Part 1: The Failure Of The MLC/HFA, Its Breaking Of The Law And Songwriters Not Getting Paid
Below is a copy of a letter I recently sent out to a number of music publishers after The MLC/HFA did not pay us as required under the law. Instead, we learned that someone within The MLC/HFA hacked into our MLC account, deleted our bank account information and re-channled our songwriters money to their own HFA/SESAC owned sister company.
Amazingly, we also learned that under the Music Modernization Act, there was nothing we could do.
It’s a lot of words to read but well worth your time. I suspect the same issues are happening to all music publishers and songwriters…
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I am reaching out to share information and our experiences with The MLC that I strongly suspect you will find of interest.
Specifically, The MLC is in breach of its federally mandated requirements under both the Music Modernization Act (17 USC § 115), and the related regulations (37 CFR § 210) to:
· Pay the earned mechanical royalties
· Pay accurate mechanical royalties,
· Pay mechanical royalties on time
· Maintain confidentiality of proprietary business and financial information of music publishers and songwriters.
In addition, when The MLC does get around to paying mechanical royalties, it is not compliant with the statutory royalty requirements. From the outset and on a continuing basis, The MLC has been calculating every single rate and payment incorrectly resulting in gross underpayments to every music publisher, administrator, and songwriter around the globe.
If that’s not bad enough, in a further bizarre and grotesque twist, with the passage of the MMA music publishers now have no recourse. There is no mechanism, law, or penalty in the MMA for any of these issues or any way to compel The MLC to be compliant. The MMA provides no path to fix the problems and the DSP are off the hook as well. Simply stated, with the MMA as it stands, The MLC can do whatever it wants (or not do the things it is required to do) with impunity, leaving copyright owners without recourse against either The MLC, the DSPs, the MLC board members, or any other entity.
NO REMEDY FOR NOT GETTING PAID
Before the MMA’s enactment, publishers could send a notice demanding a cure if they did not receive payment of their mechanicals. The failure to cure resulted in termination of the compulsory license. The potential loss of a compulsory license was a big “stick” to compel compliance as termination freed publishers to negotiate any rate under any terms they wanted. The MMA stripped these rights from publishers and handed control exclusively to The MLC, the very entity that is now failing to make all required monthly payments, making inaccurate payments, and revealing confidential information, all in breach of its federal statutory and regulatory obligations. In effect, they would need to punish/fine themselves, which they will not do.
NO LATE FEE INTEREST PENALTY
Also before the MMA’s enactment, the regulations at 37 CFR § 385.4 imposed an interest penalty of 1.5% per month if specific mechanicals were not paid on time. The interest penalty was eliminated following the MMA’s enactment. This is due to The MLC, and not the DSPs, needing to pay the late fees. Again, The MLC does not want to fine itself. Further, the MLC would most likely have to use other publishers’ royalties to pay any interest penalty.
NO ABILITY FOR A PUBLISHER TO TERMINATE A COMPULSORY LICENSE
Most importantly, before the MMA’s passage, the right to terminate a compulsory license sat rightfully with the music publisher. The MMA stripped this right from the music publisher and handed it to the The MLC, the very entity that has not, continues to not, pay publishers and songwriters or, when they do pay, they are not paying accurately and/or breaching federally mandated confidentiality provisions.
NO WAY TO FIX THE PROBLEMS OR COMPEL COMPLIANCE
There simply is no “cure” or punishment to compel The MLC to do anything. The MMA removed all the remedies and all the liability for these issues from the DSPs while imposing no penalty or remedy when The MLC fails to meet its obligations or breaches federal regulations. It’s literally the fox guarding the henhouse.
THE REGULATIONS IN THE MMA THAT ARE NOW LAW
Let me get specific.
The MLC’s obligation under 37 CFR § 210.29 states:
“Royalty distributions shall be made on a monthly basis…”
(https://www.law.cornell.edu/cfr/text/37/210.29)
The MLC’s website states:
“The MLC will issue royalty payments and statements approximately 75 days following the end of each calendar month. “
(https://www.themlc.com/blanket-payments)
They provide a calendar of the payments at The MLC website here https://www.themlc.com/blanket-payments:
As for the requirement to maintain confidentiality, there is a lengthy section in the regulations at 37 CFR § 210.34 entitled: “Treatment of Confidential and Other Sensitive Information”. I’ll just provide you the first paragraph which I suspect will give you the gist of it:
(a) General. This section prescribes the rules under which the mechanical licensing collective and digital licensee coordinator shall ensure that confidential, private, proprietary, or privileged information received by the mechanical licensing collective or digital licensee coordinator or contained in their records is not improperly disclosed or used, in accordance with 17 U.S.C. 115(d)(12)©, including with respect to disclosure or use by the board of directors, committee members, and personnel of the mechanical licensing collective or digital licensee coordinator.
