Tag Archive for: compulsory license

So, What’s The Songwriter Equity Act About?

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Update: I originally published the post below on May 14, 2014, shortly after the Songwriter Equity Act was introduced last year. The bill has was re-introduced in both houses of Congress on March 3, 2015 by the same sponsors as before, led by Sen. Hatch (R-UT) and Rep. Collins (R-GA), who posted the bill on his website. In addition to my original piece below, I also discuss the background underlying the rate-setting for songwriter royalties from the sale of recordings (“mechanical” royalties) in my post on the Copyright Office’s recently-released music licensing study, which advocated for the changes incorporated in the proposed legislation.

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Given the continuing Congressional deadlock, I generally don’t pay too much attention to the mere introduction of bills relating to copyright and music.  So, I didn’t pen a post when Rep. Doug Collins (R-GA) introduced H.R. 4079, the “Songwriter Equity Act” at the end of February. This bill, it were somehow to pass, would amend the Copyright Act with respect to how songwriters’ statutory “mechanical” royalties and certain public performance royalties are determined. It has 14 co-sponsors, including Representatives Steve Cohen (D-TN) and Steve Cooper (D-TN).

But now Senators Lamar Alexander (R-TN), Bob Corker (R-TN), the senators who represent Songwriter City (a/k/a Nashville) and Orrin Hatch (R-UT), himself a songwriter, have announced that they will be introducing their own version of the “Songwriter Equity Act” in the Senate. This, along with the Copyright Office’s extending their public comment period for their Music Licensing Study until May 23, makes me think that there may be some real momentum to make changes in the laws affecting those who create and license music.

Any tunesmith will tell you that their two biggest income streams are royalties from the public performance of their works and royalties from the sales of recordings of their songs. Unlike most creators of copyrighted works, songwriters’ ability to earn a living is heavily regulated by the federal government. Let me explain, starting with royalties from recordings.

Section 115 of the Copyright Act essentially provides that once a song has been recorded, anyone can do a “cover” of that song, under a compulsory license from the copyright owner(s), i.e., music publishers, provided they are paid the statutory royalty known as a “mechanical” royalty, which has applicable first to piano rolls, then to 78s, to LPs, 45s, cassettes, CDs and now, downloads. Under authority of the Copyright Act, a  tribunal called the Copyright Royalty Board sets this statutory rate, which is currently 9.1 cents per recording distributed for a recording that is 5 minutes or less. This statutory rate serves as a benchmark, even for voluntarily negotiated “mechanical” licenses, such as those issued by The Harry Fox Agency.

Let’s move on to performance royalties. The majority of songwriters belong to ASCAP or BMI, which are private entities known as performing rights organizations (PROs). PROs are collectives that issue licenses to publicly perform music on radio, TV, in live music venues, over the Internet and elsewhere. ASCAP and BMI issue “blanket” licenses of all the works they control to users and distribute the royalties they collect to songwriters and music publishers.

However, since the 1940s, ASCAP and BMI have operated under Department of Justice Consent Decrees which were last amended in 1994 (BMI) and 2001 (ASCAP), long before the advent of digital download and streaming services. The ASCAP and BMI Consent Decrees are each overseen by a federal District Judge in the Southern District of New York. When a user (e.g., Pandora) or group of users (e.g., the radio broadcasters) can’t agree with ASCAP or BMI on an appropriate license fee, the parties can have a “Rate Court” proceeding before the judge overseeing the ASCAP or BMI Consent Decree. The Rate Court judge then must determine a “reasonable rate” for the particular user. However, there are certain limitations placed on the judge by the Copyright Act as to how to determine a “reasonable rate” for the user(s) in question.

The ASCAP and BMI Consent Decrees were entered into as part of a settlement of anti-trust litigation. At the time, it seemed like the PROs had a certain amount of market power when dealing with radio and later,TV stations. The PROs now argue that the playing field has dramatically changed in the ensuing decades and it’s new players like Apple (iTunes) and Google (YouTube) and telecommunications companies like Verizon and Comcast that have the real power and that therefore the Consent Decrees should either be amended or scrapped because of this and other shifts in the marketplace. And by including the functioning of the Consent Decrees in its music licensing study, the Copyright Office may ultimately share the PRO’s view.

