There are several varieties of license to consider when you have a copyrighted work.
Compulsory mechanical licenses are an important exception to copyright rules. Under compulsory license rules, you have to allow someone to use your recording whether you like it or not.
Anybody can obtain a compulsory mechanical license without express permission from the copyright holder. This kind of license is important to understand but doesn't come into play very often. The administration is extremely time-consuming, and the work required just to prove you qualify for the license is difficult enough.
Compulsory Mechanical License Basics
A compulsory mechanical license is a license that the owner of a copyright has to issue. In the U.S., mechanical royalties earned under a compulsory license are paid to the copyright owner on the license at the so-called statutory rate, which is the rate set by the Copyright Board for these licenses. The statutory rate is currently 9.1 cents or 1.75 cents per minute of composition, whichever is greater, per unit.
A compulsory license provides that the owner of a patent or copyright-licenses the use of their rights against payment either set by law or determined through some form of adjudication or arbitration. In essence, under a compulsory license, an individual or company seeking to use another's intellectual property can do so without seeking the rights holder's consent and pays the rights holder a set fee for the license.
When an Intellectual Property Law Exception Is Made for Compulsory Mechanical Licenses
This is an exception to the general rule under intellectual property laws that the intellectual property owner enjoys exclusive rights that it may license — or decline to license — to others.
Compulsory mechanical licenses can only be requested under very specific circumstances. First, a compulsory license must be granted to anyone who wants to release an audio recording of your work. Second, a compulsory license can be issued if it will be used for a payment that is a legal obligation.
The Rules of a Compulsory Mechanical License
If one of those initial rules apply, there are other circumstances that must be met before a compulsory mechanical is granted, which include the following criteria:
The recording in question must be non-dramatic. Although "non-dramatic" is a vague term, it is usually assumed to mean a recording associated with a dramatic performance, like a song used in a musical or an opera.
The song must have already been recorded and distributed by the copyright owner. Another way this is stated is that the copyright owner gets "first use" of their creation. Note that the copyright owner has to be the one who recorded it; if someone else steals their work and records it, that doesn't qualify as "previously recorded." Also, recording it is not enough. The copyright owner has to have made it available for public consumption.
Only audio recordings can be made. These audio recordings include physical phonorecords and digitally distributed copies of an audio recording.
No major changes can be made to the work. You are not allowed to change the lyrics or make other substantial changes to the original song.
If all of these requirements are met, a compulsory mechanical license can be issued. Once a compulsory mechanical is in place, there are certain rules that have to be followed that differ from a standard, non-compulsory license.
Monthly Accounting and Royalties
Under a compulsory mechanical, accounting to the copyright owner by the license holder is done once a month (a requirement that makes compulsory mechanicals extremely unattractive to many). With compulsory mechanicals, there is a limit on the reserves the license holder can withhold and these reserves must be sold and paid out on at certain intervals.
Further, royalties are due on every copy made and distributed rather than made and sold, which means royalties are paid on promotional copies and other free stuff handed out by the license holder.
The monthly accounting requirement is what makes these licenses unattractive. That said, compulsory mechanical licenses are very important to understand because of the framework they lay out for standard mechanical licenses, particularly the statutory rate. The statutory rate becomes the de facto ceiling price for a mechanical license. No one will pay over the statutory rate, and in fact, many record labels pay less than the statutory rate to their artists.