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Natalie Bravo is an IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

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Anita Baker is a legendary soul and R&B singer-songwriter who rose to fame in the 1980s. The iconic singer has won and various notable awards for her popular and timeless ballads. Earlier this year during Grammy season, Baker requested that fans not . Through Twitter, she expressed that she had outlived all her recording contracts and that her master recordings should legally belong to her. On September 3, Baker in her masters fight and gave fans the go-ahead to listen to her music once more.

Baker’s tweets and subsequent support from fans come as no surprise. In recent years, popular artists have spoken out about compensation from and Ownership of masters within the music industry has become a contentious and popular matter, particularly after Taylor Swift’s legal battle resulted in This case is a bit different as it likely relies on a lesser-known section of U.S. copyright law. When Baker described outliving her contracts, she was referring to her , which lets her reclaim her copyright after 35 years. states that authors or their survivors are entitled to “terminate grants of copyright assignments and licenses that were made on or after January 1, 1978 when certain conditions have been met.” It is not clear what the conditions were in this case besides length of time, however Baker advocated for ownership effectively and succeeded.Ěý

Baker was not only upset that she did not own her masters, but also that the current recordings available were of inferior quality. Baker that the songs currently available lacked the original instrumentation, the recordings were sped up, and the vinyl sold today are not from analog masters, but rather re-processed digital copies. She believes her fans deserve better. Fans encouraged her in a dedicated fashion, with some stating that they just so they could enjoy her music without having to stream it.

Between March and September, Baker frequently provided legal updates through short tweets. Notably, she shared that with Warner Music Group (formerly WEA Records) began in May 2021 and that she was making progress. Finally, on September 3, she published a photo of her catalog and announced that all . Her advocacy on Twitter garnered tremendous support from her fellow musicians. Fun fact: Taylor Swift and tweeted following Baker’s success.

In the words of Anita Baker, “.”

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Over the last 20 years, global music industry players have seen traditional revenue streams decrease as the shift towards digital distribution has intensified. In 2018, reported global revenues from recorded music With the worldwide concert industry grinding to a halt, for performers and copyright owners alike, the effect of COVID-19 on the global music industry has placed a spotlight on moving the conversation on sound recording rights forward.

On September 9^th through 11^th, 2020, the hosted . Streaming online from in Arlington, Virginia, day one of the conference saw panelists tackling a number of topics in music law, including the colourful history of sound recording rights in America and their current status under the US copyright regime. The below provides a deeper look at the issues discussed during the on September 9^th.

Looking Back: The Music Modernization Act

Revenues from recorded music have grown over the last five years in the US, . In 2019, revenues from recorded music grew 13%, primarily through paid subscription services. Total revenues from streaming alone grew 19.9% in 2019, accounting for almost 80% of all recorded music revenues in the United States.

Consider these statistics against the legislative backdrop that governs the payment of royalties for recorded music. On October 11, 2018, (H.R. 1551) (“MMA”) was signed into law by President Donald Trump. The MMA combines three previously introduced bills intended to modernize copyright law as it relates to the music industry.

Title I of the MMA is the Musical Works Modernization Act, which impacts the conversation on sound recording rights in a number of ways. First, Title I changes the standard used by the Copyright Royalty Board (“CRB”) in setting digital royalty rates, bringing the standard used for digital radio stations up to date. Under the old regime, the standard used for setting statutory royalties relied on public interest considerations, preventing the CRB from considering what a licensee might pay as a market rate. Under the MMA, the rates for all compulsory blanket licences are to be determined through a market-based standard, sometimes referred to as a willing buyer/willing seller standard, ideally creating a fairer standard of compensation for the owners of sound recordings.

Further, Title I establishes the Mechanical Licensing Collective (MLC). While the primary role of the MLC is to collect and distribute section 115 mechanical publishing royalties, it has also been tasked with the creation of a Musical Works Database, intended to link sound recordings to their underlying compositions. In theory, the database will provide music users with a one-stop shop for uncovering all potential rightsholders involved in a song, on both the sound recording and the composition side.

Title II of the MMA tackles the grey zone inhabited by pre-1972 recording artists, otherwise known as “legacy artists”. The Classics Protection and Access Act extends the same protections to the digital public performance of pre-1972 sound recordings as those extended to post-1972 recordings. The practical outcome of this legislation? Digital radio stations and streaming services are now responsible for paying royalties for the expansive catalogue of pre-1972 recordings in their repertoires, according to the uniform rate setting standard outlined in Title I.

