer). In order to receive the royalty from the MLC the publisher or “self-published” songwriter, composer, or lyricist must be registered with the MLC.

How often will the MLC distribute royalties to it members?

The MLC will distribute royalties on a monthly basis.

How do rights holders ensure that they are paid by the MLC?

To get paid by the MLC, music publishers and self-published songwriter, composer, or lyricist must first register with (i.e., become a “member” of) the MLC. There is no charge for becoming a member. Songwriters, music publishers, administrators, etc. can sign up on the MLC’s Connect to Collect page.

Does the publisher or songwriter, composer, or lyricist get paid if they are not registered with the MLC?

If a songwriter, composer, or lyricist is affiliated with a publisher, they probably do not need to sign up themselves, as their publisher will also be a member of the MLC and will collect royalties for the songs owned or administered by the publisher. Unaffiliated or self-published songwriters, composers, or lyricists do need to be members of the MLC to receive royalties from the MLC.

How does the MLC determine the amount of royalties to be paid out?

When the MLC receives a royalty payment from a digital service provider, the digital service provider also sends a usage report. The MLC then uses the data in that report to match the royalty with the person or publisher who owns or administers the rights so the rights owner can get paid their share of the royalty.

How will unmatched royalties be handled?

There may be times when a copyright owner cannot be identified or matched to a royalty. That is considered to be an unmatched royalty. The MLC will hold those royalties for a minimum of three years, and in the meantime will work to match unclaimed royalties to the proper copyright owners. If, at the end of the statutory three-year holding period, the copyright owner has still not been identified, royalties will be paid out on a market-share basis. If the copyright owner is located during that time, they would hey paid their share of the royalty when they are located.

What happens if there is a dispute over who owns the rights to a musical composition?

If there is a dispute over rights and who is entitled to a royalty payment, the MLC will place the royalties on hold until the dispute is settled by the parties or the courts. This process for resolving ownership conflicts is set forth in the MMA.

How is the MLC funded?

The MMA provides that the operational costs of the MLC are paid for by digital service providers who use the MLC through an administrative assessment set by the U.S. Copyright Royalty Board. The MLC does not receive funding from songwriters, composers, lyricists, or music publishers. The MLC distributes 100% of the mechanical royalties it collects—it does not keep any portion of the mechanical royalties it collects.

Why is January 1, 2021 significant?

January 1, 2021 is the “License Availability Date” as set forth in the MMA. Effective January 1, 2021, the MLC began issuing blanket licenses to eligible digital service providers. The MLC expects to begin receiving blanket license royalty payments in February 2021 and will then begin matching and distributing those royalties to copyright owners. Digital services providers licensed by the MLC under the blanket license are now required to send monthly usage reports and mechanical royalty payments to the MLC. The MLC anticipates sending out its first royalty payments and statements in April 2021.

How do rights holders register their works so they can get paid their share of the music royalties?

In September 2020, the MLC launched a portal that enables copyright owners and administrators to set up accounts, register works, and collect royalty payments. The portal also allows users to search, view, and edit the MLC’s data for existing musical works. Offering visibility and control to rights owners and administrators through the portal is one way the MLC’s plans to ensure accuracy in its database and streamline the distribution of royalties. While only members will be able to register works and edit data using the portal, MLC’s public database will allow anyone to see the musical works data we have compiled and identify the sound recordings in which the musical works are embodied.