2nd Circuit Affirms Fractional Licensing for BMI; Tells DOJ To Move To Amend Consent Decree

U.S. v. BMI, No. 16-3830 (2d Cir. Dec. 19, 2017).

The Second Circuit affirmed the District Court's judgment interpreting the consent decree between the Department of Justice and Broadcast Music, Inc. (“BMI”), in which the court ruled that the consent decree neither requires full-work licensing nor prohibits fractional licensing of BMI’s affiliates' compositions.  The DOJ had concluded that the consent decrees require ASCAP and BMI to offer full-work licenses to the exclusion of fractional licenses, which led to the lower court's decision subject to the appeal.

The Second Circuit focused on the plain language of the consent decree.  "This appeal begins and ends with the language of the consent decree."

BMI Consent Decree Does Not Bar Fractional Licensing, Despite DOJ's Views

U.S. v. BMI, No. 64-3787 (S.D.N.Y. Sep. 16, 2016) [Doc. 100].

Judge Stanton of the Southern District of New York holds that the BMI Consent Decree neither bars fractional licensing nor requires full-work licensing, contrary to the Justice Department's recent statement that the PROs are required to offer full-work licenses.  BMI brought its application for construction of its Consent Decree based upon 8/4/16 of the Justice Department's statement, and the Court held that nothing in the Consent Decree supports the Justice Department's view that full-work licensing is required.  The Consent Decree "does not address the possibilities that BMI might license performances of a composition without sufficient legal right to do so, or under a worthless or invalid copyright, or users might perform a music composition licensed by fewer than all of its creators."  Continuing, Judge Stanton stated "The Consent Decree does not regulate the elements of the right to perform compositions. Performance of a composition under an ineffective license may infringe an author's rights under copyright, contract or other law, but it does not infringe the Consent Decree, which does not extend to matters such as the invalidity or value of copyrights of any of the compositions in BMI's repertory"

ASCAP & BMI Consent Decrees Will Not Be Modified; DOJ Antitrust Div.

Here is a copy of the Statement of the Department of Justice on the Closing of the Antitrust Division’s Review of the ASCAP and BMI Consent Decrees (Aug. 4, 2016).  In short:

... the consent decrees, which describe the PROs’ licenses as providing the ability to perform “works” or “compositions,” require ASCAP and BMI to offer full-work licenses. The Division reaches this determination based not only on the language of the consent decrees and its assessment of historical practices, but also because only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses that distinguish ASCAP’s and BMI’s activities from other agreements among competitors that present serious issues under the antitrust laws. Moreover, the Division has determined not to support modifying the consent decrees to allow ASCAP and BMI to offer “fractional” licenses that convey only rights to fractional shares and require additional licenses to perform works. Although stakeholders on all sides have raised some concerns with the status quo, the Division’s investigation confirmed that the current system has well served music creators and music users for decades and should remain intact. The Division’s confirmation that the consent decrees require full-work licensing is fully consistent with preserving the significant licensing and payment benefits that the PROs have provided music creators and music users for decades. 

First, the DOJ described the background of the consent decrees.  Thereafter, the DOJ found that there is broad consensus that ASCAP and BMI as currently constituted fill important and procompetitive roles in the music licensing industry; the consent decrees require full-work licensing; modification of the consent decrees to permit fractional licensing by ASCAP and BMI would not be in the public interest; and other modifications to the consent decrees would not be appropriate at this time (e.g., modified to allow PRO members to “partially withdraw” rights and thereby prevent the PROs from granting licenses that include those rights to certain users (in particular, digital music services) but not to other music users).  Further,  the DOJ stated that assuming ASCAP and BMI proceed in good faith, the Division will forbear for one year from any enforcement action based on any purported fractional licensing by ASCAP or BMI.  Also, the DOJ identified certain guidelines and practices that may be useful as the industry moves towards such a shared understanding on fullwork licensing.  Lastly, the DOJ concluded that the consent decrees remain vital to an industry that has grown up in reliance on them.  But the consent decrees are inherently limited in scope, and a more comprehensive legislative solution may be possible and preferable.

Second Circuit Affirms ASCAP Rate Court In Pandora Dispute Over Partial Withdrawals And License Rate

Pandora Media, Inc. v. ASCAP, 14-1158-cv(L) (2d Cir. May 6, 2015).

The Second Circuit Court of Appeals affirmed the ASCAP "rate court's" decision: (1) granting Pandora summary judgment that the ASCAP consent decree unambiguously precludes partial withdrawals of public performance licensing rights; and (2) setting the rate for the Pandora‐ASCAP license for the period of January 1, 2011 through December 31, 2015 at 1.85% of revenue.

