Tag Archives: Direct Licensing

100% Wrong

The Copyright Office (“CRO”) recently released what it called a response to a letter of inquiry by Rep. Doug Collins entitled “Views of the United States Copyright Office Concerning PRO Licensing of Jointly Owned Works (the “Views”),” which is provided below. For myriad reasons, this “response” appears to be totally contrived. For example, Rep. Collins sent his letter of inquiry on Tuesday, January 12, 2016. The CRO responded on Friday, January 29th – a mere 13 working days later. During these 13 days, the CRO was apparently able to (i) reach out to a sizeable number of PROs and music publishers, review potentially dozens of (confidential?) agreements between publishers and songwriters 1, and (iii) write 29 single-spaced pages of text supported by 153 footnotes! Within 4 business days of receiving this response for the CRO, Rep. Collins apparently had the idea that the Department of Justice might benefit from the CRO’s thoughts–given that the DOJ has been reviewing the consent decrees under which ASCAP and BMI operate, including the issue of whether these decrees require ASCAP and BMI to grant “100%” licenses to songs, even when the ASCAP or BMI-member songwriters are co-writers that control less than 100% of the underlying copyright in the musical work (so-called “fractional” licensing; songs for which the underlying copyright is “split” among two or more co-writers are sometimes referred to as “split works.”). The DOJ provides details of its investigation of the ASCAP and BMI consent decrees here: https://www.justice.gov/atr/antitrust-consent-decree-review-ascap-and-bmi-2015.

As is obvious from the sarcasm-laden prose above, I am highly skeptical that the above “facts” occurred as they appear. If you think my suspicions are misplaced, consider that just two weeks before the Views were released, the CRO released a report on the so-called “making available” right. That report was written in response to a letter of inquiry that was sent to the CRO by then Representative Mel Watt on December 13, 2013; i.e., while the CRO was able to draft a response to Rep. Collins in 13 working days, it labored for 801 calendar days to respond to Rep. Watt!

Even assuming the CRO miraculously crafted the attached in 13 days, it still suffers from fundamental flaws that make it completely unhelpful to the discussion of whether the blanket licenses that ASCAP and BMI offer — under requirements of their respective consent decrees — do and should provide 100% licenses to split works.

For example, the CRO begins by stating that “the fractional licensing of jointly owned musical works—a longstanding practice of the music industry—went unquestioned as a background fact by the many stakeholders who participated, including both licensors and licensees.” (Views p. 2). There are at least two significant problems with this statement. First, several of the citations in support of this “fact” appear to be taken wildly out of context.

  • Susan Chertoff of the RIAA does say “we’ve already discussed, is that most songs have fractional ownership,” but then goes on to discuss the practical implications of allowing fractional licensing: “let’s say you have a song that has ten owners and then there is an artist. So the [recording] artist wants it on Spotify and nine of the ten owners want it on Spotify. You’re talking about creating a situation where one owner would be able to withhold that song. … I don’t see how that’s workable when on the songwriter side you’re talking about fractional ownership.” (Transcript of U.S. Copyright Office Roundtable on Music Licensing,  New York University School of Law, June 24, 2014, pp. 145-46, available at http://copyright.gov/policy/musiclicensingstudy/transcripts/mls-nyc-transcript06242014.pdf).
  • Likewise, Spotify does state that “Although the Copyright Laws provide that a nonexclusive licensee of a co-author of a joint work may not be sued for copyright infringement, custom and practice in the music industry has developed such that each co-author of a musical work only licenses its proportionate share in the underlying work.” (Comments Submitted in Response to U.S. Copyright Office’s March 17, 2014 Notice of Inquiry at 4 (May 23, 2014), available at  http://copyright.gov/policy/musiclicensingstudy/comments/Docket2014_3/Spotify_USA_Inc_MLS_2014.pdf). Spotify’s quote, however, is in the context of its explanation of why fractional licensing is bad and why Sec. 115 of the Copyright Act should be amended to create a blanket license under which 100% licenses would be granted! (“This means that in order to avoid liability for copyright infringement – and the crushing statutory damages available under the Copyright Laws – Spotify must obtain licenses from each co-author owning a share in an individual work, no matter how small that co-author’s interest might be. … Spotify believes that the effectiveness of the Section 115 license can be ensured if uses of musical works were covered pursuant to a blanket license, in a manner similar to the Section 114 license.”) (pp. 4-6).

