Maintaining the Status Quo: DOJ Rejects ASCAP and BMI’s Proposed Changes to 1941 Antitrust Consent Decrees

On August 4, 2016, the Department of Justice (“DOJ”) released a statement[1] concluding that the 1941 antitrust consent decrees governing music performance rights organizations (“PROs”) would remain in effect, rejecting the requested changes from the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”).

The 1941 Consent Decrees

ASCAP and BMI are the two largest PROs in the United States.[2]  The PROs maintain extensive repertoires of music composition copyrights owned by their members or affiliates – generally music composers and publishers – and collectively license the public performance rights in those compositions to users such as bar owners, television and radio stations, performance venues, and internet music distributors to allow them to publicly perform musical works of the PROs’ members without committing copyright infringement.

In 1941, the United States sued ASCAP and BMI alleging that the PROs violated antitrust laws by unlawfully exercising market power acquired through the aggregation of public performance rights.  To resolve these suits, ASCAP and BMI entered into consent decrees with the government which sought to prevent the PROs from unfairly monopolizing the market while maintaining the benefits of blanket licensing.  The consent decrees require ASCAP and BMI to provide music users with access and licenses to their full catalogs of works.  PROs can, and often do, provide “blanket” licenses, so music users have immediate access to a PRO’s entire repertoire without having to enter into separate negotiations for a license to use any specific work in a public performance.  The consent decrees also provided for the creation of two “rate courts” – designated judges in the U.S. District Court for the Southern District of New York assigned to preside over disputes between music users and PROs in the event the two parties are unable to agree on a license price in a particular market sector (broadcast radio or local TV stations, for instance).[3]

The 2014 Proposed Changes

In light of the advancements across the music industry (including streaming Internet radio services like Pandora, and on-demand streaming services like Spotify and Google Play Music), in 2014, ASCAP and BMI requested that the Antitrust Division of the DOJ evaluate the “operation and effectiveness”[4] of the 1941 consent decrees.  The PROs proposed several modifications, but the most central to the DOJ’s recent analysis were:  (1) allowing publishers to partially withdraw certain rights to works from the PROs, specifically, preventing the PROs from licensing such works to digital music users like Pandora or Spotify; and (2) allowing so-called “fractional” licensing whereby PROs could potentially license fewer than all writers’ rights in compositions with multiple authors.

Decision:

After two rounds of public comments and meetings with various industry stakeholders, the DOJ decided not to modify the consent decrees.  The DOJ based its decision on its evaluation of the consent decrees, assessment of historical practices and the predicted effect of the proposed modifications on the PROs’ compliance with antitrust laws.  Accordingly, the DOJ rejected the following proposed modifications (and simply did not address others):

“Full Work” Licensing vs. “Fractional” Licensing:

PROs license many works with multiple owners, and typically offer a “full-work” license – a non-exclusive license granting users the ability to publicly perform the whole work without risk of infringement liability even if one or more authors is not represented by the PRO.[5]  A “fractional” license – a modification requested by the PROs – would offer a license to the music users only for the interest the PRO holds in a work for its member author(s), which would require the music user to obtain additional licenses from other PROs representing other co-owners before using such work.[6]

The DOJ held that the consent decrees must be interpreted as requiring only “full-work” licensing and therefore, ASCAP and BMI are only permitted to include songs in their repertoire if they have the ability to grant a “full-work” license for such works.  The DOJ reasoned that a “fractional” licensing framework would impede the main purpose of the decrees which were implemented to provide the PROs and music users with the flexibility of accessing any of the songs in the PROs’ repertoires without “the delay of prior individual negotiations” and risk of infringement.[7] Many industry leaders did not agree with this decision claiming that currently, in practice, PROs do not always grant “full-work” licenses.  In response, the DOJ stated that it would not take any enforcement action for one year from the date of its decision so that ASCAP and BMI could update their repertoires to include only the songs that they are able to license based on the full-work licensing requirement.

Partial Withdrawal:

Another significant proposed modification was to allow music publishers to “partially withdraw” their songs from ASCAP and BMI.[8]  A partial withdrawal would prohibit the PROs from licensing the withdrawing publishers’ music to digital services such as Pandora or Spotify.[9]  The publishers favored this proposed modification because it would encourage the digital services to enter into direct negotiations with the publishers, in hopes of negotiating a better licensing deal (i.e., higher royalties to songwriters).  The DOJ found that due to the “lack of industry consensus”[10] surrounding “full-work” licenses, there is “too much uncertainty to properly evaluate the competitive impact of allowing partial withdrawal.”[11] As such, the DOJ could not make a fair assessment as to whether partial withdrawal would serve the public interest and therefore did not make any modifications with regard to that request.

Next Steps:

While the DOJ did not make any modifications to the consent decrees, it concluded its decision by suggesting that the issues raised by the PROs could be addressed through legislative action.  Both ASCAP and BMI released statements following the announcement of the DOJ’s decision expressing their disappointment and belief that the consent decrees do not adequately address the current issues and practices within the music industry.  ASCAP and BMI – historically rivals – have joined forces and are working to overturn the DOJ decision and “modernize” the consent decrees.[12]  Despite the DOJ’s maintenance of the status quo, it is clear that the fight is far from over, and may ultimately move to different venues.

[1] See statement at: https://www.justice.gov/atr/file/882101/download.

[2] There are currently four PROs in the United States – BMI, ASCAP, SESAC and Global Music Rights.  ASCAP and BMI are the only two PROs that are currently subject to consent decrees.

[3] Statement of the Department of Justice on the Closing of the Antitrust Division’s Review of the ASCAP and BMI consent decrees, at 7 (Aug. 4, 2016).

[4] Id. at 2.

[5] Id. at 8.

[6] Id.

[7] Id. at 7.

[8] Id. at 4.

[9] Id.

[10] Id.

[11] Id.

[12] http://www.ascap.com/playback/2016/07/action/doj-strategy.aspx.