So, what does this all have to do with the proposed “Songwriter’s Equity Act”? As David Israelite, President of the National Music Publishers Association (NMPA) put it: “Roughly two-thirds of a songwriter’s income is heavily regulated by law or through outdated government oversight,” which results in devalued intellectual property rights.” The bill would change the standard of how the CRB sets mechanical rates and the criteria under which ASCAP and BMI Rate Court judges determine a “reasonable rate” for public performances.

Specifically, the bill would amend Section 114(i) of the Copyright Act to allow introduction of sound recording royalty rates in a Rate Court proceeding. It would also amend Section 801(b)(1) of the Copyright Act to direct the Copyright Royalty Board to set the statutory mechanical rate under Section 115 based upon a fair market rate, or what a willing buyer and seller would negotiate, including looking to comparable rates and agreements, rather than “reasonable” rate based on factors other than market conditions.

Advocates argue that songwriters would greatly benefit from these revised rate-setting standards and songwriter royalties would more closely align with those for the use of the sound recording, which are often many times higher than the comparable songwriter royalty. In short, this bill, should it become law, would be sweet music to songwriters’ ears. This bill, along with one granting labels and recording artists royalties when records are played on the radio  that was introduced last year (and the U.S. is one of less than a handful of nations that don’t already have this), would create a more level music licensing landscape.

All You Need To Know About The Copyright Office’s 202-Page Music Licensing Report

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On Friday, February 6, the Copyright Office issued a 202 page comprehensive report (plus appendices) on the music licensing business, “Copyright and the Music Marketplace.” The Report is the culmination of a nearly year-long process of soliciting and evaluating input from interested parties on how to fix what everybody agrees is a broken system.

Anyone with an interest in the music business should read the full report – or at least the 11-page executive summary. But in case even that’s too much, here’s all you need to know, in layman’s terms and with analysis, in little more than half the length of the executive summary:

The Report starts with four guiding principles:

– Music creators should be fairly compensated for their creations
– The licensing process should be more efficient
– Market participants should have access to authoritative data to identify and license sound recordings and musical works
– Usage and payment information should be transparent and accessible to rights holders.

Like Mom and apple pie – it’s kind of hard to argue with these. But before we get to the Report’s recommendations as to how to implement these principles, including four subsidiary principles, we need some background on the current music licensing framework. So instead of the Report’s 50-page primer (which is quite readable and mostly correct), here’s a roughly three-page summary of the current music licensing landscape, rocky as it is.

The Report is primarily concerned with the distribution of recorded music, whether through sales of physical product like CDs and downloads or public performances, whether over the radio or by streaming services on the Internet. This means that unless it’s a recording of public domain music, like Beethoven, most recordings consist of two distinct copyrights: (1) the copyright in the musical work, which is typically controlled by one or more music publishers; and (2) the copyright in the recording of that work, which is typically controlled by a record label. This is best illustrated with “cover” records. For example, I prefer the Carole King version of “You’ve Got a Friend” to James Taylor’s. Same song, two different recordings; two separate copyrights for each recording.

Let’s deal with the songwriter/publisher side first. ASCAP, BMI and SESAC are performing rights organizations (PROs) that license the public performing right (and only that right) in musical compositions (i.e., songs, but not the recordings of them) when they are performed live in stadiums, concert halls and clubs, broadcast on radio and TV or streamed over the Internet. PROs typically issue “blanket licenses” to users, meaning for a set fee (either a flat fee or percentage of the user’s revenue, depending upon the license), the user has an all-you-can-eat buffet of the music in that PRO’s repertoire allowing the user, such as a radio station, to play any song in the PRO’s catalog as often as it likes. The PROs pay 50% of the licensing revenue to the writers and 50% to the music publishers after deducting their operating costs.

