As of 2007, the Copyright Royalty Board affirmed the U.S. Copyright Office’s previous designation of SoundExchange as the sole entity for subscribing statutory license fees. This designation can be found under Sections 112 and 114 of the Copyright Act.

The role of SoundExchange, as a non-profit performance rights organization, is to collect and distribute royalties to artists and copyright owners to compensate them for the digital performance of their music. SoundExchange’s role in the compensation process can be demonstrated through a simple ABC illustration that looks something like this:

A -> B -> C

A includes platforms for streaming sound recordings (i.e. satellite radio, internet radio, and cable TV to name a few), while B is SoundExchange itself and C consists of artists and copyright owners. It seems like with such a basic equation, the transfer of royalties from A to C, using SoundExchange as a middle man, would be quite simple and easy. But, apparently it’s not.

As of last May, SoundExchange had more than $260 million in royalties that were not paid to artists and copyright owners. At the approach of the year’s end, SoundExchange had an even greater unpaid account balance of $294 million. This means the organization was holding on to nearly $300 million that belongs to artists and copyright owners. The question that obviously follows is: why? Is this large account balance a result of artists and copyright holders not following the necessary procedures to collect their royalties? Are they disinterested because they believe the royalties aren’t substantial enough to go through the trouble of registering with SoundExchange? Or is it simply because SoundExchange isn’t fulfilling its duty of diligently finding ways to distribute the royalties?

According to Title 37, section 260.3(c) of the Code of Federal Regulations, an “agent designated to receive the royalty payments and the statements of account shall have the responsibility of making further distribution of these fees to those parties entitled to receive such payment . . .” The question is: pursuant to this section, is SoundExchange fulfilling its duty, or “responsibility”, to distribute royalties?

In order to fulfill its duty SoundExchange requires registration to enable the organization to collect the pertinent information to properly distribute unclaimed royalties to artists and copyright owners. Apparently, SoundExchange’s effort to use this registration process as a means to distribute creates two major problems. First, a significant number of artists do not know that SoundExchange exists, let alone about its registration requirements; and second, many artists who are aware of the registration requirement and actually try to register, become frustrated by their unsuccessful attempts to get through the stringent requirements and legalese included in the registration. It is safe to say that these problems indeed hinder SoundExchange from successfully fulfilling its responsibility to distribute all of the unclaimed royalties. However, that does not mean that SoundExchange is in breach of the duty created by the Code of Federal Regulations.

Under the simplest duty analysis, in order for SoundExchange to currently be in compliance with the demands of section 260.3(c), they must be responding to the above mentioned problems in a manner that is consistent with what a reasonable person(s) in their position(s) would do under the same or similar circumstances. Since I believe I am a fairly reasonable person (although some may disagree), I think it’s safe to use my efforts as a reasonable standard. So, here’s what I would do.

In response to the first major problem, I would take advantage of every possible means to publicize the unclaimed royalties. This would include publicizing on social media websites such as MySpace and facebook. I would also publicize on webinars as well as via ReverbNation, RightsFlow, and AFM. I would also use music managers groups as a means to obtain information about artists to improve my chances of contacting them. Also, music conferences, both large and small, would be another means of publication. At these conferences I would post banners with the names of individuals and groups who have unclaimed royalties. I would also make calls and send letters as a part of my efforts to contact artists and copyright holders. Being that there are thousands of artists who need to be informed, I would hire a number of specialists who would focus on different groups of artists who have unclaimed royalties (i.e. one group would be artists who emerged during or before the 1970s).

In response to the second major problem pertaining to registration difficulties, I would review the registration process and ensure that it is as simplified as possible. This means I would make the requirements similar to those that are necessary for the average person to file for or apply for any sort of monetary compensation. For instance, I would make the information and documents required to register similar to those that are required for one to apply for a job or perhaps a loan.

I, as a reasonable person, think the above mentioned efforts are sufficient to demonstrate reasonable care in solving registration problems and in turn enable me to carry out my duty to distribute royalties to the best of my ability. Fortunately, it just so happens that SoundExchange is indeed engaging in all of the efforts mentioned. Therefore, in my opinion, despite the millions of dollars in royalties that SoundExchange has not distributed, the organization is indeed doing everything it can to fulfill its duty and carry out its “responsibility of making further distribution of these fees to those parties entitled to receive such payment.” Although I do not like the fact that so much money is being held, I am comforted by SoundExchange’s use of various avenues to distribute unclaimed royalties to artists, including those who simply have not tried to receive the royalties, despite continuous notifications that they exist. I simply do not know what more SoundExchange could do to carry out its responsibility. Do you?