This leads to the second significant problem: the evidence regarding fractional licensing is in connection with individual music publishers licensing the reproduction (or synchronization) rights in their individual repertory to interactive services, not the blanket performance licenses issued by ASCAP and BMI, under which these same music publishers, who in a competitive market would be competing against each other on price to license services, jointly set a single price, which–absent the consent decrees–would be a violation of antitrust laws! Based on a series of statements regarding the licensing practices of individual publishers, each licensing only its particular catalog, the CRO, in a cagey (and totally disingenuous) slight-of-hand, then states “Despite the wide-ranging nature of the study and invitation to raise additional issues, none of the participants identified fractional licensing of musical works by the PROs as a practice that needed to be changed.” Do you see what the CRO does there? It notes that industry participants acknowledge that publishers, when licensing their individual catalogs — typically in connection with licensing reproduction or synchronization rights — license on a fractional basis, and from that concludes that the licenses granted by ASCAP and BMI, which are blanket licenses that aggregate the catalogs of thousands of individual publishers who would otherwise be competing against one another on price, must likewise be only granting fractional licenses.

Perhaps the most egregious example of the lengths to which the CRO goes to reach its desired conclusion — rather than the one dictated by the actual Copyright Act — is the following statement and supporting citations: “Because the industry practice of fractional licensing of performance rights … has been amply documented in the submissions of commenting parties in the DOJ’s pending review process, the below analysis assumes that fact and focuses primarily on the legal consequences that follow.” (Views p. 3). Do you care to guess which submissions the CRO cites in support of this “ample documentation”? If you guessed ASCAP, BMI and SESAC, you are correct.  2

Apparently the CRO failed to read the following submissions:

  • American Beverage Licensees, “Beverage licensees commonly understand that when they obtain a “blanket license” from a PRO, they have the right to use all the works in that PRO’s repertoire, irrespective of what may be considered a partial or “split work.” The very use of the term “blanket license” implies as much, and the ability to use all of the works in a PRO’s repertoire is one of the benefits that PROs tout when urging beverage licensees to pay for a license.” (Comments of American Beverage Licensees, at p. 2) (available at https://www.justice.gov/atr/public/ascapbmi2015/ascapbmi12.pdf).
  • Computer and Communications Industry Association, “… ASCAP and BMI’s existing licenses make no distinction between works that are wholly and partially administered …” (Comments of CCIA, at p. 4) (emphasis in original) (available at https://www.justice.gov/atr/public/ascapbmi2015/ascapbmi16.pdf).
  • National Association of Broadcasters, iHeartMedia, Inc., the National Cable & Telecommunications Association, the National Religious Broadcasters Music License Committee, Netflix Inc., Pandora Media, Inc., the Radio Music License Committee, Inc. (“RMLC”), Rhapsody International Inc., Sirius XM Radio, Inc., the Television Music License Committee, LLC, and Viacom Inc. (collectively the “Media Licensees”), “the express language of ASCAP’s and BMI’s own agreements with their respective members and affiliates, as well as their respective agreements with Media Licensees, provide for ASCAP and BMI to grant the right to publicly perform all of the works in the repertories of those PROs – irrespective of whether such works are owned solely by affiliates of the licensing PRO or constitute “split works,” one or more of whose joint owners may be affiliated with a separate PRO or with no PRO at all. Never in any of Media Licensees’ experience with ASCAP and BMI has any question arisen as to the nature and encompassing scope of this grant.” (Comments of Media Licensees, at p. 2) (available at https://www.justice.gov/atr/public/ascapbmi2015/ascapbmi19.pdf).
  • Music Choice, “There can be no serious question that the PRO licenses have always provided the right to play all songs in each PRO’s respective repertory, irrespective of whether the PRO represents all of the joint owners of a given song in the repertory.” (Music Choice’s Comments in Connection with the Department of Justice’s Review of the ASCAP and BMI Consent Decrees Regarding PRO Licensing of Jointly Owned Works, at p. 2 ) (available at  https://www.justice.gov/atr/public/ascapbmi2015/ascapbmi28.pdf). (“[T]he exact question at issue, whether a single PRO’s license provides the right to perform jointly-owned songs when that PRO represents less than 100 percent of the song’s owners, has already been answered by the courts. In Buffalo Broadcasting, the district court was confronted with this question and held that if both PROs had the same song in their repertories due to split ownership, a licensee had the option of licensing the song through either one of the PROs, without obtaining a license from the other. (In Re Application of Buffalo Broad. Co.), No. 13-95 (WCC), 1993 WL 60687, at *79 (S.D.N.Y. Mar. 1, 1993).” Id. at 5.).
  • Public Knowledge, “permitting music publishers the ability to both partially withdraw their catalogs from PROs, and amplify their market power by requiring licensees to obtain permission from all owners of a work (a practice at odds with the normal operation of copyright law), would be akin to blessing the very same concentration in market power that led the DOJ to bring antitrust actions against the PROs.” (Comments of Public Knowledge, at p. 4) (emphasis added) (available at https://www.justice.gov/atr/public/ascapbmi2015/ascapbmi15.pdf).

