Consent decree game changer? Music licensing developments in the US…

The Department of Justice (DOJ) recently finalised their two-year long review of the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) consent decrees - orders that govern the rules concerning song licensing and royalty distribution with the aim of curtailing anti-competitive behaviour in the music publishing industry. Highly disappointed with the outcome of the review, BMI initiated a process to challenge the decision in Federal Court. On 16 September, BMI's rate court judge issued an order rejecting the DOJ's review on fractional licensing[1] – a decision much welcomed by the US music publishing community.

Music: My other hobby
Imagecredit: flickr/creative commons, Jesse Kruger

It all started in 2014 when the DOJ initiated a review of the antitrust consent decrees regulating the activities of the two largest music performance rights organisations (PROs) in the United States, ASCAP and BMI.

We have previously written about how this review could give rise to potential rule changes for song licensing in United States. On 4 August, the DOJ completed their review and made the following conclusions (you can read the DOJ’s full report here).

No Fractional Licensing

Firstly, the DOJ concluded that the consent decrees require so-called “full-work licensing”, and not fractional licensing. According to the DOJ’s interpretation of the consent decrees, ASCAP’s and BMI’s licenses are required to provide users with the ability to publicly perform all compositions in the PRO’s respective repertoire. Hence, the PROs are obliged to license 100% of the rights to a composition, even if they only control a fraction of it. For example, a song that is co-written by an ASCAP-writer and a BMI-writer can be fully licensed by ASCAP. If that wasn’t possible, ASCAP would not be able to meet the requirement to license all compositions in their repertoire.

No Partial Withdrawal

Partial withdrawal refers to the opportunity for PRO-members to withdraw, for example, their digital rights from the PROs. Currently, the PROs have to administer all or none of the public performance rights for any given composition.

When considering the proposed modification to allow PRO members to partially withdraw rights, the DOJ linked their decision to the aforementioned debate on fractional licensing. The DOJ held that if a PRO offered fractional licensing, a complicated situation would arise if a partially withdrawing publisher owned a fractional interest in a composition. In such circumstances, a music user would be unable to confidently rely on a licence from ASCAP or BMI to avoid infringement-exposure.

However, since the DOJ found that PROs should be required to offer full-work licences, they noted that the effect of partial withdrawal would not be as significant. The DOJ concluded that they were open to reconsider a modification on partial withdrawal in the future, albeit it would currently not be in the public interest to modify the consent decrees in such a manner.

Judge Rejects DOJ’s Ruling

The DOJ’s completed review was highly criticized by both publishers and PROs, claiming that the 100% licensing provision would cause chaos in the marketplace and “pulls the entire market value of creative works down in a never ending race to the bottom“.  ASCAP and BMI both challenged the decision in Congress and the Federal Court.

On 16 September, the federal district judge overseeing BMI’s consent decree, Judge Louis L. Stanton, ruled that fractional licensing is allowed under the consent decree. Judge Stanton issued a declaratory judgment where he held that “the consent decree neither bars fractional licensing nor requires full-work licensing”, and hence ruled in favour of BMI.

The ball is now back in the DOJ’s court and the DOJ could turn to the Court of Appeals for a Second Circuit.

Further, ASCAP’s consent decree (which is very similar to BMI’s) is currently overseen by its own rate court judge, Judge Denise Cote, who could potentially rule contrary to Judge Stanton. However, in the event that Judge Stanton’s decision is not overturned in the Court of Appeals, and if Judge Cote rules in line with it, the battle over fractional licensing may just be won by the PROs.

Nevertheless, the DOJ’s decision on partial withdrawal rights was not addressed in Judge Stanton’s ruling and the DOJ decision remains unaffected in this regard.

Watch this space…

[1] United Stated of America -v- Broadcast Music, Inc. 64 Civ. 3787 (LLS) – Opinion & Declaratory Judgment.

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