Are you tired of winning yet? The legal bill for the Phonorecords III remand and other stories

You may be aware that the government compels songwriters to license songs for “reproductions” which includes vinyl, CDs, ringtones, permanent and limited downloads as well as interactive streaming. The government also compels songwriters to accept the government’s royalty rate for those uses which is given effect through a legislative branch agency called the “Copyright Royalty Board” which is run by the “Copyright Royalty Judges” (who are not judicial branch judges just to make it even more Kafka-esque).

In addition to compelling songwriters to license and accept the government’s rates on reproductions, the government also compels most songwriters to accept the rates set by “rate courts” for public performances under what I believe is the longest running consent decree in the history of the United States with ASCAP and a close second with BMI.

If songwriters ask themselves what the F did I do to deserve this, what was the original sin, it’s so long in the past that nobody living had anything to do with it, whatever it was. You have to actually do some research to even understand what the cause of either government action even was.

What we do know is that both these regimes have resulted in absurdly low royalty rates for songwriters. On the reproduction or “mechanical” side, the government set the rate at 2¢ in 1909 and everyone involved including Congress, the Copyright Office and the publishers failed to raise the rate until 1978. That’s right–four major wars, the great depression, one pandemic, the Dust Bowl and the Beach Boys, Otis Redding, The Beatles, Wilson Pickett, the Rolling Stones, Jimi Hendrix, Mowtown, Stax and Saturday Night Fever, none of these events had any impact for songwriters. It was 2¢ a unit all the way through.

The rate began to increase incrementally in 1978 until 2006 when it stopped at 9.1¢ for physical and stayed there and is still 9.1¢. The streaming rates did not get set until 2009–many, many years after streaming and limited downloads became a thing. This is the work of the Copyright Royalty Board which is supposed to divine what a market rate would be. But it’s not just the Judges–it’s also the lawyers. A bunch of lawyers.

Fast forward to the current dumpster fire called Phonorecords III. This is the one you may have heard about where the same people who watched the rates freeze since 2006 and waited 9 years or so to even establish the first streaming mechanical rate (all the while issuing “rateless licenses”) claim to have “won” a rate increase of 40-odd percent, only to have the digital music services–led by the soulless Spotify and the equally immoral Google and Amazon–exercise their right of appeal which resulted in the case being sent back to the Judges for a re-look at the rates, also called a “remand”. Also called “losing.” But Washington DC is one of the few places where “winning” means “losing.” Or as Slider said in Top Gun, “they won, too.”

So that was the first appeal of Phonorecords III. The Judges are supposed to hear from the “participants” in the case on how to satisfy the appeals court’s remand ruling and then come up with another rate, which the participants will have the right to appeal again. My take on the likelihood of a second appeal based on the filings and hearings in the case so far is that the likelihood of either side appealing is very, very high. Because you know, winning being what it is.

But you can’t really decide the rate for Phonorecords IV until you know how Phonorecords III came out–strangely except for the frozen mechanical rate, but that’s another story. And this is all happening because somewhere, some time long, long ago, somebody decided that songwriters, unlike Big Tech, just couldn’t be trusted and had to be highly regulated. Or they might do something like…control their copyrights or some equally fantastic action that must be crushed before it even becomes a germ of an idea.

There actually is a bright side to this absurdity. First of all, it calls into question whether there should even be a compulsory license at all. What would fix this situation pretty quickly is the songwriters pulling their songs off the services en masse. That could have been fixed in the sainted Music Modernization Act fiasco, but we were all told by the smart people that the one thing you could not do was tell the services they couldn’t use songs unless songwriters liked the deal. Don’t ask me why because I don’t know the answer today any more than I have known the answer for many, many years of watching lobbyists spew gibberish about free markets, willing buyers, and so on.

What the Phonorecords III remand napalming shows is just how over-lawyered this whole idiocracy has become. Understand there are 38 lawyers involved in this remand proceeding. Yes, that’s right–38 lawyers. And here they are starting with the services:

Now here are the lawyers for the songwriters and the publishers–yes, the same lawyers are representing both–I guess it saves money.

That’s right–38 lawyers. The only songwriter who’s in the proceeding is George Johnson who is representing himself. George has the patience of Job and adds as much sanity to the process as he can which is a challenge given the over lawyering. One might argue that he’s not only representing himself, he’s speaking for all songwriters.

Without discussing whether you can call a dumpster fire winning or losing, let’s talk turkey about what’s really important, being money. Because you can bet that however you want to measure it, somehow the songwriters end up paying for this ungodly nightmare. Why? Because as Jackson Browne wrote, nobody rides for free.

I did a little poll on Twitter just for fun to see what people thought the combined hourly billing rate was for 38 lawyers from the top law firms. The consensus view was that it’s something like $25,000 per hour or more.

That’s right–and when you think about it, that could be low. The top chairs on these teams (and you notice they don’t list their names alphabetically, so there’s probably a pecking order there) could easily bill well over $1000 per hour. The lowest chair is probably no less that $500 per hour and my bet is actually higher. (Of course this doesn’t count the very junior folk who don’t actually “appear” at the CRB or paralegals so are not on the list.)

Remember that this particular case has been going on since 2016 and probably will go on for even more years. (See Bleak House.) That’s putting kids through prep school, college, graduate or professional school. Oh, no, not your kids, their kids. And that doesn’t even count Phonorecords IV which hasn’t been decided yet but involves pretty much the same cast of characters.

None of these services care much about the legal fees–oh sure, they care, but it’s not like it’s going to break the bank. All of them probably will have covered their legal fees for the year by the time you finish reading this post.

