Surprise! The 'Music Modernization Act' Prohibits Future Litigation Against Streaming Services

The Music Modernization Act has been touted as a progressive step for royalties in the digital era.  Just be careful the fine print around page 82…

So there’s a brand-new piece music legislation on Capitol Hill.  Called the ‘Music Modernization Act’ (H.R. 4706), the measure is designed to greatly modernize digital-era royalties and solve a gaggle previous lawsuits.

Overall, the measure is being applauded as a way to increase royalty payments to rights owners in the future.  All while simplifying the licenses and transparency payments.

Among other changes, the bill updates Section 115 the U.S. Copyright Act to create a single licensing entity and a blanket licensing system for mechanical publishing licenses.  That entity would be funded by digital music services and overlooked by various publishers and songwriters.  Both sides seem to like this bill.

About time, right?  But here’s the catch: if passed, it effectively shuts down any potential legal claims on unpaid mechanical royalties from companies like Spotify.  That’s right: if the lawsuit wasn’t filed by January 1st, 2018 (i.e., the past), courts will throw out the suit.  And streaming companies (or any other music platform) get away with it.

Which is one reason why Spotify absolutely loves this bill.

Effectively, that poison pill means that dozens companies may have simply lost their rights to billions in unpaid royalties.  That is, except for one huge publisher…

We first learned this little loophole from Randall Wixen, head Wixen Music Publishing.

Just ahead the new year, Wixen filed a $1.6 billion lawsuit against Spotify alleging non-payment mechanical publishing royalties.

+ Spotify Paying $1.38 Million a Month In Rent for Its New Stockholm Offices

It turns out there’s a very good reason why Wixen filed their lawsuit before January 1st.  Because according to page 82 the Music Modernization Act, anything filed after that date is null-and-void.

Here’s what Wixen just told MusicRow:

“It’s a really good act.  But on page 82 that act is a clause that says if you don’t file a lawsuit against a music streaming company by Jan. 1, 2018, you lose your rights to get compensated.  If that act was passed, and we hadn’t filed a suit by Jan. 1, we would have forfeited that right.  It would retroactively give a free pass for a streaming service that has infringed on music rights in the past to build a service worth maybe $20 billion once it goes public.

“I didn’t want to have to tell clients that they can’t be compensated properly because we didn’t file in time.”

According to Wixen, that sneaky provision basically gives companies like Spotify a get-out–jail-free card.  So instead owing $1.6 billion (or whatever the damages are), Spotify owes $0 on pre-2018 royalties if the Music Modernization Act is passed.

The Act has been unilaterally supported by ASCAP, BMI, and NMPA, among others.  Obviously, Wixen isn’t among the supporters — at least as it relates to royalty forgiveness.

And with that, here’s the latest 109-page draft HR 4706, the Music Modernization Act.  I.e., the one that hundreds publishers, songwriters, lawyers, and rights owners didn’t read.