Part One: §115 of the U.S. Copyright Act Overrides Controlled Composition Clause? - Welcome to the Digital Revolution..

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The title of this post alone raises many issues; issues that could have a significant impact on songwriters, publishing companies, and performing artists (that are songwriters) in a mostly positive way, and a potentially not-so-positive impact on record labels, big or small, major or independent. As we dig deeper into the affects of §115 of the U.S. Copyright Act on the recording industry, we’ll learn why and how a few paragraphs within this one provision could mean the difference of millions of dollars. So buckle up and prepare for a bumpy ride through a brief history of the recording industry’s “standard” business practices, and how the digital revolution and the laws that are trying to keep up with it are challenging the ways record labels prepare to do business in the future.

Once upon a time…

Performing artists couldn’t didn’t write their own music. They relied on songwriters, composers, and the music publishing companies that represented songwriters and composers to provide them fresh material. When a song was recorded, the performing artist (through its record label) had to pay for the inclusion of that song on a phonorecord (vinyl, 8 track, cassette tape, compact disc, etc…). This specific use was (and is still) known as a mechanical reproduction. Under the U.S. Copyright Act  of 1909, the price for a song was 2¢ per phonorecord “made and distributed”. Accordingly, if one songwriter placed two songs on an album (uh, a phonorecord) and the record label pressed and distributed 1,000,000 copies, the record label would have to pay the songwriter $40,000 (2¢ x 2 songs x 1,000,000).

And that was the rate songwriters were paid for mechanical reproductions of their songs for 68 years. Enter the U.S. Copyright Act of 1976. (Note: For those good with numbers, you’ll catch that there are only 67 years between copyright laws. While the current Act is referenced by the year 1976, it did not take effect until January 1st, 1978.). Guess what? For the first time, the statutory rate for mechanical reproductions increased – starting in 1978 the new rate per song was 2.75¢. Under our example above, a record label would now have to pay $55,000 or a difference of $15,000. This was just for two songs on one album that only sold made and distributed a million copies (despite the “made and distributed” language, record labels were insistent on paying mechanical royalties only on album “sales”.)

It was then that the light bulb went off! Record labels figured that if they only paid, say, 75% of the then current mechanical rate, they would be able to keep costs on mechanical royalties to near-1909 levels (based on a 75% rate in 1978, payment due on the above example would have been $41,250). The controlled composition clause, that placed limits on the statutory rate for mechanical reproductions, was born.

This clause is one of the most important provisions of a recording contract. It’s impact can be disastrous to performing artists (whether those artists write and own their own music or not). It also reduces the monies payable to songwriters that agree to license their songs at less than the minimum statutory rate. But lurking within §115 of the 1976 Act is language suggesting that a controlled composition clause in a record contract will not apply to sales of albums distributed via “digital phonorecord delivery” (the exact paragraph is §115(c)(3)(E)).

The language of this provision, however, raises numerous uncertainties about its application to controlled composition clauses and the general business practices of recording companies. The stakes are high enough that those affected by this provision will push back from it, making every argument for why it does not apply in various situations. This Blog Series, “Welcome to the Digital Revolution – §115 of the U.S. Copyright Act Overrides Controlled Composition Clause?”, is going to jump head first into this topic. In case you haven’t already, check your seatbelt!

Part Two: §115 of the U.S. Copyright Act Overrides Controlled Composition Clause? – The Evolution of the Mechanical Royalty.

Brian Mencher is a partner in the law firm of Beame & Mencher LLP. He is one of the foremost experts on §115(c)(3)(E) of the U.S. Copyright Act of 1976 (among many other areas of the law!). Beame & Mencher LLP is a boutique law practice based in New York City providing legal advice and counsel primarily in the entertainment industries. We are forward-thinking, outside of the box, attorneys. Our firm focuses on the representation of creative and entrepreneurial people and companies involved in music, tv/film, theatre, dance, entertainment, new media, and technology.

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