But the publishers and the songwriters? That’s another story. The publishers in particular are going to get a humongous bill for this whole escapade and probably have already. My bet is that the publishers’ run rate for the CRB process is around $500,000 a month in legal fees at a minimum in a light month. When you combine the remand and Phonorecords IV, that could easily be much higher. That has to come from somewhere. And remember that the pyramid system of hourly rates in law firms tends to make the aggregate bill be about what it would have cost to have the most junior associate do all the work (higher billers theoretically spend less time than lower billers so if the higher biller’s rate is 2 or 3x the lower biller…you get the idea). I’d also bet that whatever “winning” looks like, the total transaction costs of getting through this gauntlet may well exceed the benefit.

So I think $500,000 a month is actually pretty low. Good thing those publishers have oodles of cash to blow on Captain Ahab and Moby Dick.

Tired of winning yet?

Update: Copyright Royalty Board Calls for Public Comments on the Frozen Mechanicals Private Settlement–MusicTechPolicy

By Chris Castle

[This post first appeared on MusicTechPolicy]

If you’ve followed the frozen mechanicals debate, you’ll know that one of the asks from commenters was that the Copyright Royalty Board not restrictively parse who could and could not comment on the private party settlement that the settling parties asked the CRB to impose on the world.

In case you’re not someone who reviews the Federal Register or the CRB docket on the Friday before a national holiday long weekend, I’m pleased to let you know that the CRB has published for comment just the draft regulations that private party settlement proposed (with a couple of ministerial changes by the CRB).

Comments are due no later than July 26, 2021. Comments need to reference docket number 21-CRB-0001-PR (2023-2027) and can be submitted online through eCRB at https://app.crb.gov according to the Federal Register notice filed by the CRB–if you have registered with the CRB and been approved for an account.

Of course, if you just click on that link provided in the Federal Register notice, the link just takes you to the landing page for the electronic document system at the CRB. There’s no obvious way to know what you had to do in order to file a public comment. I’m sure this oversight is not designed to confuse you, but just another example of the rarefied air they breath at the CRB. If you are used to using Regulations.gov to comment on regulatory agencies like the CRB, you will find this process a bit more complicated and bureaucratic.

As far as I can tell, you register at this link: https://app.crb.gov/register/index and complete the required fields only. They might have told you that in the Federal Register, but you know, busy people. I emphasize the required fields because when you first look at it you may think that only lawyers can register because the CRB asks for your bar number which you probably don’t have. I don’t know why they do this unless they think that lawyers will be the most frequent users, but don’t be put off. You don’t have to be a lawyer to comment and you only have to provide the required fields and get your email address confirmed in order to start the account registration process.

Eventually your account will be activated allowing you to “File a Document”. Naturally, all the days that you have to wait for CRB to activate your account will count against the 30 day comment period and apparently all calendar days will be counted against your 30 days including the days that CRB are closed like the upcoming national holiday on July 5.

So the punchline there is that if you are planning on filing a comment or think that you might be interested, register for an account right away and do not leave your ability to be heard to the tender mercies of the government’s technical support staff.

It is also worth noting that the CRB clearly states that once adopted by the CRB, the private party settlement will apply to everyone:

If the Judges adopt rates and terms reached pursuant to a negotiated settlement, those rates and terms are binding on all copyright owners of musical works and those using the musical works in the activities described in the proposed regulations.

So they are telling you very clearly that the private party settlement and frozen mechanicals will be the law of the land if the CRB says so. Even though the CRB is all powerful when it comes to your rates, it is important to comment so that there is a full record for appeals.

It is one thing for the CRB to adopt a private party settlement that applies to every songwriter in the world when they reasonably believe that the settlement represents the consensus view.

It’s quite another thing for them to adopt that settlement when they have clear evidence that it does not. And unlike other government regulatory agencies, the way this game is played is that the CRB doesn’t have to have a consultation with anybody, they don’t hold round tables, they don’t do any inquiry. The only people they really have to listen to are the people who can afford to get in front of them which is a very, very expensive process.

These people are referred to by the CRB as the “Participants” and focus on this sentence in the Federal Register notice:

The Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants not party to the agreement if any participant objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory terms or rates.

The emphasis on “participants” is in the original–meaning the Judges of the CRB want to make sure you understand that an objection by a mere member of the public is not enough for them to reject a private party settlement under their rules. So any participant in the proceeding who objected in the proceeding should probably also object in the comments just to be sure that they don’t get game-ified.

So what to comment on? Most obviously the frozen rates and that’s a common sense thing given all the reporting on the vinyl boom that entirely undercuts the idea that physical is unimportant (of course Big Tech would like everyone to believe that vinyl is unimportant so they have a carotid crushing stranglehold on songwriters).

But you may also want to ask the CRB to require that the settlement document and the side deal referenced in the proposed settlement also be disclosed so that everyone knows what the consideration is for freezing the rates.

Plus as many commenters astutely raise, how can you approximate a free market rate using a “willing buyer/willing seller” standard when the willing buyer and willing seller are essentially the same entity? This is particularly true when songwriters have publishing deals and have essentially given up their “willing seller” status. Like so many other sloppy drafting glitches in Title I of the Music Modernization Act, this one should have been obvious from the beginning. And maybe it was.

Public comments are a way to get actual market conditions in front of the CRB because there was absolutely none submitted as part of this proposed private party settlement.

More to come on this, but the clock is ticking for any commenters. And if this entire CRB process seems overly complex and bureaucratic compared to even the Copyright Office rulemakings, it does raise the obvious and separate question about why it’s done this way in the first place and why there isn’t an independent advocate for independents.