It’s been a bad few weeks for ASCAP. First, the Second Circuit affirmed Judge Cote’s decision in the MobiTV rate case. Now, the Second Circuit has affirmed Judge Cote again, this time in the long-running rate dispute with DMX. Adding insult to injury, the Second Circuit affirmed Judge Stanton’s decision in DMX’s rate dispute with BMI in the same opinion, which is provided below.
The BMI appeal was relatively straightforward–it argued that the direct licenses into which DMX had entered with music publishers for the right to publicly perform works in the publisher’s repertory wasn’t a reasonable benchmark for fee-setting. BMI argued Judge Stanton should have used BMI’s agreement with Muzak, which was at a much higher rate, as the benchmark. The Second Circuit disagreed with BMI (and agreed with Judge Stanton) that
The [direct licenses were ] not an unreasonable benchmark for DMX’s per-location licensing fees with ASCAP and BMI. It reflected the competitive market, was an appropriate valuation of the right to publicly perform the licensed musical works, and was consistent with the four factors that guide the selection of a benchmark (a comparable right, similar parties, similar economic circumstances, and whether the rate would be set in a sufficiently competitive market). … The right in question — the right to public performance — was comparable. The parties were also similarly situated. Hundreds of music publishers and administrators agreed to the annual $25 per location royalty pool, and thus, the ASCAP rate court did not err in finding that the “collective decisions [of hundreds of publishers and administrators] to execute direct licenses [were] comparable to the decision [a PRO] makes in entering a license.” … While the economic circumstances of direct licensors differ from those of ASCAP and BMI, these differences were balanced by the additional compensation that PROs received under the district court’s rate formulas and “the degree of competition that the direct licenses inject into th[e] marketplace.” … Accordingly, in both cases, the district court did not err in finding that, for rights to publicly perform licensed musical works, direct licenses were more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs on BG/FG music providers. (Internal citations omitted)
This holding, that direct licenses are more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs, will have far-reaching implications for licensors and licensees beyond DMX and the background music industry.
The Second Circuit quickly dispensed with ASCAP’s contention that it was not required under its consent decree to offer an adjustable fee blanket license, holding that ASCAP’s consent decree (“AFJ2”) “permits blanket licenses subject to carve-outs to account for direct licensing, and we reject ASCAP’s claim that a blanket license with an adjustable carve-out conflicts with the AJF2.”
In affirming Judge Cote’s rejection of ASCAP’s fee proposal, the Second Circuit noted that “based on the testimony of ASCAP’s Chief Economist, it was not clearly erroneous for the district court to find that a static carve-out structure was anti-competitive and “inequitable” because it would effectively require DMX to pay more in total licensing fees and create incentives for DMX to abandon its direct licensing campaign.”
While some have declared Clear Channel’s deal with Big Machine as “groundbreaking” and “unprecedented,” the truth is that DMX and its rate court proceedings against ASCAP and BMI laid the foundation for Clear Channel’s deal. All Clear Channel did was apply DMX’s model to terrestrial radio and webcasting.
The Second Circuit’s opinion is below
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