Title III, The AMP (Allocation for Music Producers) Act, creates a new “letter of direction” process, allowing recording artists to distribute a portion of the royalties collected for a sound recording to the producers, sound engineers or mixers involved in its production. Title III enables SoundExchange, the entity collecting and distributing sound recording royalties under section 114 statutory licenses, to distribute these royalties directly to the producers involved on behalf of recording artists who submit a “letter of direction” outlining their intention to make such a payment.

Simply put, and as it currently stands, the US legislation regarding sound recording rights maintains its focus on digital plays. What about analog?

Looking Forward: AM-FM Act

The , introduced to , is a bi-partisan bill aimed at creating a terrestrial radio (AM/FM) performance right for sound recordings. The AM-FM Act arrives following the Fair Pay for Fair Play Act, introduced in both 2015 and 2017 with the same goal, but which failed to pass.

Supporters of the AM-FM Act describe it as ending a “” stemming back to the early days of radio that has allowed AM-FM radio broadcasters to play recorded music on air without obtaining the permission of the recording’s copyright owner, and without paying royalties for the use. In essence, it is argued, terrestrial radio broadcasters are being subsidized by the recording industry and will continue to be until the creation of an AM-FM radio performance right in sound recordings.

The National Association of Broadcasters has of the AM-FM Act, countering with their support of the , stating that Ěý“Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over the air, or on any business for the public performance of sound recordings on a local radio station broadcast over the air”.

In contemplating the ongoing battle over the creation of a terrestrial broadcast performance right in sound recordings, we’re provided with the opportunity to consider the role of analog radio in a digital era, and to think through the questions of promotion versus consumption that relate to music copyright as a whole.

Today: CUSMA

One is that while countries with a terrestrial radio performance right for sound recordings collect royalties for American artists whose sound recordings are played outside the US, they are unable to pass on these royalties to US rights holders as there is no domestic royalty scheme. In , SoundExchange identified 6 territories which deny full national treatment to American recording artists - UK, France, Australia, Japan, the Netherlands, and Canada.

On July 1, 2020, the Canada-United States-Mexico Agreement (CUSMA) entered into force in Canada, providing full national treatment to sound recordings. states at Article 20.8 that “in respect of all categories of intellectual property covered in this Chapter, each Party shall accord to nationals of another Party treatment no less favorable than it accords to its own nationals with regard to the protection of intellectual property rights”. As explained by panelist and Attorney Eric Schwartz of Mitchell Silberberg & Knupp, Canada’s implementation of its CUSMA obligation to give national treatment to sound recordings is sure to result in new payments to American copyright owners for uses occurring in Canada.

The effect of COVID-19 on the worldwide music industry has put the focus on the copyright regime’s ability to respond to change, both cultural and technological. For those interested in music law, and in the modernization of copyright more generally, the complicated and curious history of sound recording rights provides countless jumping off points for creatively thinking through the issues affecting artists and copyright holders today.

Written by Meghan Carlin. Meghan is in her second year at Osgoode Hall Law School. In addition to her work with the IPilogue, Meghan is a Fellow with the Innovation Clinic and is Co-President of the Osgoode Entertainment and Sports Law Association.

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In the week following the government’s Budget announcement, certain critics of copyright term extension have advanced four criticisms of the proposed reform, claiming there will be:

1. Heavy costs to consumers in royalty payments.
2. Royalty payments sent out of the country.
3. No additional incentive for creativity.
4. Less creative material entering the public domain.

In a separate report (), I review the evidence cited in support of each of these four contentions. In each case, I source the cited authority for each claim in reports circulating during the 2005-2009 U.K. and EU copyright reform debate, and the 2005 Australian debate on copyright term extension. I further identify fundamental errors in the economic analyses relied upon and claims made, and discuss how each claim was rejected by the respective governments.

Myth 1: Heavy Costs to Consumers in Royalty Payments.

It has been claimed that copyright term extension for sound recordings and performances will cost consumers millions of dollars. There is no economic study that actually estimates this in Canada. Furthermore, some critics (with reference to a “U.K. study”) have reported that the public cost associated with copyright term extension in the U.K. was estimated as high as €1 billion. Some have then implied that Canadian consumers might experience a similar order of cost from copyright term extension. There is, however, no such “U.K. study”. In fact, the U.K. Government’s “, which commissioned and relied upon a report by the Centre for Intellectual Property and Information Law (CIPIL) at Cambridge University (), actually suggested that “the overall impact of term extension on welfare would be a net loss in present value terms of 7.8 per cent of current revenue, approximately £155 million.” This is a much smaller number than the €1 billion that has been cited by critics, and for reasons I outline below, CIPIL’s conclusion was in any event properly rejected by the U.K. Government.