The CRO at least accurately states the basic principle of copyright co-ownership: “Co-owners of a joint work “[are] treated generally as tenants in common, with each coowner having an independent right to use [or] license the use of a work, subject to a duty of accounting to the other coowners for any profits.” Each co-owner may thus grant a nonexclusive license to use the entire work without the consent of other co-owners, provided that the licensor accounts for and pays over to his or her co-owners their pro-rata shares of the proceeds.” (Views p. 6) (internal citations omitted). Citing the copyright treatise Goldstein on Copyright, the CRO notes “the default rules within the Act are only a “starting point,” with “collaborators . . . free to alter this statutory allocation of rights and liabilities by contract.” Id. (emphasis added) It is striking that the following 23 pages deal with these contractual arrangements among copyright owners to alter the basic principle of copyright law; i.e., the ways in which a (supposedly) independent economic actor (a co-writer) uses private contractual provisions to restrict the exercise of the full panoply of rights enjoyed by another independent economic actor (her other co-writers).

This focus on what co-writers are permitted to do under the Copyright Act allows the CRO to completely ignore whether such actions might run afoul of antitrust laws. For example, the CRO states “As permitted under the 1976 Act, these contracts represent an agreement by the cowriters to divide and apportion as between themselves what would otherwise be the default equal and undivided interests in the copyright.” (Views p. 9) (emphasis added) Likewise, the CRO describes a contractual provision limiting co-owners’ ability to license 100% of a co-authored work as “as clearly permitted under the Act ….” (Views p. 10)

The biased nature of the CRO’s inquiry is further evidenced in its discussion of the intersection of the Copyright Act and the ASCAP and BMI consent decrees. The CRO states that, “Although [the definition of “repertoire” in the ASCAP and BMI consent decrees] neither specifically embraces nor rejects the concept of partial interests, because the consent decrees were amended after 1978, the definition of repertoire in each should be construed consistently with the 1976 Copyright Act, which allows for divided ownership of exclusive rights, including the right of public performance.” (Views p. 13). It is also true, however, that 1976 Act is also the source of the bedrock copyright principle that co-owners are tenants-in-common, each controlling an undivided partial interest in the entire copyrighted work. Presumably, the consent decrees need to be “construed consistently” with that principle as well.

Further, the CRO claims that, “given the definition of “repertoire” in the decrees (“those works the right of public performance [the PRO] has . . . the right to license”), to reject such an understanding [that the repertoire only includes the fractional interest of a member-songwriter] would mean that the ASCAP and BMI repertoires must exclude any work for which the PRO could offer only a partial license, since there would be no “right” to license the entire work.” (Views p. 14). Such a conclusion, however, is completely at odds with the standard membership / affiliation agreements into a songwriter enters with ASCAP / BMI, respectively. For example, ASCAP’s form writer agreement grants to ASCAP “the right to license non-dramatic public performances” of “each musical work” that the owner “wrote, composed, published, acquired or owned” “alone, or jointly, or in collaboration with others” and in which “the owner now has any right, title, interest or control whatsoever, in whole or in part.” BMI’s form writer agreement – while less detailed – likewise grants to BMI the right to license non-dramatic public performances of “all musical compositions … composed by you alone or with one or more co-writers.” (see Comments of Media Licensees’ at p. 7). In other words, in order to conclude that the definition of “repertoire” in the ASCAP and BMI consent decrees must mean only that fraction of a work controlled by a member-songwriter, the CRO had to completely ignore the actual agreements into which the PROs enter with songwriters that specifically grant to each PRO the right to license all of a co-written work.

One might wonder whether the CRO didn’t know about the existence of these ASCAP and BMI songwriter agreements. That might be a possibility except for the fact that on the very next page the CRO cites to the very ASCAP and BMI writer agreements I cite in the previous paragraph!