And then it says this:
“Confidential Information” specifically includes usage data…”
WHAT THE MLC DID TO OUR SONGWRITERS AND PUBLISHERS
Now let’s go to our situation and some hard irrefutable specifics. In September 2021 we registered with the MLC and set up all our bank information, tax information, etc. The MLC acknowledged there were no issues or problems.
We then (and on the go forward) timely remitted letters of direction (LODs) along with the schedule of works with all metadata well before deadlines to meet the December 2021 payments being made in March 2022. None of the works are in conflict. There are/were no other claims and there are/were no issues. Note also, in some cases The MLC made royalty payments (albeit wrongly calculated) seventy five days after the end of each month via direct deposit for the months of October and November 2021 in January and February 2022.
Despite all of this, for the mechanical royalties for the month of December 2021 payable under federal regulations by March 16, 2022, The MLC did not pay us the earned mechanical royalties for four of the publishers we exclusively administer. From what we can ascertain, the amount of unpaid mechanical royalties totaled north of $75,000. Note also, they did pay something (again wrong royalty rate) for some of the other catalogs we exclusively administer via direct electronic deposit in the month of March 2022 for the month of December 2021. And they had previously paid us the earned mechanicals (at the wrong rate) for some of the four catalogs they now just decided not to pay. But this month, they just unilaterally decided not to pay for these four catalogs and breached the law.
When we contacted The MLC about the non-payments, we received back the following information:
PUBLISHER CATALOG 1:
For catalog 1, the MLC stated the MLC/HFA, with no authorization or authority, deleted our bank information and then mailed a paper check for our songwriter’s mechanical royalties to Audiam, our direct competitor (and competitor to other publishing administrators) which also just happens to be owned by The MLC’s “back office” vendor HFA/SESAC.
Note that also for this catalog, we had previously received (inaccurate) payments via direct electronic deposit for the months of October and November 2021 (paid in January and February 2022). This means someone with The MLC/HFA hacked our account, removed our bank information and put in bank information to HFA’s corporate entity Audiam, an unauthorized third-party competitor, and sent (stole?) our money by sending it to HFA’s sister company which, like HFA, is also owned by SESAC.
Note that SESAC/HFA/Audiam benefit from the payment by Audiam processing it and taking an administration fee. It also means our songwriters are not getting paid their mechanicals for December 2021 streams.
The MLC then stated to us in writing and via phone that they would not comply with their federal regulation to pay monthly. Instead, they would try to get us paid for December 2021 in April 2022. And if they don’t, we have no recourse.
For this catalog, the MLC are in breach of both the payment and confidentiality provisions of the MMA. This is a big deal. To make matters worse, The MLC “back office” vendor HFA/SESAC are also paying their own sister company our songwriter/publisher money frustrating our income, harming the songwriters, interfering with our relationship with our songwriter/publisher, while enriching their own in-house subsidiary (they take the money, process it, and commission it, and keep the admin fee and either pay it through at a wrong admin fee by-passing us or book it as “suspense” money where they keep it until they book all of it as retained income). We have no way to have these issues cured as there is no penalty. There is no way to ensure our songwriters (or any undisputed exclusive administrator of record) get paid any mechanicals, ever. And, despite it being against federal regulations, we have no way to have them stop sharing our confidential information. Apparently, HFA and The MLC can do whatever they want with no penalty and the DSPs are also protected and have no liability.
CATALOG 2:
For catalog 2, The MLC stated that The MLC/HFA, with no authority, and without our knowledge or consent, deleted our bank information and then did an ACH direct deposit to Audiam, our direct competitor owned by The MLC “back office” vendor HFA/SESAC, for the mechanical royalties due to us and our songwriters. The MLC again acknowledged the error but unlike Catalog 1 told us they would NOT pay us the owed mechanicals. Instead, they stated the burden would be on us to contact Audiam (our competitor owned by SESAC/HFA) to try retrieve the misdirected payment from Audiam ourselves. According to The MLC if we cannot wrestle the money out of the pockets of the HFA/SESAC owned entity, we don’t get paid.
Once again, The MLC is in breach of the payment and confidentiality provisions of the MMA. And again, the MLC’s “back office” vendor HFA took our songwriter/publisher money and redirected it to their own sister company enriching themselves while interfering with our relationship and the income of the songwriter/publisher. And once again, The MLC and HFA breached the confidentiality regulations. But there is no recourse. The MLC and HFA can do whatever they want with no penalty and the DSPs are protected as well.
