Reconceptualizing Compulsory Copyright Licenses
80 Pages Posted: 18 Sep 2020 Last revised: 12 Apr 2021
Date Written: May 1, 2020
United States copyright law generally assumes that by providing property entitlements in creative works, the free market will balance between two competing priorities: incentivizing creators to produce works and ensuring the public has adequate access to this content. But the Copyright Act also outlines several detailed compulsory licensing schemes requiring the owners of certain copyright interests, musical works in particular, to license to anyone at government-set prices. Consistent with broader property theory concepts, scholars tend to treat compulsory copyright licenses as liability rules used only to address market failures caused by transaction costs. This Article questions that account, arguing that compulsory licensing also plays an important and underexplored role in furthering copyright’s specific policy agenda.
A close analysis of the music regulatory regime and its history shows that its primary function has been to recalibrate the balance between creators’ financial incentives and public access to expressive works in situations where free market licensing would yield problematic outcomes. Unlike liability rules designed only to address transaction costs, for which regulators generally try to mimic market rates using market proxies, the compulsory music licensing regime traditionally used rate-setting criteria oriented around copyright policy. Applying these criteria, regulators often chose low royalty rates explicitly designed to allow access-expanding music dissemination technologies—from the player piano to digital radio—to flourish.
In recent years, however, policymakers have begun to lose sight of this access-encouraging role. A series of legislative changes, including the recent Music Modernization Act, has made the compulsory music licensing regime increasingly inconsistent and ill equipped to handle new forms of music dissemination. Policymakers now seem to view compulsory licensing as justified only in the face of transaction-cost-based market failures and have begun privileging market mimicking over copyright policy when choosing royalty rates. This shift has yielded increasingly high royalty rates, which have made it more difficult for new disseminators, such as streaming services, to facilitate access to music.
This Article argues that the shift away from policy-focused compulsory licensing prevents the regime from maintaining balance in the copyright system, a problem that is especially apparent in the experience of the burgeoning music streaming industry. In particular, a copyright-policy-based approach is necessary to prevent the malleability (and manipulability) of market-mimicking rate-setting standards from yielding royalty rates that are unworkable for streaming services. Although the Music Modernization Act has pushed the existing regime even farther away from its original role by implementing a market-focused rate-setting standard, this Article suggests ways that regulators could still further copyright policy goals in future rate-setting proceedings.
Keywords: copyright, compulsory license, mechanical license, section 114 license, music modernization act, phonorecords III, fair use, 801(b) objectives, music, streaming, willing buyer and willing seller standard
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