In fact, the prevarication gets even more blatant. The CRO states, “The practice of divided ownership and fractional licensing is also consistent with the ASCAP and BMI membership agreements and related documents. For example, the grant of rights by a writer or publisher to BMI extends only to rights “own[ed]” or “acquire[d]” by the member to perform “any part or all of the [member’s] Works.” The BMI writer agreement further provides that, upon termination of the agreement, if BMI “continue[s] to license your interest in any Work,” it will continue to make payments. While the ASCAP membership agreements are less clear on these points, ASCAP’s title registration system is indicative of fractional administration of works.” (p. 16)

The entire paragraph 4(a) of the BMI agreement reads, “Except as otherwise provided herein, you hereby grant to us for the Period: (a) All the rights that you own or acquire publicly to perform, and to license others to perform, anywhere in the world, in any and all places and in any and all media, now known or which hereafter may be developed, any part or all of the Works.” Thus, the grant specifically provides BMI with the right to license all of the “Work” that was written or co-written by the songwriter. You will also note that “Works” is a defined term, the definition of which is, “[(1)(b)](i) All musical compositions (including the musical segments and individual compositions written for a dramatic or dramatico-musical work) composed by you alone or with one or more co-writers during the Period.” Read together, it is clear that a BMI songwriter is granting to BMI the right to license all of a Work, even if that Work was written by more than that BMI songwriter.

The ASCAP songwriter agreement, far from being “less clear” on these points is, in fact, a model of clarity, making the CRO’s claims to the contrary that much more egregious. Section 1 of ASCAP’s Membership Agreement reads as follows:

“The [songwriter] grants to the [ASCAP] for the term hereof, the right to license non-dramatic public performances (as hereinafter defined), of each musical work:

Of which the[songwriter] is a copyright proprietor; or

Which the[songwriter], alone, or jointly, or in collaboration with others, wrote, composed, published, acquired or owned; or

In which the[songwriter] now has any right, title, interest or control whatsoever, in whole or in part; or

Which hereafter, during the term hereof, may be written, composed, acquired, owned, published or copyrighted by the[songwriter], alone, jointly or in collaboration with others; or

In which the[songwriter] may hereafter, during the term hereof, have any right, title, interest or control, whatsoever, in whole or in part.

The right to license the public performance of every such musical work shall be deemed granted to the [ASCAP] by this instrument for the term hereof, immediately upon the work being written, composed, acquired, owned, published or copyrighted.

The CRO’s decision to simply ignore all of this language, including the eight seperate instances in which joint authorship and/or partial ownership are specifically included in the works the member is dedicating to the ASCAP repertoire is, frankly, shocking.

The rest of the CRO letter is a recitation of the parade of horribles that will befall songwriters, publishers and PROs if the consent decrees are interpreted in a way that requires 100% licensing. Markedly absent from this parade are the reasons why licensees should bear the burden of costs associated with fixing these (potential) problems. For example, the CRO notes that,

[I]t appears that neither ASCAP nor BMI has in place a mechanism that would allow the PRO to track and account for payments to non-members on a broad basis, and that there would be significant obstacles to achieving this. In many cases, the PRO may not have current or reliable information concerning the current co-owners of a particular song, including how to contact them—let alone heirs or assignees. As the Office explained in its recent report, the music licensing marketplace is characterized by a lack of uniform data concerning song ownership and licensing. The ASCAP and BMI royalty payment systems presumably would need to be significantly enlarged (and largely crossduplicated) to generate payments for a multitude of non-members. Equally if not more overwhelming would be a scenario whereby individual authors and publishers receiving 100- percent payments from ASCAP and BMI would need to track down and pay royalties to coowners themselves. (Views p. 21)

To which a licensee might reasonably respond, “so?” The publishers and PROs chose to allow this system of individual fractional ownership coupled with 100% collective blanket licensing to evolve over the last 50 years. The same parties cannot now be heard to complain that they don’t like the system they’ve created and want someone else to pay to clean it up. The licensee community is certainly is a far less advantageous position to know how to contact all of the current owners of a particular song or make payments thereto.

More fundamentally, this entire exercise is being driven by the publishers’ desire to partially withdraw their performance rights from ASCAP and BMI to “hold up” digital music services for higher fees. This PRO system was able to evolve over the past 50 years precisely because the publishers viewed collective licensing as better than individual licensing. But collective licensing — which is otherwise a violation of antitrust law — comes at a cost. Now that the bill has come due, it appears that the songwriters, publishers and PROs want someone else to pay it.

