The U.S. government has been on a veritable binge of legislation in the intellectual property arena over the last week. First, the Music Modernization Act, which updates copyright licensing procedures for on-demand streaming, passed the Senate by unanimous consent last month and was signed by President Donald Trump on Oct. 11. The MMA was originally three separate bills that were all rolled into one.
Among the highlights are the creation of a new mechanical licensing collective that will collect and distribute royalties under a blanket license for music that’s streamed interactively or downloaded. It will be similar, though not identical, to the ASCAP and BMI organizations that collect royalties for the performance of musical works.
“The benefits to the on-demand services are very tangible and evident,” said Weil Gotshal & Manges IP partner Todd Larson, noting that some on-demand services had been hit with expensive class actions, in part because the old licensing regime didn’t mesh well with streaming services.
Also passing the Senate last week and currently on the president’s desk is the SUCCESS Act, a bill directing the U.S. Patent and Trademark Office and Small Business Administration to promote the participation of women and minorities in the patent system. The SUCCESS Act—which stands for Study of Underrepresented Classes Chasing Engineering and Science Success—also includes a provision extending the USPTO’s fee-setting authority by eight years. The original authority granted by the America Invents Act in 2011 expired in September.
“The SUCCESS Act will take an important step toward addressing equity gaps in inventing and patenting—gaps which are holding back the U.S. economy,” Brian Pomper, executive director of the Innovation Alliance, said in a written statement.
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Recent studies showing that men are more likely to apply for patents than women and are statistically more likely to have their applications approved, gave impetus to the SUCCESS Act. The bill would direct the SBA and USPTO to study the reasons for the under-representation—by women, minorities and the businesses they own—and recommend steps for increasing their participation.
The Computer and Communications Industry Association has called the bill worthwhile but cautioned against assuming that “more patents means more innovation.” Patents can also be used to prevent innovation, including at small businesses, the organization argued.
But extending the fee-setting authority is a sweetener for the tech industry and others wary of patent assertion. The theory is that a fully funded PTO is better equipped to discern quality patents and weed out weak ones.
The MMA, meanwhile, establishes a new mechanism for licensing copies of musical works for streaming services. The previous song-by-song regime made sense when music labels were issuing songs 10 at a time on new albums, Weil’s Larson said. But it became unworkable as streaming services began adding as many as 10,000 new titles a day to their catalogues. Some inevitably slipped through the cracks, exposing the company to massive statutory damages, Larson said.
Now all of those songs will be covered by a blanket mechanical license, with the royalty rate to be set by the Copyright Royalty Board, as in past.
The MMA also incorporated a bill known as the Classics Act, which will bring pre-1972 sound recordings under the licensing framework of federal copyright law. The bill applies to songs streamed after Jan. 1, 2018, so it does not affect the litigation against Pandora Media pending at the California Supreme Court.
Larson said he believes “the reality on the ground” is that most streaming services have been paying royalties on pre-1972 recordings. “They’ve not been shirking those responsibilities,” he said.
As for how Congress was able to pull this off, Larson said almost all of the major stakeholders supported the legislation, including groups like the music publishers and the Recording Industry Association of America on one side and the Digital Music Association and National Association of Broadcasters on the other.
“There were very few holdouts at the end of the day,” Larson said.
The one unresolved question, as Larson sees it, is how long it will take to get the new blanket license collective up and running. “It’s a pretty massive undertaking,” he said. Right now it’s unclear “how long it will take to process payments in the more expeditious manner envisioned by the legislation.”