This post is in response to a commentary piece today on wired.com that has misreported the lobbying rules for a nonprofit... it's an attempt to set the record straight on the law, and yet another plea from yours truly that reporters and bloggers need to contact people that actually know nonprofit law when commenting or reporting on the matter.
Wired.com posted a comment today regarding
alleged illegal lobbying by
SoundExchange, a nonprofit that has been designated by Congress and the US Copyright Office as the collector of digital royalties (iTunes sales, for instance) for music artists and record labels. SoundExchange is a 501(c)(6) trade association (
see GuideStar here, but you'll need an account) and, according to
its site, has been granted the exclusive authority to collect these royalties under the Copyright Act.
Any 501(c)(6) has the right to engage in lobbying activity under the tax code (see
Revenue Ruling 1961-177) (PDF). One normally sees a lot of lobbying activity by trade associations, particularly if they are based in DC
as SoundExchange is. However, the Copyright Act specifies the uses for the royalty money, and
lobbying is not one of those uses that got the thumbs up from Congress (see section 114(g)). Guess who is a major funder of the lobbying group,
MusicFIRST Coalition? You guessed it... SoundExchange.
The Wired commentator,
Eliot Van Buskirk, asserts that SoundExchange has violated the law by funding a lobbying organization... but that's wrong. My read of the statute says that SoundExchange can only use the royalty money for administration of royalty collection, dealing with disputes in royalties, and dealing with the narrow issue of recordings made by entities that have a license to broadcast a performance. That's it... lobbying's not on the list. But the key here is that the use of the royalty money is restricted. SoundExchange can use other sources of money and legally use that as the source for lobbying. SoundExhange's general counsel told
Van Buskirk:
Funding provided by SoundExchange to musicFIRST is authorized by copyright owners and performers who have chosen to become members of SoundExchange. These contributions come only from our members and not from non-member royalties, and were unanimously approved by the SoundExchange board.
So... the funds are coming from member dues,
not from royalties, therefore the Copyright Act restrictions
do not apply.
Van Buskirk consulted an intellectual property professor and a music attorney to find out if there was specific legal authority for a nonprofit to lobby, and was told there is no specific statute authorizing the activity.
Of course, this is nonsense. Trade associations are free to lobby pursuant to their status under Section 501(c)(6) of the tax code,
and have since 1961 (PDF). A little research, like googling "501(c)(6) lobbying" leads to a host of information on this legal point. The IRS has plenty of information in
Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5), and (c)(6) Organizations (PDF).
On page 2. Asking an IP law professor and a music lawyer who don't look anyplace except one section of the Copyright Act won't give the right answer... Mr.
Van Buskirk should have spoken with someone who knows nonprofit law, but more to the point, these two attorneys should have said they had no expertise in nonprofit law rather than lead Mr. Van Buskirk to believe SoundExchange was acting outside of the law.
Perhaps as a safety cushion on the point,
Van Buskirk suggests that even if the lobbying was legal it was still out of bounds because "Congress intended to keep SoundExchange out of the lobbying business." That's simply not what the statute says. Congress clearly intended to keep SoundExchange out of the lobbying business
with royalty money... and that's not semantics... it's what Congress said in the law.
Before I close out on this... don't take my post here as defense of the music industry or their trade associations on substantive issues or what they lobby for... I'll keep my thoughts on that to myself. However, the law's pretty clear on all of this, and I wish it
had been reported correctly.