Copyright Office – 100 Percent Licensing


  1.  The CRO states that in arriving at its conclusions it “reviewed representative contractual provisions between and among songwriters and music publishers.” p. 4. In the accompanying footnote, the CRO states “Of course, the Office’s review of industry contractual provisions could not be comprehensive. It is worth noting, however, that our examination of representative clauses in songwriter and publisher agreements from various sources revealed numerous references to fractional ownership and licensing and no provisions that appeared inconsistent with these practices.” fn. 14.

    “a provision reviewed by the Office addressed the interests of three songwriters, one affiliated with ASCAP, who received a 50 percent share of the copyright, and two affiliated with BMI, who each received a 25 percent share.” pp. 9-10.

    “one contractual provision reviewed by the Office awarded one of three co-writers a one-third share of the copyright, but prohibited that co-writer from granting even a partial (i.e., fractional) license in the work.” (p. 10).

    “one representative provision in a copublishing agreement reviewed by the Office stated specifically that where the songwriter “writes, owns, and/or controls less than one hundred percent (100%)” of a musical composition, the songwriter was granting the publisher rights only to the writer’s “fractional share” of the work. In another agreement, the songwriter granted rights to existing and future compositions only “to the extent written, composed, created, owned, controlled and/or acquired” by the songwriter.” (p. 11)

    one coadministration clause applicable to two songwriters reviewed by the Office provided that the parties would enter into agreements “solely with respect” to their respective interests and that all proceeds were to be paid “directly to (Party A) and (Party B) in the shares set forth (in the agreement).” (p. 12)

  2.  The CRO also cites the submission of the National Academy of Recording Arts & Sciences, whose submission was jointly prepared with 11 songwriters. Even including the NARAS, the citations listed by the CRO are anything but representative of the statements submitted to the DOJ.

SESACed (the saga continues)

A recent order from Judge Jones in the Eastern District of Pennsylvania provides SESAC some much needed relief, but SESAC still faces a difficult trial.  Readers will recall that the RMLC brought Sherman Act claims against SESAC for allegedly anticompetitive behavior.  Specifically, the RMLC alleged three violations:: § 1—Horizontal Price Fixing (Count I), § 1—Group Boycott/Refusal to Deal (Count II), and § 2—Monopolization (Count III). In response, SESAC filed a motion to dismiss.  Judge Jones threw out the § 1 claims, but denied SESAC’s motion regarding the § 2 (monopolization) claim. 

In analyzing SESAC’s motion to dismiss, the court concluded that the RMLC’s “§1 and §2 claims are based on the confluence of four of SESAC’s licensing practices: SESAC’s blanket license (and its refusal to offer other licensing options), its procurement of a critical mass of must-have works, its de facto exclusive dealing contracts with its affiliates and its lack of transparency as to the works in its repertory.”  Breaking down the 3 alleged violations, the court looked first at the § 1 claims (price fixing and refusal to deal) and concluded that the RMLC had failed to adequately plead a violation.

 A hub-and-spoke conspiracy requires agreements between each spoke and the hub and between and among each of the spokes themselves. Howard Hess Dental Labs., Inc. v. Dentsply Intern., Inc., 602 F.3d 237, 255 (3d Cir. 2010) (“In other words, the ‘rim’ connecting the various ‘spokes’ is missing.”). After reviewing the allegations of agreement and the parties’ respective briefs, the court has concluded that plaintiff has failed to allege sufficient facts from which the court can draw a plausible inference of a hub-and-spoke conspiracy between and among SESAC and its affiliates. In particular, the court agrees with defendants that plaintiff has failed to plead the rim of a hub-and-spoke conspiracy by failing to plausibly allege agreements among SESAC’s affiliates.

Turning next to the § 2 claim (monopoly), the court considered that “Plaintiff alleges that SESAC excludes competitors by obtaining a critical mass of must-have works, selling them exclusively in the blanket license format, discouraging direct licensing by refusing to offer carve-out rights and obscuring the works in its repertory.”  The court found the RMLC had “sufficiently pleaded that SESAC’s lack of transparency exacerbates the exclusionary nature of its conduct by forcing radio stations to purchase the SESAC license even if they do not plan to perform the songs in SESAC’s repertory for fear that they may unwittingly air copyrighted content.”  Looks like this claim is going to be decided by a jury…

The order is below:


RMLC v SESAC Antitrust Decision


Magistrate Judge Lynne Sitarski of the Eastern District of Pennsylvania has issued her report and recommendation regarding the motion for preliminary injunction filed by Radio Music License Committee (RMLC) against performing rights organization (PRO) SESAC, Inc., seeking to prevent SESAC from instituting a rate increase during the pendency of the RMLC’s antitrust suit against SESAC for violations of Secs. 1 and 2 of the Sherman Act.  While Mag. Judge Sitarski denied the RMLC’s motion, the RMLC is probably still thrilled with her R&R.