ASCAP and BMI, according to the Report, represent more than 90% of the domestic music market while SESAC and another recently-formed entity represent most of the remainder. ASCAP and BMI (but not SESAC) have been operating under Department of Justice Consent Decrees since World War II. And they haven’t been amended since the dawn of the Internet. Think about that. These decrees were instituted to settle alleged anti-trust violations when 78s were the dominant recording format. Under DOJ regulations in place since 1979, most consent decrees are supposed to terminate within 10 years – not 75!

The Consent Decrees for ASCAP and BMI are overseen by two different federal judges in the New York City. When either PRO can’t reach an agreement as to a license fee either with an individual user (e.g., Pandora) or an entire industry (e.g., radio), the parties may have a “Rate Court” proceeding before the judge. Like all federal litigation,  a Rate Court case is very time consuming and costly. Both Consent Decrees state that the judge must determine a “reasonable” fee, which has been interpreted to approximate what a willing buyer and a willing seller would pay for a license in a free, open market.

Most important about these Consent Decrees is that they require ASCAP and BMI to grant a license to anyone who requests one, making the process a de facto compulsory license regime. What’s more, users often pay nothing – sometimes for months or even years at a time – while the parties either negotiate or litigate what a “reasonable” fee should be. Songwriters and publishers have long maintained that users, availing themselves of a compulsory license with the ability to use the “product” while negotiating a fee, are at a significant bargaining advantage.

Still sticking with songs (as opposed to recordings), when a song is covered by another artist, the Copyright Act provides the label with a compulsory license whereby the label pays a statutory rate to the owner of the song. This is how Carole King the songwriter gets paid for James Taylor’s cover recording. The statutory rate is currently set every five years by the Copyright Royalty Board (CRB) in Washington, DC. This three-judge panel sets the fee, not based upon a market rate standard, but in accordance with a separate statutory provision requiring a “fair return” to the work’s creator, while balancing certain public policies, such as maximizing availability of works and minimizing a disruptive impact on businesses and industry practices. The Report indicates that this standard results in lower rates than a fair market standard. Although designed to be solely a license for cover recordings with first recording rights reserved to the copyright owner, most recording contracts have provisions tying the release and payment of all songs to the statutory scheme (often at a lower payment rate). Songwriters and publishers have long maintained that this compulsory scheme, as with performing rights, provides artificially low rates.

This statutory compulsory license (meaning music publishers and songwriters are subject to an “offer” they can’t refuse) is called a “mechanical” license due to the mechanical reproduction of the music and is a term dating back to the days of piano rolls when the license provision was first enacted. But the mechanical license applies solely to audio-only recordings – there is no compulsory license for film, TV, videos, games and other AV uses. Although many music publishers issue mechanical licenses directly, a licensing collective, the Harry Fox Agency (HFA), issues these licenses for probably more than half of the market. However, unlike the performing rights licenses issued by PROs, there are no “blanket” mechanical licenses and they are issued on a work-by-work basis, something that online music services find particularly inconvenient and impractical.

As for audio-visual uses, a “synchronization” (or “synch”) license is required from both the owners of the song and the recording of that song. So, if you want to use Tony Bennett and Lady Gaga’s recording of “Cheek to Cheek” in a movie, you need to get permission from Irving Berlin’s music publisher and also permission from the artists’ label for that particular recording of the standard. Synchronization licenses, unlike mechanical licenses, are typically negotiated and issued directly by the copyright owners, the labels and publishers.

The Report states that between public performance and mechanical income, about 75% of a songwriter’s (and therefore a music publisher’s) income is subject to government regulation (compare that to a novelist whose income isn’t regulated at all). So, that means that the majority of a songwriter’s income can be determined by four judges – one in New York and three in DC. By contrast, a label’s income (and therefore a recording artist’s income) consists mostly of sales of recordings (e.g., CDs and downloads) and licensing of those recordings, such as “synchronization” usage as discussed above. There are no compulsory licenses or consent decrees for these uses so it’s a pure, free market negotiation between labels and users for these rights. And music publishers, who can negotiate synch licenses in a free market unshackled by consent decrees and compulsory licenses, are usually able to get about the same fee for their rights as the label gets for theirs.

