United States: DOJ Appeals Decision Affecting Music Licensing

Last Updated: November 24 2016
Article by Lauren Attard

Lost in the news of the election, on Nov. 11, the Department of Justice (DOJ) filed a notice of appeal from an adverse decision issued by Judge Louis Stanton, who rejected a DOJ interpretation that licensees applauded and ASCAP, BMI, songwriters and publishers opposed.

ASCAP and BMI collect and distribute payments to their members – songwriters and music publishers – for the public performance of their works. Today, when licensing a piece of music, a licensee must secure the rights to the composition and the rights to the sound recording. But beginning in 1941, when the law only recognized the copyright of the composition, the DOJ took action against ASCAP because it perceived ASCAP and the music publishers to have too much power over valuable repertoires. ASCAP negotiated a consent decree with the DOJ requiring ASCAP to offer blanket licenses for all music in its repertoire on equivalent terms to any licensee, which now includes radio (AM/FM and digital), physical venues and television broadcasters. If licensees do not agree to the blanket license terms, they can file a petition in the Southern District of New York (rate court) to set the terms. These blanket licenses must be nonexclusive, and the ASCAP members must retain the right to individually license their works. BMI agreed to similar conditions that same year. 

In 2014, at the request of ASCAP and BMI, the DOJ opened an inquiry into the effectiveness and the operation of the consent decrees. In particular, ASCAP and BMI want to allow music publishers to withdraw their songs from some licensing deals with users, particularly online streaming services, so that the individuals could negotiate a better rate for themselves or opt out altogether. Famously, Taylor Swift pulled her catalog from Spotify because of its free, ad-supported streaming service. ASCAP and BMI were also concerned about new streaming services, such as Pandora, which in 2013 paid 49 percent of its revenue to music labels (for rights to the sound recordings) and 4 percent to publishers.

Ultimately, after two rounds of public comment, the DOJ rejected ASCAP and BMI's request for music publishers to withdraw from such blanket deals, and instead went further to require "full work" (100 percent) licensing to ensure that the consent decrees provide real protection against infringement claims. For songs with multiple writers, full-work licensing would allow only one minority owner, regardless of his or her share, to bind all of his or her co-owners to a license's terms. Currently, the industry uses fractional licensing, which requires all owners to approve a license. This means that users, such as Spotify, request a license from all owners of a work, regardless of their share. But fractional licensing also means that users may not realize they do not have full rights to a work, particularly as publishers change and catalogs are sold.

When the DOJ required ASCAP and BMI to move to full-work licensing exclusively within one year, songwriters argued that this decision would change the industry, particularly in Top 40 and hip-hop, which typically see contributions from many unaffiliated producers and writers. They fear that this decision would stifle collaboration so as to avoid a situation where a collaborator licenses work on unfavorable terms.

ASCAP and BMI are similarly concerned, as they would be required to cull the songs they do not have full license for, which includes any works for which collaborators are members of different performing rights organizations (PROs). They also fear that major publishers would pull their catalogs from ASCAP or BMI in order to preserve their rights to fractionally license their works.

Immediately after the DOJ issued its interpretation, BMI filed a lawsuit in rate court and sought declaratory judgment that its consent decree would not require 100 percent licensing. In September 2016, Judge Stanton agreed with BMI and found that the consent decree "neither bars fractional licensing nor requires full-work licensing." US v. BMI, 64-cv-03787 (LLS), Opinion & Declaratory Judgment, ECF No. 100, at 6 (S.D.N.Y. Sept. 16, 2016).

However, now that the DOJ has filed a notice of appeal of this decision, this administration appears poised to fight in the 2nd Circuit for full-work licensing. We do not know how the next administration will decide to handle this issue. We will wait and see what impact these decisions will have on licensors, licensees and the catalogs for streaming services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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