Copyright Review Board Issues Proposed Rule in Increase Royalties for Mechanical Licenses for 2023

Permanent Downloads Also Covered

On Wednesday, June 1, 2022, the Copyright Review Board (the “Board”) issued a Proposed Rule [Docket No. 21–CRB–0001–PR (2023–2027)] which would increase the royalty rates for mechanical licenses on phonorecords of nondramatic musical works.

Comments are open for the proposed rule now.

Section 115 of the Copyright Act, requires a copyright owner of a nondramatic musical work to grant a license (the ‘‘mechanical’’ compulsory license) to any person who wants to make and distribute phonorecords of that work, provided that the copyright owner has allowed phonorecords of the work to be produced and distributed, and that the licensee complies with the statute and regulations. In addition to the production or distribution of physical phonorecords (CDs, vinyl, cassette tapes, etc.), section 115 applies to digital transmissions of phonorecords, including permanent digital downloads and ringtones.

Every five years, the Copyright Act requires the Board to conduct proceedings to determine the rates and terms for Section 115 licenses.¹

The Board initiated this process in January 2021, and received petitions to comment from most of the major industry stakeholders: Amazon.com Services LLC, Apple Inc., Copyright Owners (joint petitioners Nashville Songwriters Association International (NSAI) and National Music Publishers’ Association (NMPA)), Google LLC, George Johnson, Joint Record Company Participants (filed by Recording Industry Association of America, Inc. for joint petitioners Sony Music Entertainment, UMG Recordings, Inc., and Warner Music Group Corp.), Pandora Media, LLC, David Powell, SoundCloud Operations Inc.,1 Spotify USA Inc., etc.

In summary, the Proposed Rule seeks to establish the following for the year 2023:

§ 385.11 Royalty rates.

(a) Physical phonorecords and Permanent Downloads.

(1) 2023 Rate. For the year 2023, for every physical phonorecord and Permanent Download the Licensee makes and distributes or authorizes to be made and distributed, the royalty rate payable for each work embodied in the phonorecord or Permanent Download shall be either 12.0 cents or 2.31 cents per minute of playing time or fraction thereof, whichever amount is larger.

(2) Annual rate adjustment. The Copyright Royalty Judges shall adjust the royalty rates in paragraph (a)(1) of this section each year to reflect any changes occurring in the cost of living as determined by the most recent Consumer Price Index for All Urban Consumers (U.S. City Average, all items) (CPI–U) published by the Secretary of Labor before December 1 of the preceding year. The calculation of the rate for each year shall be cumulative based on a calculation of the percentage increase in the CPI–U from the CPI–U published in November, 2022 (the Base Rate) and shall be made according to the following formulas: for the per-work rate, (1 + (Cy¥Base Rate)/Base Rate) × 12¢, rounded to the nearest tenth of a cent; for the per-minute rate, (1 + (Cy¥Base Rate)/Base Rate) × 2.31¢, rounded to the nearest hundredth of a cent; where Cy is the CPI–U published by the Secretary of Labor before December 1 of the preceding year. The Judges shall publish notice of the adjusted fees in the Federal Register at least 25 days before January 1. The adjusted fees shall be effective on January 1.

1. 17 U.S.C. § 801(b)(1), 804(b)(4)