I described here the antitrust suit filed by the local television broadcasters against SESAC for antitrust violations.  That suit was filed in the Southern District of New York and has SESAC’s motion for summary judgment pending.  A companions case was filed by the RMLC in the Eastern District of Pennsylvania.  In that case, the RMLC sued SESAC for violations of Sections 1 and 2 of the Sherman Act.  Specifically, Section 1 claim, “an antitrust plaintiff must plead the following two elements: (1) that the defendant was a party to a contract, combination … or conspiracy and (2) that the conspiracy to which the defendant was a party imposed an    unreasonable restraint on trade.”  Section 2 of the Sherman Act by using “de facto exclusive contracting practices to create a market artificially insulated from competition.” “Liability under section 2 requires: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

When SESAC sought to increase the royalty rate applicable to RMLC member stations for CY 2014, the RMLC filed a motion for preliminary injunction to block the rate increase.  Ultimately, Judge Sitarsky concluded that remedies in the form of monetary damages could make the RMLC whole (if the RMLC is successful at trial) and denied the motion for an injunction.  In reaching her decision, however, Judge Sitarsky indicated she thinks the RMLC has established a prima facie case of a likelihood of success on the merits.

A key part of her reasoning was the inability of RMLC-member stations to license around SESAC because the exact scope of SESAC’s repertoire is unknown (some might say ‘hidden’).  This opacity around catalog information is important for at least two reasons.  First, not knowing what is within and without the SESAC repertoire impact Judge Sitarsky’s analysis of the applicable ‘market’ against which the RMLC’s antitrust allegations will be directed.

According to Judge Sitarsky:

The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” Queen City Pizza v. Domino’s Pizza, 124 F.3d 430, 436 (3d. Cir. 1997) (cited cases omitted). Interchangeability implies that one product is roughly equivalent to another for the use to which it is put. Id. When assessing reasonable interchangeability, factors to be considered include price, use, and qualities. Id.. Reasonable interchangeability is usually present when there is “cross-elasticity of demand” between the product itself and the substitutes for it.  Cross-elasticity of demand is present when the rise in the price of a good would cause the demand for substitutable goods to increase.

Because stations “cannot substitute non-SESAC performance rights for SESAC performance rights if SESAC charges above-competitive license fees,” Judge Sitarsky concluded that the “RMLC has produced sufficient evidence to make a prima facie showing that the relevant product market is the market for SESAC’s blanket license.”

This lack of transparency is also important to the court’s determination that direct licensing was an option for RMLC-member stations.  For example, Judge Sitarsky differentiated the SESAC case from the case involving CBS’ antitrust claims against ASCAP and BMI of the 1970s and 80s.

The instant case is distinguishable from CBS I because the SESAC blanket license is the sole source of the performance rights that radio stations need. This is because radio stations are unable to obtain a bundle of direct licenses acquired on an individual transaction basis for the music in SESAC’s repertory because they cannot determine what such a bundle  would entail. That is: only SESAC knows each and every song that comprises its repertory.

the inability of radio stations to conclusively determine what songs are SESAC songs precludes them from obtaining individual licenses from the composers, and foregoing a SESAC license. In other words, a SESAC blanket license is not reasonably interchangeable with a bundle of direct licenses permitting the use of SESAC’s repertory because the individual songs in SESAC’s repertory cannot be conclusively determined. While SESAC permits direct licensing by its affiliates, it is the entire bundle that a radio station needs to avoid infringement, and what constitutes the entire bundle is unknown.

Because the access to direct licenses was a key determination in the US Supreme Court that the ASCAP and BMI blanket licenses weren’t antitrust violations, this conclusion of Judge Sitarsky, if adopted by the District Judge, could have significant impact on whether SESAC’s blanket license can survive antitrust scrutiny.

Judge Sitarsky’s report and recommendation is here.

Brilliant Article DMX’s Rate Cases against ASCAP and BMI

I ran across the below article by Carly Olson, a 3L at Northwestern, about DMX’s rate proceedings against ASCAP and BMI.  Ms. Olson wisely (and prophetically) concludes that the Second Circuit should affirm the district court opinions in DMX’s favor.  I couldn’t agree more.  And, thankfully, neither could the Second Circuit!

Check out the article here.

Winning! Second Circuit Affirms DMX’s Rate Court Victories

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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