But not all restrictions disadvantage the songwriter. With respect to performances, the United States, except in very limited circumstances discussed below, does not grant a public performing right in a sound recording. For example, when Sinatra’s recording of “New York, New York” is played on oldies radio (or over loudspeakers at Yankees games), the songwriters, Kander & Ebb, and their music publisher, get paid through their PRO. What do Sinatra’s heirs and his label get? Nothing! As the Report points out, the United States is one of less than a handful of industrialized nations, including Iran and North Korea, which do not have a public performing right in a sound recording for radio.

Why? There are historical reasons in that the radio stations felt that they were providing the labels with promotion for the sale of recordings. Also, every Congressional district has at least one or more radio and/or TV stations. As the Report points out, with the recent shift in consumer preferences from purchases (e.g., CDs and downloads) to streaming (e.g. YouTube), the promotional value of radio probably isn’t what it used to be.

However, because of laws enacted in the 1990s, there is a limited public performing right in a sound recording for digital transmissions, basically, streaming over the Internet, whether through YouTube, Spotify, Pandora or another service. And there is a compulsory license for non-interactive streaming services, which like the mechanical license, has a rate that’s determined by the CRB. The royalties for the compulsory streaming licenses are administered by a collective that’s similar to the PROs, SoundExchange, which distributes this income to labels (50%), featured artists (45%) and side artists (5%). As for “interactive services” (and the Report spills much ink over the lengthy statutory provisions about what is and is not “interactive”), these license fees are determined in market negotiations by the parties.

Our discussion began with the notion that there are two copyrights in a recording: one in the underlying song and one in the actual recording or “master.” However, for historical reasons, recordings that were made prior to 1972 are not covered by the federal Copyright Act, unlike the songs embodied in them. Rather, these recordings, which are still purchased and performed all the time, are governed by state law.

Recent well-publicized lawsuits in New York and California have determined that, at least in those two states (and likely in many others), there is a state-based public performance right in a sound recording, the contours of which remain largely unknown. For example, it’s possible that in some states, this performing right for pre-1972 recordings could be even broader than the one granted under federal law for later recordings in that there conceivably could be a performing right in the older recordings played over the radio under various state, but not federal laws. This could lead to a quagmire of uncertain and inconsistent  treatment.

The Report also contains a lengthy discussion of recent ASCAP and BMI Rate Court decisions, both of which held that publishers could not partially withdraw certain rights from ASCAP and BMI while leaving others. For example, Sony/ATV, one of the three major publishers, felt that it could negotiate better deals regarding digital performances than what it could get through ASCAP and BMI because of the constraints imposed on those PROs by the Consent Decrees. Reaching the same conclusion albeit under slightly different reasoning, both the ASCAP and BMI Rate Court judges determined that a publisher had to be either “all in” or “all out” and that it couldn’t cherry pick certain aspects of the performing right. These decisions figure prominently in the Report’s recommendations.

Why would a major publisher feel they could get a better deal by itself? As we’ve seen in the synch license arena, where there’s a free market, song copyright owners get paid about the same as recording copyright owners in most instances. Contrast that to the download situation where the publisher gets paid 9.1 cents for the download (the compulsory statutory rate) while the label gets about 70% of the sale price on iTunes (a market negotiation).

The Report also contains lengthy and detailed descriptions of the lack of uniformity in data associated with both musical works and sound recordings. Without going into detail about ISWCs, ISRCs, ISNIs and DDEX standards, suffice to say there is currently no consistent, uniform, international process for assigning codes to musical compositions, albums or individual tracks, writers or artists. And there’s no centralized database for this necessary information. This leads to inefficiencies and delayed licensing and payment for creators.