CATALOG 3:
For catalog 3, we had previously received (inaccurate) payments via direct deposit for the months of September, October, and November 2021 (paid in December 2021 and January and February 2022) via direct electronic deposit. However, we received no payment in March 2022 for the December 2021 mechanicals. This time, The MLC stated the MLC/HFA, again with no authority and without our knowledge or consent, deleted our bank information and would not pay as required under the law. In addition, they stated they would mail us a check in the future. This means yet again, someone within the MLC/HFA went into our account and deleted our information.
For this catalog, the MLC are in breach of the payment provisions of the MMA. And again, The MLC and HFA do whatever they want with no penalty and the DSPs are protected as well.
CATALOG 4:
For catalog 4, The MLC stated the MLC/HFA, with no authority and without our knowledge or consent, deleted our bank information and then mailed one portion of the mechanical royalties due to us via paper check to Audiam, our direct competitor which also just happens to be owned by HFA/SESAC. They then stated they mailed the other portion of the mechanical royalties via a paper check to an unauthorized third-party with an address we know nothing about, never inputted, and never heard of to a state in the middle of the country. This means yet again, someone within the MLC/HFA went into our account, deleted our information, put in their own information, and then mailed two separate checks to two separate unauthorized third-parties, one of which is owned by HFA/SESAC and a competitor to us.
The MLC then told us they would try to get us paid in April 2022 for the December 2021 mechanical royalties due in March 2022 that they sent to these two other unauthorized entities.
For this catalog, the MLC are in breach of both the MMA’s monthly payment and confidentiality requirements. And of course (because why not), HFA are also paying their own sister company Audiam which is a competitor to us and owned by their same parent SESAC, our money frustrating our income, harming the songwriters, and interfering with our relationship with our songwriter/publisher. We have no way to address these issues because there is no mechanism to demand cure and no penalty for The MLC’s documented violations of its federally mandated obligations under the MMA.
REFUSAL TO REMOVE PRIOR ADMNISTRATORS
In addition to all the above, for two other recent publishing catalogs we now administer, we sent The MLC the LODs, termination letters from the prior administrator (who no longer controls or represents any rights and are not contesting anything), and schedule of works. The MLC/HFA stated in writing that it would not remove the prior administrator’s access to the accounts allowing the prior administrator to have continuing access to the usage data, royalties earned and other confidential information as defined in the MMA in breach of the MMA’s obligation to maintain confidentiality. The MLC told us that the burden was now on us to log into the MLC/HFA site and remove the prior administrator’s access to the account. And I have to be honest, I don’t even know if us doing what The MLC is stating will cut off access to unauthorized third parties.
US COPYRIGHT OFFICE HAS NO ENFORCEMENT REMEDY
We then spoke with the US Copyright office about all these issues, including breach of federal payment and confidentiality regulations, the possible anti-trust and anti-competition actions of HFA, the breach of statutory requirements in calculating the mechanical royalties, and more. The copyright office listened to our concerns, took no position, and stated that it has only limited oversight of the MLC.
THE END RESULT
In other words, the MLC/HFA can do whatever they want with impunity with no repercussions. They can pay or not pay. They can reveal your information or not. They can pay accurately or not pay accurately. They can redirect your payments to your competitor, their own subsidiary or their friends at their discretion. There is no remedy in the MMA for publishers to cure any breach. In addition, publishers cannot terminate the compulsory license and cannot compel The MLC to terminate. There is no interest or penalty for late payments. The board members of the MLC have no liability. The DSPs have no liability; and an audit of the MLC under the MMA must be done at your own expense. If you find an underpayment, you are not reimbursed by the MLC or the DSPs for the audit costs. The more money The MLC does not pay out, the more sits in The MLC “black box” (currently at close to $600 million with $424 million generated prior to 2021 and $100 million generated for just 2021 growing by about $15 million more a month) that after a period of time can be taken and handed to the companies of the board members of The MLC (or used as overhead by The MLC for salaries etc.). If a publisher pursues “gross negligence” against The MLC, there are still no statutory damages.
And if you think this is just happening to us, you would be wrong. There is little doubt in my mind that all or some of the same issues are happening to every other music publisher on the planet. And for the hundreds of thousands (millions?) of other self-published songwriters that are not even aware of The MLC’s existence, they are not even eligible to get paid their money in the first place.
I would like to suggest we collaborate to set a meeting with other publishers and administrators to further discuss these issues and work in unison to find solutions.
Thank You
Jeff Price
CEO
Word Collections
