United States: Appeals Court Rejects DOJ Expansive Interpretation Of Music Consent Decree

In Short

The Background: Since 1941, performing rights organizations ("PROs"), which pool the copyrights held by a work's composer, songwriter, and publisher and collectively license those rights to music users, have been subject to consent decrees.

The Proposed Change: In 2014, two of the largest PROs asked the Department of Justice ("DOJ") to modify their consent decrees to allow music publishers to partially withdraw from the PROs, which would have prevented the PROs from licensing the withdrawing publishers' music to digital services. Following an investigation, DOJ declined to modify the PROs' consent decrees, and declared that the PROs' blanket licenses are full-work licenses as opposed to fractional licenses.

The Decision: One PRO petitioned a federal district court, asking the court to declare that its consent decree does not require full-work licensing. The court found that nothing in BMI's consent decree prohibits fractional licensing. The Second Circuit recently affirmed that decision, rejecting DOJ's regulatory use of the decree that went beyond the plain text of the order.

A federal court of appeals has rejected the efforts of the Obama Antitrust Division to expand the scope of a decades-old consent decree that governs licensing of musical works for public performance. This dispute highlights the limitations of industry regulation through consent decrees, which coincidentally is a theme that has been forcefully advanced by the new leadership at the Antitrust Division in the Trump Administration.

Background

Two copyrights cover any piece of recorded music, the sound recording and the composition. Record labels typically own the sound recording, while songwriters, composers, and publishers hold the rights for the composition. Anyone who wants to publicly perform a musical work must obtain a license. Performing rights organizations ("PROs") pool the copyrights held by a work's composer, songwriter, and publisher and collectively license those rights to music users, such as restaurants, radio stations, online services, television stations, and performance venues. PROs offer a "blanket" license to give music users immediate access to millions of songs without having to negotiate individual licenses for each work.

The two largest PROs are the American Society of Composers, Authors and Publishers ("ASCAP") and Broadcast Music, Inc. ("BMI"). ASCAP and BMI are subject to consent decrees that settled antitrust lawsuits brought in 1941 by the Department of Justice ("DOJ"), which alleged that each organization had unlawfully exercised market power acquired through the aggregation of music performance rights. The consent decrees have been modified several times, but they are still in effect today, nearly 80 years later. (A consent decree is the court order that memorializes the settlement agreement under which a company commits to take certain actions to resolve a government antitrust enforcement action.)

In 2014, ASCAP and BMI proposed to the Antitrust Division modification of the consent decrees, to allow publishers to "partially withdraw" from the PROs. Under a partial withdrawal system, a publisher would be able to partially withdraw its rights from a PRO and thereby prohibit the PRO from licensing the withdrawing publishers' music to digital services such as Pandora or Spotify. DOJ initiated an investigation to determine if it would join ASCAP and BMI in proposing this modification to the federal court that has jurisdiction over the consent decrees.

The DOJ investigation stumbled into a related question: If no single PRO controls all the copyrights to a musical work, does a license from a PRO that has some of the copyrights allow the licensee to publicly perform that work, or must the user obtain licenses from all PROs holding copyrights to multi-owner works? If the consent decree were interpreted to require a full-work license, then a user could contract with only one PRO to have access to the full-work. But if fractional licenses are permitted, then the user must license each fractional piece of the work. In this dispute, music users claimed that PROs always offered full licenses to perform all works in their repertories, whereas music rightsholders claimed that PROs were not entitled to offer full licenses to perform fractionally owned works.

DOJ concluded that its consent decrees require ASCAP and BMI to offer full-work licenses, rather than fractional licenses. But this issue eventually overshadowed the original question of partial withdrawal. As DOJ explained, "the lack of industry consensus as whether the PROs offer full-work licenses creates too much uncertainty to properly evaluate the competitive impact of allowing partial withdrawal." Thus, after two years of investigation, that included hundreds of public comments and dozens of stakeholder meetings, DOJ declined to answer the question of "partial withdrawal." In August 2016, DOJ issued a closing statement that did not modify the consent decrees, and stated its position that the PROs' blanket licenses are full-work licenses as opposed to fractional licenses. (This dispute was discussed in more detail in our prior Alert.)

BMI immediately petitioned the court (the U.S. District Court for the Southern District of New York) to declare that its consent decree does not require full-work licensing. Judge Stanton agreed with BMI and held that "the Consent Decree neither bars fractional licensing nor requires full-work licensing." "Nothing in the Consent Decree gives support to the Division's views." DOJ appealed this decision to the Second Circuit, which affirmed Judge Stanton's decision, leaving in place an interpretation of the decree that neither requires full-work licensing nor prohibits fractional licensing.

Implications

Enforcement of a Consent Decree is Limited to its "Four Corners." DOJ had concluded that the consent decrees require full-work licenses, relying "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." On appeal, DOJ argued that, if fractional licenses were allowed, license negotiations would be delayed, because users would need to obtain rights from all the fractional owners before performing the works in the ASCAP and BMI repertories. The court was not persuaded by this policy argument, holding that consent decree interpretation "begins and ends with the language of the consent decree.... To the extent DOJ asks us to read an additional requirement into the decree to advance these procompetitive objectives, we are foreclosed from doing so."

The court may also have been influenced by the argument that DOJ's interpretation would have reversed established industry practice. DOJ had conceded that requiring full-work licenses would "require adjustment by some market participants." DOJ was willing to forego enforcement actions against fractional licensing by ASCAP or BMI for one year, so long as they proceeded in good faith to ensure compliance with the consent decrees as now interpreted. BMI's view was that this "adjustment" would have had massive costs and "cause unnecessary chaos in the marketplace." The district court's familiarity with how these decrees historically had been enforced may have made it hesitant to accept DOJ's new interpretation of the consent decree.

Modernization of Consent Decrees. The ASCAP and BMI consent decrees have been in place since the days of the phonograph. And while the original purpose of the 2014 investigation was to determine the effectiveness of the consent decrees given changes in how music is consumed, DOJ's new approach closing statement had the effect of increasing regulation.

The Trump DOJ has taken a completely different approach, announcing a policy to avoid regulatory consent decrees and a plan to review old antitrust consent decrees, with a view to seeking to end those that are no longer useful. DOJ's top antitrust official said this would include decrees in the entertainment and music industries. "We have industries that have rapidly been changing that are regulated by the Justice Department through a consent decree in some court.... Is the market a better place, is the market the better way to regulate prices? Obviously Congress knows how to pass copyright law. Maybe they are the better ones who are informed rather than us for 77 years regulating how that business applies." (Legislation has been introduced in Congress to revise the music copyright system, although this Music Modernization Act would retain court oversight of ASCAP and BMI.)

The courts' rejection of the Obama DOJ's goal-oriented interpretation of these consent decrees closely aligns with the views of the new Administration that antitrust consent decrees are not good regulatory tools and should be limited in time. It should be expected that today's DOJ decision-makers will limit the use of decrees that involve regulatory or conduct commitments by companies, whether in the context of antitrust challenges to mergers (as discussed elsewhere) or other business conduct.

Three Key Takeaways

  1. Under the Obama Administration, DOJ sought to use the PROs' consent decrees to expand regulation, but the Trump DOJ has been more skeptical of regulation through consent decrees.
  2. Going forward, DOJ is expected to use consent decrees only on a limited basis. DOJ leaders have considered whether consent decrees provide less effective regulation than the market or copyright law would provide.
  3. Legislation known as the Music Modernization Act has been introduced in Congress to update the music copyright system, although the legislation would continue court oversight of ASCAP and BMI.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
J. Bruce McDonald
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions