David Oxenford - Color

David Oxenford

By: David Oxenford, Wilkinson Barker Knauer LLP

The Department of Justice’s Antitrust Division announced on June 5 that it was starting a review of the ASCAP and BMI antitrust consent decrees that govern the United States’ two largest performing rights organizations for musical compositions (referred to as the “musical work”). The DOJ’s announcement of the initiation of the examination of the consent decrees poses a series of questions to which it invites interested parties – including users, songwriters, publishers and other interested parties – to file comments on the decrees, detailing which provisions are good and bad and, more broadly, whether there is a continuing need for the decrees at all. Comments are due on July 10.

This re-examination of the decrees has been rumored for many months. Back in March, we wrote about those rumors and the role that Congress may play in adopting replacement rules should the DOJ decide to fundamentally change the current provisions of the consent decrees. The DOJ itself just recently looked at the consent decrees, starting a review only 5 years ago with questions very similar to those it posed yesterday (see our post here on the initiation of the last review 5 years ago). That review ended with the DOJ deciding that only one issue needed attention, whether the decrees permitted “fractional licensing” of a song. We wrote about that complex issue here. That issue deals with whether, when a PRO gives a user a license to play a song, that user can perform the song without permission from other PROs when the song was co-written by songwriters who are members of different PROs. The DOJ suggested that permission from one PRO gave the user rights to the entire song, an interpretation of the decrees that was ultimately rejected by the rate courts reviewing the decrees (see our article here). So, effectively, the multi-year review of the consent decrees that was just concluded led nowhere. But apparently the DOJ feels that it is time to do it all again. To fully understand the questions being asked, let’s look at what the consent decrees are, and why they are in place.

Because ASCAP and BMI together account for over 80% of musical compositions that are publicly performed by various music services, and tie all of the compositions that they represent in one blanket license sold to music users, they have, for almost 80 years, been subject to antitrust consent decrees. By tying the sale of these diverse musical compositions into one “take it or leave it” license – a license that virtually all music users cannot do without – these organizations have substantial market power. Thus, these consent decrees were put in place to guarantee that these PROs dealt fairly with both music users who buy the licenses to use the musical works, and with the songwriters and publishers whose music they license.

While the decrees are complex with many intricate details, and the two have provisions that are slightly different, perhaps the overriding consideration in each is that they treat similarly situated parties alike. The consent decrees require that ASCAP and BMI make available licenses on the same terms to all similarly situated music users. They also require that the PROs treat all songwriters in the same way. So whether you are a small AM station in the middle of Wyoming or a monster FM in New York City, the formula used to calculate the rates that apply to commercial radio stations are the same. Similarly, ASCAP and BMI pay all songwriters at the same rate for performances of their music – they can’t offer some famous composer a higher rate than they offer the writer of a single obscure song (of course, the popular writer will be paid more as his or her song will be used more than the obscure song – but the rates at which payment will be made will be the same). For music users, the decrees also set up a rate court process where, if the PRO cannot agree with users as to an appropriate license for a particular use of music, a US District Court will act as a “rate court” and conduct a judicial proceeding to decide a fair rate for the use of the music (see our article here about the current rate court proceeding between RMLC on behalf of the commercial radio industry and BMI).

With that background, let’s look at the questions posed. The DOJ asks questions including:

  • Do the Consent Decrees continue to serve important competitive purposes today? What provisions could be changed and how would those changes improve competition?
  • Are the differences between the two consent decrees important for competition?
  • Would termination of the Consent Decrees serve the public interest?
  • If termination would be in the public interest, should there be a sunset period and what rules would provide for an efficient transition?
  • Are there differences between ASCAP/BMI and PROs that are not subject to the Consent Decrees that adversely affect competition?
  • Are existing antitrust statutes and applicable caselaw sufficient to protect competition in the absence of the Consent Decrees?

Small users in particular should carefully consider this review. While, in the absence of consent decrees, big users might have the resources and marketplace clout to be able to negotiate their own music licenses (though, as set out below, that is not guaranteed), smaller users would find that process to be much more difficult. As we wrote back in March, there are no definitive databases that exist to determine who owns what songs (though one is promised by the recent Music Modernization Act) – and with fractional licensing there may be several permissions needed to simply play one song. For any music user that uses many songs – whether that user is a radio station, a webcaster, some sort on-demand music service, or a retail outlet or bar or restaurant that plays music for its customers – there are thousand or potentially millions of permissions that they would need to obtain. Small companies are not likely to have the resources or the knowledge to even find out who to negotiate with for the use of particular songs, and even if the PROs still exist in some less-regulated format, will these small services be able to effectively negotiate the necessary licenses? Now, they can rely on the resources of the bigger companies to negotiate fair rates that will apply to the entire industry. But if the PROs are no longer required to provide the same licenses to all users, will these small users be treated fairly? There is no apparent answer to the question of who is going to be able to fairly and equally provide that service currently provided by ASCAP and BMI under the current consent decrees.

With unregulated collectives, there are always concerns about anticompetitive behavior. The radio and TV music licensing committees both took SESAC, a privately-owned performing rights organization not subject to a consent decree, to court alleging anticompetitive behavior. Both ended up with private settlements imposing a rate-review processes that in many ways mimics the review provided under the consent decrees (see our article here on radio’s final result from the SESAC rate-setting, and here on the TV settlement). A similar process is now underway trying to bring GMR under such a rule process as the radio industry alleges that GMR is seeking rates that are not competitively based given its aggregation of certain must-have songwriters (see our articles here, here and here on the GMR litigation). Why would the DOJ look to be undoing rules on the two biggest PROs, while courts have imposed similar rules on smaller PROs?

The inefficiencies of the unregulated direct negotiation process are evident from the on-demand music services. Until the passage of the Music Modernization Act, these services had to negotiate with rights holders for all of the rights needed to provide music to their customers. That process, even with these large services with lots of resources to devote to music licensing issues, ended up resulting in lawsuits against companies by artists and their representatives claiming that they were not paid for the use of their music. The complexity of the licensing process led to the adoption of the Music Modernization Act which hopes to make that process easier through a legislatively-designed and government regulated (through the Copyright Royalty Board) process (see our articles here and here). So, while the Music Modernization Act makes what was the complex world of mechanical rights licensing easier, deregulating the PROs has the potential to make public performance space more complex (as we suggested here).

There are many issues to consider in this review of the consent decrees. We will no doubt be writing about other issues in coming weeks. But all music users should carefully be watching these proceedings, and should take the opportunity to let the DOJ know how the decrees affect the way that they do business, and what would happen if the decrees were to be fundamentally altered as a result of this review.

David Oxenford is MAB’s Washington Legal Counsel and provides members with answers to their legal questions with the MAB Legal Hotline. Access information here. (Members only access).

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