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With the foregoing background, here are the Copyright Office’s four subsidiary principles regarding implementation of their four Guiding Principles:

– Government licensing should aspire to treat like uses of music alike
– Government supervision should enable voluntary transactions while supporting collective solutions
– Rate-setting and enforcement of anti-trust laws should be separately managed and addressed
– A single market-oriented rate-setting standard should apply to all music uses under statutory licenses

So now let’s look at the Report’s most significant recommendations to implement its eight principles:

– Regulate musical works and sound recordings in a more consistent manner. (As we’ve seen, song and master recording rights are often treated differently, with more restrictions on songwriters and publishers than on recording artists and labels.)
– Extend the public performance right for recordings to traditional “terrestrial” radio. (This fosters the first goal and the Report recommends that non-interactive radio be subject to the same compulsory license scheme as are non-interactive streams.)
– In keeping with similar treatment for similar rights, the Report also recommends full federal copyright protection for pre-1972 recordings. (Besides being fair to older artists, this avoids the potential legal chaos discussed above).
– The Copyright Office further suggests that all rate-setting for both recordings and the underlying musical works should (a) be subject to the same “willing-buyer / willing seller” or “fair market value” standard and (b) that all rate setting, even for music performance rights, should be done by the CRB. (This would remove rate-setting for music performance rights from a single, life-tenured federal judge in New York and place it before a tribunal with a specific mandate and expertise. It also fosters the goal of uniform treatment for songs and records.)
– The Report also states that the CRB should only meet as needed and that procedures for setting interim rates, as well as for the overall process, should be streamlined. (This should foster voluntary negotiations and make rate-setting proceedings faster and cheaper).
– The Report also suggests that detailed provisions, such as what constitutes an interactive streaming service, should be put into regulations rather than in the copyright statute, so that they can be more easily modified to adjust to changes in the marketplace.
– The Report stopped short of stating that the ASCAP and BMI Consent Decrees should be repealed. (This position is undoubtedly in deference to the Justice Department’s ongoing review of those decrees, but is clearly supportive of relaxing restrictions, as discussed below.)
– Allow for audit rights under the compulsory mechanical license and allow SoundExchange to terminate licensees who avail themselves of a compulsory license but do not pay. (These are obvious legal loopholes that need to be plugged. If creators are subjected to a compulsory licensing regime, they should at least have the ability to ensure they’re being properly paid and that deadbeats don’t keep the benefits of the license).

The Report also recommended that, as the Copyright Office had previously, licensing collectives be permitted to expand their role and become Music Rights Organizations (MROs) that would license both performing and mechanical rights and possibly other rights as well. ASCAP’s Consent Decree forbids it from licensing mechanicals and other rights and BMI has voluntarily refrained from doing so to date. However, the CEOs of both organizations have indicated that expansion of their licensing capabilities is in their business plans and users should welcome the availability of multi-use licenses.

For example, if ASCAP, BMI, SESAC, Harry Fox and Sound Exchange all became MROs and licensed performing rights and mechanical rights, there would be six MROs competing for business. The Report also recommended congressional overrule of the Rate Court decisions, to the extent of allowing publishers to withdraw digital rights for interactive streaming so that publishers are on parity with the labels in the ability to negotiate for these rights. Although not mentioned in the Report, I think that the MROs should also be able to license the posting of lyrics, as HFA currently offers this service. The PROs and HFA currently allow for a music publisher to issue a direct license and not go through the collective. This should be maintained to both ensure free competition and allow copyright owners to handle individual negotiations where warranted.

If there are six competing MROs offering a variety of bundled licensing services, which would include the right to withdraw certain rights and directly license all rights, it would seem that the ASCAP and BMI Consent Decrees would not be needed (at least not in their present form) as there would be ample competition. As the Report indicated, there are currently only three major labels and three major publishers. They aren’t subject to Consent Decrees. While the US currently has three PROs, most other nations have only one, and that PRO often is able to bundle mechanical rights. The time has come to recognize that the public doesn’t need excessive government protection from the collective licensing by songwriters.

