Billboard: Copyright Office Recommends MLC's Distribution of Pre-2021 Unmatched Royalties Not Occur for 5 Years | Mechanical Licensing Collective

While applauding the new recommendation, songwriter advocacy organizations argue the Copyright Office "did not address the inherent dangers of conflicts of interest present" on the MLC board.

In a key comment on one of the most controversial issues regarding the Mechanical Licensing Collective, the U.S. Copyright Office issued regulations and best practices which included the guideline that the initial distribution of unmatched mechanical royalties by market share not occur for at least five years—not the minimum three-year period as stated in the Music Modernization Act.

What’s more, in making its recommendation, the Copyright Office said the clock counting down the five-year period should not start ticking until the MLC’s claim portal—which will give rights owners the ability to search through unmatched songs and claim those they own so that they can be paid the royalties for plays of those songs—is up and fully functioning with all of its tools. So far, the MLC apparently only has a beta version of the claim portal.

Furthermore, the Copyright Office stated in its guidance that even at the 5-year period, the MLC should apply relevant criteria to determine whether the first distribution should be further deferred.

The MLC was created by the Music Modernization Act (MMA) to collect mechanical royalties from digital services and create a database matching recordings to rights owners. It is also tasked with collecting the right ownership information for each song and maintaining a database so that the correct rights owners and songwriters receive proper payments.

Before the MLC was created and launched on Jan. 1 2021, this process was handled by the digital services and their consultants and resulted in some $424.3 million in unmatched royalties. Those funds have since been turned over to the MLC for distribution. The MLC must first try to match those royalties with the rightful owners of those songs, and it has three years to do so, according to the MMA. After that, if the correct rights owners can’t be identified, those funds are eligible for distribution by market share, a mechanism instilled in the MMA statute. The Copyright Office guidelines specifically address this issue.

Since the major publishers typically have the most market share and yet also have the best systems to insure that their songs are not unmatched, indie songwriters and publishers complained that the majors would be the beneficiary of such a distribution at the expense of indie songwriters.

In response to those worries, publishers have repeatedly noted that the law says the MLC may distribute those royalties after three years—not that the MLC has to distribute the unmatched black box monies. Meanwhile, the MLC itself has said it will exhaust all avenues to get the royalties to the rightful owners, including waiting a longer period, if necessary, before considering making a market share distribution.

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