New record label agreement lays groundwork for mechanical royalties payments

A new framework for the payment of “mechanical royalties” to music rights holders has emerged from an agreement Monday for Canadian record labels to pay songwriters and music publishers $47.53 million for outstanding uncompensated use of reproductions of their works. “It's very important, we've been seeking a solution to this for a long time,” David Basskin, president and CEO of the Canadian Musical Reproduction Rights Agency (CMRRA), said in an interview. “We believe this is a vital solution to a systemic problem.” Under the current music licensing system, record labels must obtain a licence and pay a royalty to reproduce and create a sound recording of a musical work in a physical format, such as when they create compilation CDs. This is called “mechanical” reproduction of works, and includes CDs, DVDs and videocassettes. Digital downloads and digital products do not count as mechanical reproductions. Although record labels usually promptly compensate rights holders for use of their works, a problem arises when they cannot find the appropriate person to compensate. Since the 1980s Canadian labels have kept track of the reproductions for which they cannot compensate the creator on what is called an outstanding “pending list.” On Monday, EMI Music Canada Inc., Sony Music Entertainment Canada Inc., Universal Music Canada Inc. and Warner Music Canada Co. said in a release they had reached an agreement to settle a potential legal dispute over compensating rights holders on their pending lists. The labels noted in the release the agreement is not an admission of liability or wrongdoing, and is subject to approval by the Ontario Superior Court of Justice. The agreement stands as a settlement to a proposed class action suit filed in 2008. In October 2008, the estate of jazz musician Chesney Henry “Chet” Baker Junior and Chet Baker Enterprises LLC filed a class action suit on behalf of rights holders against the music labels in the Ontario Superior Court. In the suit, Chet Baker Enterprises argued the labels had made sound recordings of musical works without securing a licence to do so. The company also said the labels had failed to compensate rights holders after they had sold and distributed copies of sound recordings of their works. The company also argued the labels had made “insufficient or no effort to locate and compensate” copyright owners on the pending lists. According to the company's estimations, the pending lists represented over 300,000 works and $50 million in unpaid royalties as of 2008. The suit sought access to the labels' pending lists, as well as compensation for damages. But on Monday it was announced the suit would be settled through the agreement with the labels. A hearing to approve the settlement has been set for Feb. 15, 2011 in Toronto. As part of the agreement, the labels will pay $47,533,410 into a settlement fund. The identification of parties entitled to receive the funds will be done by the CMRRA and the Société du droit de reproduction des auteurs, compositeurs et éditeurs au Canada (SODRAC), which issue copyright licence agreements on behalf of most publishers and songwriters in Canada. The CMRRA and SODRAC were also among the accused in the suit. The groups have agreed to cooperate and assist the plaintiffs in exchange for a release of the claims made against them. David Basskin, the CMRRA's president and CEO, said in an interview he expects the court will approve the agreement. The CMRRA and SODRAC have also agreed to participate in the construction of a new platform for the administration of mechanical licensing of audio physical products and the associated royalty distribution process. Basskin said the new platform will prevent labels' pending lists from building up anew. “We will be assisting the record companies in obtaining licences from the Copyright Board of Canada pursuant to section 77 of the Copyright Act,” he said. “Under the Copyright Act, if a person who wants to use a copyright has made reasonable attempts to find the owner, but has been unable to do so, he can apply to the Copyright Board for a licence to close that gap. The Copyright Board then takes care of the process of issuing the licence, collecting the royalties and basically advising the public at large, 'if this is yours, come forward and get your money.'” The CMRRA and SODRAC will also create a website where the public can verify if any of their works are on a pending list. Jonathan Foreman, a partner at Harrison Pensa LLP and co-counsel for Chet Baker Enterprises, said in a release the agreement is a “very good result” for songwriters and music publishers. “The major record labels are to be commended for their efforts in resolving the matter,” he said. “This agreement reflects the respect the major record labels have for their unpaid rights holders.” Graham Henderson, president of the Canadian Recording Industry Association (CRIA), speaking on behalf of the labels involved in the agreement, also said in the release that the outcome is positive for all parties. “I commend the counsel representing rights holders and the major record labels for their constructive approach in reaching an agreement and their diligence in working through highly complex issues,” he said. CRIA declined to provide further comment on the agreement Monday. Michael Geist, Canada research chair in Internet and e-commerce law at the University of Ottawa, wrote on his blog Monday the agreement settles “one of the largest copyright class action lawsuits in Canadian history.” Geist also noted that prior to the suit, the labels had “little motivation” to compensate rights holders on pending lists. “It is striking that it took a class action settlement to get the record labels to address their own ongoing copyright infringing practices in paying artists for the use of their works,” he wrote. kfournier@thewirereport.ca

New record label agreement lays groundwork for mechanical royalties payments

Broadcast | January 11, 2011

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