By E. Darius Sturmer, J.D.
The government’s longstanding consent decree with Broadcast Music, Inc. (BMI), which placed conditions on BMI’s licensing and sublicensing of its repertory of compositions in order to resolve price fixing allegations, did not require it to offer blanket licenses to music users, the U.S. Court of Appeals for the Second Circuit has held in a not-for-publication opinion. For purposes of the provisions in the consent decree defining BMI’s repertory as those compositions over which it held "the right of public performance," that right did not mean "specifically and exclusively ‘the immediate right to actually perform’ the work without risk of infringement, a right that cannot be conferred by a fractional license," in the appellate court’s view. The ruling upholds a declaratory judgment of the federal district court in New York City last September that the consent decree—entered into in 1966 and amended in 1994—neither mandated full-work licensing nor prohibited fractional licensing of BMI’s affiliates’ compositions (U.S. v. Broadcast Music, Inc., December 19, 2017, per curiam).
"Blanket licenses" give music users such as bar owners, television and radio stations, and Internet music distributors access to millions of songs without resorting to individualized licensing determinations or negotiations. This enables users to publicly perform the musical works of the thousands of songwriters and music publishers who are members of performing rights organizations (PROs) like BMI and the American Society of Composers, Authors, and Publishers (ASCAP).
Government investigation of decrees. BMI and ASCAP are subject to similar consent decrees governing their collective licensing practices. In 2014, the Antitrust Division undertook an investigation of each in response to BMI’s and ASCAP’s requests that the government support several proposed modifications to their respective consent decrees. Among these was a proposal to allow music publishers to "partially withdraw" from ASCAP and BMI, thereby prohibiting the PROs from licensing the withdrawing publishers’ music to digital services such as Pandora or Spotify. At the close of the investigation, the Antitrust Division rejected the proposed modifications, concluding that the consent decrees required full-work licensing and should not be modified to allow so-called fractional licensing. Further, the Justice Department concluded that BMI was not in compliance with the decree, and it gave the PRO one year to comply.
Taking issue with the prospect that songwriters and composers who collaborated were not allowed to license only their proportionate share of that work through the PRO of their choice, BMI (but not ASCAP) sought the declaration against the Justice Department's interpretation of the consent decree.
Lower court holding. The district court determined that nothing in BMI’s consent decree gave support to the Antitrust Division’s view that it required full-work licensing. Rather, the court concluded that the phrase in Art. II (C) of the consent decree—defining BMI’s repertory as "those compositions, the right of public performance of which [BMI] has…the right to license or sublicense"—was descriptive, not prescriptive. In addition, the "right of public performance" was left undefined as to scope or form, to be determined by processes outside the consent decree. Consequently, the consent decree neither barred fractional licensing nor requires full-work licensing, the court said.
Appellate agreement. Emphasizing that the language of the consent decree "must dictate what a party is required to do and what it must refrain from doing," the appellate court agreed with the court below that the government’s interpretation went too far. "Courts must abide by the express terms of a consent decree and may not impose additional requirements or supplementary obligations on the parties even to fulfill the purposes of the decree more effectively," noted the court. Since the decree said nothing about fractional licensing, "BMI may (and perhaps must) offer them unless a clear and unambiguous command of the decree would thereby be violated," the court continued.
The government’s interpretation of the "right of public performance" in the decree to ultimately preclude the possibility of fractional licensing was unpersuasive, according to the appellate court. An existent term of art in copyright law, the court pointed out, the right could be "transferred in whole or in part" and "owned separately"—including as a subdivision of the right—under the Copyright Act. "Each individual co-owner ha[d] a right a public performance, and such a right [was] not associated with full-work licensing or with an indivisibility principle." Extrinsic evidence also did not back the Justice Department’s position, as the decree was amended in 1994—"a time when fractional licensing was apparently common practice"—without inserting any language establishing the prohibition the government now sought.
The Justice Department’s reliance on a holding by the same appellate court in another case that the ASCAP consent decree precluded partial withdrawals of public performance licensing rights was not on point, the court remarked. That case, Pandora Media, Inc. v. ASCAP, 785 F.3d 73 (2015), did not consider fractional licensing, and the instant case did not involve proposing to discriminate between licensees.
A contention by the government that the procompetitive features of blanket licensing arrangements merited consideration of its proposal was rejected as inappropriate. "To the extent DOJ asks us to read an additional requirement into the decree to advance these procompetitive objectives," the court stated, "we are foreclosed from doing so."
The appellate court encouraged the Justice Department to move to amend the decree or sue under the Sherman Act should it decide that the consent decree, as judicially interpreted, raised unresolved competitive concerns.
Reaction by Justice Department. In a statement yesterday from Antitrust Division Assistant Attorney General Makan Delrahim on the Second Circuit’s ruling, he said that this "[D]ecision highlights the challenges of behavioral consent decrees in antitrust cases. Such decrees, over time, effectively become perpetual regulations that the Department of Justice and the courts are often not well-suited to enforce." Mr. Delrahim added, "we will review the court’s decision and determine the best course of action for competition and the American consumer."
The case is No. 16-3830-cv.
Attorneys: Robert J. Wiggers, U.S. Department of Justice, for the United States. Scott Alexander Edelman (Milbank, Tweed, Hadley & McCloy LLP) for Broadcast Music, Inc.
Companies: Broadcast Music, Inc.
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