Critics have also cited a , claiming it reached the conclusion that “the extension would create significant costs for consumers and society as a whole”. This reference is to a 2008 article co-authored by a Dutch academic Bernt Hugenholtz, Director of the Amsterdam University Institute for Information Law, (AUIIL). It summarises a undertaken by AUIIL in 2006 that was commissioned by the European Commission to evaluate the main arguments made in favour of a copyright term extension for sound recordings. What critics do not mention is that the study by AUIIL was rejected by the European Commission in a later full , conducted by the Commission itself. The AUIIL report relied on similar assumptions as those contained in the U.K. CIPIL report mentioned above for the Gower Inquiry (which was also rejected by the Commission), and also contained no actual empirical evidence of the impact of copyright term extension on prices charged to consumers in Europe.

Thus, despite their characterization by critics, the actual studies cited do not make the claim that copyright term extension would cost the public in excess of €1 billion, The only two actual studies at the base of these claims were prepared by the (2006) and (2006), and were, in any event, rejected by the U.K. and EU Governments in 2008-2009. Neither of these studies estimated the costs of the European copyright term extension for sound recordings as €1 billion. At the risk of spreading misinformation, however, it turns out the €1 billion figure actually originates from a later report issued by a number of Law Centres (including CIPIL and AUIIL) (referred to as 2008). This joint report was CIPIL et al.’s response to the European Commission’s rejection of CIPIL’s and AUIIL’s original analyses.

As I show in my main report (linked to above) in more detail, the fundamental problems with these studies being relied on by term extension critics (i.e. the CIPIL, AUIIL and CIPIL et al. reports) are that they:

1. Ignore Digital Piracy: The reports ignore the historical context, which is the growth of digital piracy, and the fact most studies in top tier economics journals support a conclusion that digital piracy has been responsible for the decline in sound recording sales (70% in real terms) over the past 15 years. It is clear that lengthening the copyright term for sound recordings and performances is a rational and efficient policy response to the increased ease of pirating sound recordings, in that it will help to restore profitability and properly incentivise investment in the music industry.

2. Ignore The Free Rider Problem: The reports ignore the costs of downstream free riding, where public domain users try to avoid the cost of creating their own works by exploiting out-of-copyright creative works that have passed their currently limited copyright term. Thus, the CIPIL report tends to emphasize how copyright may entail costs for downstream creativity, but the CIPIL report nowhere mentions the free rider problem, where free riding by downstream public domain record labels may reduce creativity.

3. Assume the Creation of a Copyright Monopoly: One of the key (and incorrect) assumptions made by CIPIL and others critical of copyright term extension, however, is that copyright creates a monopoly. Instead, of course, copyright creates a property right, which, in the context of the music industry, supports a competitive market. The assumption that copyright creates a monopoly is clearly incorrect, as copyright only provides thin protection for the creative expression of an idea, and not the underlying idea, allowing competition from close substitutes (e.g., similar music).

4. Assume Deadweight Costs: A further problem with the CIPIL study is its assumption that for copyright goods that already exist, there is no benefit from a retrospective term extension, only deadweight costs. Generally speaking, however, property rights over other existing goods (e.g. land) last forever - or in perpetuity – and are seen to be beneficial - so why not for copyright, which covers existing creative goods? Copyright under the common law also lasted in perpetuity, at least until the right was taken away by legislation. CIPIL et al. claim that while normal or scarce goods like land can become congested if they are over-used, copyright goods are different - they are not rival, nor scarce. It is claimed many people can use copyright goods without congestion cost, so there is no need for conservation or management of access to copyright goods. CIPIL et al. rely on [1] for this assumption.

[2], however, have since rejected the notion, recognizing instead that there are costs to over-use of valuable copyright works. Thus, they note:

If …anyone were free to incorporate the Mickey Mouse character in a book, movie, song, etc., the value of the character might plummet. Not only would the public rapidly tire of Mickey Mouse, but his image would be blurred, as some authors portrayed him as a Casanova, others as cat meat, others as an animal-rights advocate, still others as the henpecked husband of Minnie. … until Mickey Mouse’s commercial value was zero.