The Report also recommended that membership in MROs be mandatory and that there be a “general” MRO, the GMRO that would act as a stop-gap for certain unrepresented parties and would standardize data formats and create a global rights database for users. I believe neither mandatory membership in a MRO (given that membership in licensing collectives is currently voluntary), nor the creation of a GMRO, another level of governmental involvement, is necessary. First, if a MRO were able to offer more comprehensive services and there was competition for members, there would be enough incentive for all writers, publishers, artists and labels to join one.

Second, as the Report acknowledges, the various interested parties, including the PROs, have been working on various projects to facilitate the uniformity and transparency of data. If, for example, the PROs were to offer mechanical licensing, they would be strongly incentivized to synch their works registrations with recording and artist information. Similarly, if HFA were to offer performing rights, they would be incentivized to ensure that their recording information is coordinated with works information. Third, with MROs having both data for songs and recordings, they could create an aggregate portal for users to look up who controls which rights to songs and recordings. Finally, I also don’t think that a GMRO is necessary to address the problem of unlicensed or unaccounted for shares in works and other missing data. The MROs can license based upon partial representation and hold reserves until such time other interested parties properly register their works and shares.

The Report attempts to address the issue of transparency of licensing and royalty information. Standardizing works and recording codes will help. So will the elimination of the “pass through” mechanical license for downloads in that publishers have to be paid through the labels and not directly by the download services like iTunes. And while the issue was raised regarding equity stakes in and advances from, streaming services like Pandora, no real solutions regarding creators sharing in the wealth were offered. Similarly, the Report alluded to the “whack-a-mole” problem under the DMCA of dealing with rampant infringement on services like YouTube but did not offer any recommendations, an area where the balance between the services and creators, especially individual artists, should be adjusted .

Although the Copyright Office had previously suggested that the compulsory mechanical license be repealed, the Report stops short of advocating it. Instead, it suggests that publishers have limited opt-out rights for interactive streaming and downloads. It further recommends that mechanical licensing should be done on a blanket license basis, like the PROs. The Report’s recommendation that an artist may obtain a compulsory license for a cover recording released as a CD but not as a download makes no sense to me as it is a needless discrimination in format (e.g., LP versus cassettes in the analog world) rather than means of distribution (e.g., purchases versus performances).

I also believe that the song-by-song mechanical license should still be available as an option. For example, an artist making a self-produced recording that include covers should be able to obtain only the licenses needed. And those licenses should be available for both physical copies and downloads. Finally, I think that if the mechanical licensing regime remains compulsory, the CRB should set rates for different tiers of usage. Three should suffice. In the synch market, for example, a Rolling Stones song will command a higher fee than one by an unknown writer. The publisher can select which tier it wants its song priced at and if the user market balks, the publisher can then change to a lower tier.

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In sum, the Report offers some solid recommendations as to changes to the legal and regulatory aspects of music licensing. Other suggestions such as creating a new agency, the GMRO, and mandating coding standards are probably unnecessary if private parties are better incentivized through revised laws and regulations. But the Report contains far more detail and nuances, both regarding the current licensing landscape and its recommendations, than can be covered in my brief summary. Songwriters and composers, whose income is currently regulated the most, would likely benefit most from the Report’s recommendations, although recording artists could also receive a significant boost to their income with the adoption of a performing right for radio and TV airplay.

Undoubtedly, major players in the user community, such as streaming services, will object to some of the proposed changes to the music licensing landscape, such as relaxing Consent Decree restrictions and having all compulsory licenses subject to a fair market standard. However, as the Report points out, music creators should not have to subsidize any particular business model. But as the Report also notes, it is ultimately up to Congress, rather than the Copyright Office or the Justice Department to make most of the needed changes. Given Congress’ recent history, it’s hard to be optimistic about legislative fixes happening anytime soon. But one can hope….

The Good Wife and the Parody Defense

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Imagine my surprise when I tuned in to yesterday’s episode of The Good Wife, expecting the usual sexual and political intrigue and found myself in the middle of a copyright infringement case that seemed to have elements of the Supreme Court’s  decision in Campbell v. Acuff-Rose Music (the case where the high court held that 2 Live Crew’s use of the Roy Orbison hit, “Oh, Pretty Woman” was a parody of that 1960s classic), Glee and the recent furor over the Goldiblox ad using The Beastie Boys’ song, Girls. What fun!