ASCAP contended that publishers may withdraw from ASCAP its right to license their works to certain new media music users (including Pandora) while continuing to license the same works to ASCAP for licensing to other users.  The appellate court agreed with the district court’s determination that the plain language of the consent decree unambiguously precludes ASCAP from accepting such partial withdrawals. Also, the Court found that under the circumstances, it was not clearly erroneous for the district court to conclude, given the 6evidence before it, that a rate of 1.85% was reasonable for the years  in question.

ASCAP and BMI Both Submit Comments Regarding Consent Decrees

Both ASCAP and BMI submitted public comments concerning the Department of Justice's review of the ASCAP and BMI consent decrees.  ASCAP's comments are here.  BMI's are here.

DOJ To Review ASCAP & BMI Consent Decrees

Multiple news outlets are reporting that the Department of Justice, Antitrust Division, has agreed to open a review of the ASCAP and BMI consent decrees.  See the DOJ announcement and ASCAP's statement.

BMI Rate Court Holds Withdrawals Of Digital Rights Ok

BMI v. Pandora Media, Inc., 2013 ILRC 3301, No. 13-cv-4037 (S.D.N.Y. Dec. 19, 2013).

The BMI rate court (District Court Judge Louis Stanton) holds that when BMI no longer is authorized by music publisher copyright holders to license their compositions to Pandora (and other New Media Services), those compositions are no longer in BMI's "repertory" and BMI can no longer license them to Pandora or any other applicant.  Accordingly, the Court denied Pandora's motion for partial summary judgment.  The holding is contrary to the ASCAP rate court's finding.

The BMI court focused on section 106 of the Copyright Act and a copyright owners right to "license, or not license, the performance of their compositions as they see fit.  In the exercise of that right the publishers have agreed with BMI to withdraw their New Media performance licensing rights from Pandora and New Media Services.  That is well within their power as copyright holders."  The Court held that songs that publishers have withdrawn New Media licensing rights are not in BMI's new media repertory and therefore BMI cannot deal in or license those compositions to anyone.  "BMI's repertory consists of compositions whose performance BMI 'has the right to license or sublicense.'"

Notably (in fn. 4), the BMI rate court acknowledged that its finding is contrary to that of the ASCAP rate court (Judge Cote).  The BMI court stated: "The inconsistency is just a difference of view of the power of the application of Section 106 and the copyright holders' rights under the Copyright Law, and will be resolved by the Court of Appeals for the Second Circuit or decree amendment procedures, or managed commercially."

ASCAP Required To License ALL Songs In Its Repertory To Pandora

In re Petition of Pandora Media, Inc., No. 1:12-cv-08035-DLC (S.D.N.Y. Opinion & Order filed 09/17/13) [Doc. 70], related to U.S. v. ASCAP, No. 41 Civ. 1395.

ASCAP must license all songs in its repertory to Pandora, even though certain music publishers have purported to withdraw from ASCAP the right to license their compositions to “New Media” services such as Pandora, holds the ASCAP rate court in interpreting the consent decree under which ASCAP operates.  "Because the language of the consent decree unambiguously requires ASCAP to provide Pandora with a license to perform all of the works in its repertory, and because ASCAP retains the works of 'withdrawing' publishers in its repertory even if it purports to lack the right to license them to a subclass of New Media entities, Pandora’s motion for summary judgment is granted."

In April 2011, ASCAP began to allow members to withdraw from ASCAP its rights to license their music to New Media outlets, while allowing ASCAP to retain the right to license those works to other outlets.  Subsequently, several music publishers withdrew their New Media licensing rights from ASCAP, and Pandora then engaged in license negotiations directly with those publishers.  On July 1, 2013, Pandora filed a motion for summary judgment, seeking a determination that “ASCAP publisher ‘withdrawals’ [of New Media rights] during the term of Pandora’s consent decree license do not affect the scope of the ASCAP
repertory subject to that license."  ASCAP argued that “’ASCAP repertory’ refers only to the rights in musical works that ASCAP has been granted by its members as of a particular moment in time.” Pandora argued that ASCAP repertory” is a “defined term[] articulated in terms of ‘works’ or ‘compositions,’ as opposed to in terms of a gerrymandered parcel of ‘rights.’” The Court found that Pandora was correct.  “ASCAP repertory” is defined in the consent decree in terms of “works” and not “individual rights” in works with respect to classes of potential licensees.  The Court also held that Pandora's subsequent negotiations with the publishers did not alter interpretation of the consent decree because Pandora is not a party to the consent decree.