Thus, the CIPIL report’s analysis is based on a fundamentally wrong and since rejected premise, and consequentially its recommendations are flawed.

5. Make Modeling Errors: There are basic errors in the formulae used in the various reports critical of copyright term extension for sound recordings. Thus, in the CIPIL report’s theoretical model, one inaccuracy alone led CIPIL to overestimate the overall welfare loss by 44% [3]. Even after these errors were corrected, however, the model was still sensitive to changes in assumptions about a number of parameters, which were largely “guestimates”, and not based on any empirical evidence. Thus, even minor changes to parameters generated benefits to consumers from copyright term extension – the exact opposite conclusion reached by CIPIL. As outlined in my full report (), extreme assumptions and arithmetic errors were also present in the CIPIL et al. report calculating the €1 billion cost.

Ěý6. Ignore The Facts - For example on what happens to consumer prices: none of the Studies relied on by critics of copyright term extension for sound recordings have collected any data to test their analyses. By comparison, PricewaterhouseCoopers (PwC) looked at 129 albums recorded between 1950 and 1958, and found no clear evidence that records in which the related rights have expired were sold systematically at lower prices than records which are still protected. Thus, the European Commission’s full of the proposed copyright term extension concluded: “A term extension would have no negative impacts on consumer prices and would have a positive impact on the quality of services offered to consumers as well as on consumer choice.” (Impact Assessment, p. 36)

As I discuss in my full paper (), the studies being relied on by Canadian critics have adopted the most extreme possible assumptions and have made basic errors including faulty arithmetic. The studies were ultimately rejected by the U.K. and EU governments. Having been exposed for making basic errors and rejected by the very governments that commissioned their work, the authors of the rejected studies then orchestrated a public campaign, involving various open letters, statements, conferences and articles, that railed against the governments’ decisions and propagated their misleading analyses. We are still hearing the echo from this today.

Myth 2: The Royalty Payments Will Be Sent Out of the Country.

A further myth or exaggerated claim is that not only will consumers pay a heavy price in greater costs for sound recordings, but the amounts paid by consumers will be sent out of the country. For this it has been claimed that “ that the copyright extension resulted in Australians sending an extra $88 million per year in royalties overseas” (the “Dee report”) [4].Ěý Again, however, the study was speculative. It merely extrapolated from the fact that Australia was a net importer of copyright in 2002-2003, and assumed that this deficit would increase by an arbitrary amount, leading to an assertion that extending copyright term limits for sound recordings would push up these net payments by $88 million per annum. No analysis was done of what actually happened to net payments from Australia after the reform.

The extension of copyright term limits would have increased revenues for Australian creators, both in Australia – which would not figure in the balance of payments – and overseas. Thus, Australian creators were not entitled to an extended copyright term in other countries unless and until Australia extended its laws. The paper also failed to explore the distortion that existed between Australia’s relatively low term of protection and the higher term in other countries, and the effect this had on net payments from Australia in 2003. In all likelihood, the fact that the Australian copyright term was lower than that in the US probably exacerbated the balance of payments deficits, and its alignment to the US restored better balance.

Myth 3: No Additional Incentive for Creativity.

The third economic myth is that artists are not incentivized by longer copyright terms to create new works (or in this case, sound recordings). It has been claimed that “[l]ong copyright terms are a poor recipe for compensating creators, who generally receive low royalties from their works.” On the contrary, one of the only empirical studies based on a unique dataset, conducted by Stan Liebowitz in 2006 [5] , indicates that the proposed change in the sound recording copyright term is likely to have considerably larger financial implications than has previously been assumed. It was noted that by increasing the copyright term of sound recordings from 50 to 95 years would likely increase nominal revenues by almost 70%. Discounting these future nominal revenues, as is proper, lowers their present value to a range from 3% to 10%, depending on the discount rate chosen.[6]Ěý The discounted value is of sufficient size to allow an economically consequential increase in the production of new works.

Critics have raised the argument that University of Montreal economist Abraham Hollander found that the economic value of a copyright term extension to the recording industry was very small. The notes:

[Sound recordings] are protected for a period of 50 years from fixation. Adding 20 years of protection would contribute 2.3% to the present value of royalties under a 7% discount rate, assuming that the flow of royalties remains unchanged during the whole period.