Although the technicalities of these types of cases were somewhat glossed over for dramatic effect, things like “parody”, “transformative use”, “derivative copyright” and “compulsory license” were bandied about in the middle of the battle between Alicia Florrick’s client and that of her nemesis, former lover and head of her former firm, Will Gardner.

The fictional case involved a duo that had done a “cover” of sorts of a rap tune where they kept the original rap lyrics but wrote a new melody for the song, “transforming” it into a bouncy pop tune. This version was, in turn, “covered” by yet another artist and was broadcast on a fictional Glee-like show.

Now, those of you who’ve read my previous blog posts both on here and on ScoreStreet, are already familiar with these concepts. But, for you fans of The Good Wife who want to know what all the fuss was about as these legal terms went whizzing by, here’s a brief explanation of some of what was going on in the case where one party was portrayed by F. Murray Abraham (who won an Oscar for his role as the composer, Salieri, in the film, Amadeus), and where the judge was Dominic Chianese, Uncle Junior of The Sopranos  fame and someone who released a recording of Italian songs. Kudos to the casting department for the inside jokes!

The manager for the budding pop duo spoke about getting a “compulsory” license. This, is in fact,  known in the music biz as a “mechanical” license. Typically, a record label (on behalf of its recording artist) obtains this license from the copyright owner of the song to be “covered,” which is usually a music publisher. It is a compulsory license under Section 115 of the Copyright Act in that once a song has been commercially recorded and released, any artist can “cover” that song and the copyright owner  must grant permission (hence, the “compulsory” license), provided that the artist (or more likely, their label) pays the “statutory” rate, which is currently 9.1 cents unit distributed for a song that is 5 minutes or less in duration. So, if an artist sells 100,000 downloads of a song that’s less than 5 minutes long, the record label owes the publisher $9,100.00.

Compulsory mechanical licenses only give the artist rights to make an audio-only recording. And while an artist under the mechanical license can arrange the covered song to his own style, he can’t make fundamental changes such as material alterations to the song’s lyrics. The right to make other uses of the song requires additional rights – as was noted during the show. This is where this “derivative copyright” stuff comes in.

A copyright owner has a “bundle of rights” including the right to make and distribute copies and to create – or authorize others to create – “derivative works.” What’s a derivative work? You can look it up in Section 101 of the Copyright Act, but arrangements, translations, adaptations and the like are derivative works. For example, making a film from a novel is creating a derivative work of that novel. So is making a video of a song or doing a new arrangement of a song, such as keeping the lyrics but writing an entirely new melody to them, as was done in The Good Wife. Such derivative uses are often viewed as being “transformative,” in that the new work has recast and re-purposed the original work.

Most derivative uses of a copyrighted work need to be authorized or licensed by the copyright owner of the underlying work. For example, if a producer wants to use a hit song in an upcoming TV show, they need to get a “synchronization” license from the copyright owner of the song (typically, a music publisher) and permission from the copyright owner of the recording of that song (typically, the artist’s label).

However, there is an exception under the doctrine of “fair use” for a “parody” of a work. An artist may use another’s copyrighted work without permission if the new work  is commenting in some manner on the underlying original, as was held to be the case with 2 Live Crew and “Oh, Pretty Woman.”  Such a “parody”  is said to be a “transformative” use of the work, and under certain circumstances, no permission would be required and the use, even without permission, would not constitute copyright infringement.

But there’s a catch:  what was not made clear in last night’s episode, probably for dramatic purposes, is that in order to have a fair use “parody” of the work, one can only use so much of the underlying work as to “conjure” the original. One cannot simply take the entire underlying work and use it wholesale, such as taking an entire lyric and writing a new tune to it. In the “Oh, Pretty Woman” case, 2 Live Crew only used a portion of the original song and the rest was original material, thereby creating a “transformative” use of the Orbison hit. Got that?

Who knew that copyright and music licensing could be so dramatic!