Digital music companies often rely on compulsory licenses to stream copyrighted content. Section 115 of the Copyright Act provides a compulsory license for most copyrighted musical compositions (with the exception of soundtracks) that have been released to the public.
The benefit is that the royalty rates under these licenses are set by the government and, therefore, they eliminate the need to negotiate directly with the copyright owner. However, there are some issues that still need to be considered. For instance, compulsory licenses are only available if the primary goal is to distribute them to the public for private use. Thus, they cannot be obtained to play the songs in background music systems, jukeboxes, broadcasting, or any other public use.
If you are able to locate the name and address of the copyright holder, the process of securing a compulsory license is fairly straightforward. Below is a brief summary, as provided by the U.S. Copyright Office:
- Before distributing the music, you must serve a Notice of Intention to Obtain a Compulsory License on the copyright owner or authorized agent of the owner.
- Once you begin distributing the music, you are required to make royalty payments, accompanied by a monthly statement of account, to the copyright owner or authorized agent of the owner on or before the 20th day of each month for every composition made and distributed in accordance with the license.
- You must also file with the copyright owner or authorized agent of the owner a detailed annual statement of account, certified by a certified public accountant.
While the process is clearly established by statute, it is still full of traps for the unwary.