As noted by Liebowitz, however, this present value of 2.3% (while it may seem small) can provide considerable incentive for new works and creativity. Moreover, the 7% discount rate is probably high, given that the music industry can spread its risk through large portfolios of sound recordings. A lower discount rate would imply a higher NPV. So despite the arguments from term extension critics to the contrary, Hollander’s study in fact supports the likelihood of term extension increasing creativity.

A further problem with the work cited by critics of copyright term extension for sound recordings is that it has failed to recognize that music companies use current income to invest in new artists, and why this is rational behaviour. Record companies tend to be better judges of returns on investment in current music than outside investors. This means internal financing out of current income, rather than external financing, is at a lower cost. Thus, increased revenues from older works under an extended copyright term will be used by music companies to expand investment into new sound recordings and in the development of new and existing artists. This is confirmed by the way in which record companies actually act in practice. Thus, an analysis of Artist and Repertoire ('A&R') spending to find and develop new recording artists of each of the major record companies, showed the data was consistent with the hypothesis that record companies finance new material from the sales of existing material. Therefore, a retrospective increase in the copyright term is likely to have a positive effect on the level of recorded music being created. This analysis was consistent with a survey by the BPI of independent record company members in 2007, which showed that independent record companies rely heavily on internal funds for financing.

The clear conclusion is that, contrary to the many assumptions made by its critics, copyright term extension for sound recordings and performances will both increase the incentive, and the capacity to invest in new sound recordings.

Myth 4: Less Entering the Public Domain.

Finally it is claimed that term extension will simply leave Canadians with 20 additional years of no new works entering the public domain. Despite this myth, the exact opposite is true. Ultimately there will be more sound recordings created, and therefore more supply into the public domain, with a longer copyright term. Also, whether works go to the public domain or not is a choice that resides with artists. After all, it is possible to put work into the public domain under copyright. The problem, however, is that under a public domain law, it is not possible to bring works into the private domain to protect investment and maintain quality.

Conclusion

As summarized above, in a separate more detailed report I have examined and debunked four myths about the likely economic consequences of copyright term extension following the Canadian government’s recent Budget announcement on April 21, 2015. In each case, economic theory and data is shown not to support the claims made. These common mistakes in economic analysis have, however, been revived from the 2005-2009 U.K. and EU debate, and the 2005 Australian debate on copyright term extension for sound recordings. In each of those cases, these arguments were considered and rejected by policy makers in deciding to extend the term of copyright. The same should be true for Canada. Term extension is an efficient way to restore returns to investment in creativity, which was devastated by the growth of digital piracy from 2000. By increasing revenues, and therefore the incentive to invest in creativity, copyright term extension will help increase the supply of new creative goods, enhance consumer choice, competition, and quality, and lower prices in the long run. It will also help to enhance incentives to invest in, and market existing creative goods, and to maintain and enhance their quality, safeguarding our cultural past and musical legacy, while enriching both the present, and the future.

Dr. George Barker is Director of the Centre for Law and Economics at the Australian National University, and past President of the Australian Law and Economics Association. He was awarded the Olin Fellowship in Law and Economics at Cornell University in 2000, was Visiting Fellow at Oxford University Law School 2008, and is currently a visiting Fellow at the British Institute of International and Comparative Law London and Centre for Law and Economics and Society, University College London.

[1] Richard A. Posner & William M. Landes, "An Economic Analysis of Copyright Law," 18 Journal of Legal Studies 325 (1989), p. 362.

[2] Richard A. Posner & William M. Landes, "Indefinitely Renewable Copyright" (John M. Olin Program in Law and Economics Working Paper No. 154, 2002), p. 12-13.

[3] In its response to a critique by LECG, CIPIL acknowledged that it failed to use the relevant full formulae in its calculations, and instead used an approximation, and that this led them to overestimate the welfare loss from term extension by 44%. With the full formulae their estimate of overall welfare loss falls to 5.4% of present revenues rather than 7.8% of present revenues see CIPIL (2007) “LECG Critique of the CIPIL Review: Response”, Cambridge: Centre for Intellectual Property and Information law p8.

[4] See the “Dee report”, available at: .

[5] Liebowitz (February 2006), "What are the Consequences of the EU extending Copyright Length for Sound Recordings, report prepared for IFPI.

[6] As Liebowitz notes “Much of this gain from an extra 45 years comes from the early years, due to present value discounting. For example, using a 5% interest rate, more than 70% of the gain is derived from the first 20 additional years.” Liebowitz (2006) p17 footnote 11

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