There has been a lot of ink spilled over the recent DOJ ruling regarding the ASCAP and BMI consent decrees. I’d like to go into it in depth.
But as an introduction, I’d like to describe the consent decrees themselves, and briefly go into why they exist.
The Consent Decrees
The consent decrees arose from a U.S. anti-trust action first leveled against ASCAP in the 1930’s, and later against BMI in the 1960’s. But despite their age, it is generally accepted that they are still relevant today – perhaps even more so today. The market power of ASCAP and BMI has only grown since the first complaints. Exact market share is hard to determine, but it is widely quoted that ASCAP and BMI together control about 90% of the market. The consolidation of music publishers into the “Big Three” (Sony/ATV, Universal, and Warner/Chappell) hasn’t helped either.
The consent decrees lay down a few rules for the PRO’s:
- ASCAP and BMI can set any rates they want, but:
- They must use the same rates for all “similarly situated users” (licensees);
- They must issue licenses to anyone who asks;
- They must issue licenses for their entire catalogue;
- If a user believes the rate is unfair, they can go to rate court, and it is up to the PRO to show the rate is “reasonable.” If it does not do so, the court sets the rate.
There are other limitations, but they’re generally not relevant to the recent controversies.
The whole review by the DOJ was initiated because the major publishers wanted to do “partial withdrawals” from ASCAP and BMI. What are partial withdrawals? Pandora’s description is entirely accurate:
Historically, Pandora has paid essentially the same rate as all other forms of radio, a rate established unilaterally by the performing rights organizations, ASCAP and BMI, in the late 1990s. In November of last year, following a lengthy negotiation, Pandora agreed with ASCAP to a new rate, an increase over the prior amount, and shook hands with ASCAP management. Not only was our hand-shake agreement rejected by the ASCAP board, but shortly thereafter we were subjected to a steady stream of “withdrawals” by major publishers from ASCAP and BMI seeking to negotiate separate and higher rates with Pandora, and only Pandora. This move caused us to seek the protection of the rate, also recently negotiated, enjoyed by the online radio streams of broadcast radio companies.
In 2014, the court sided almost entirely with Pandora against ASCAP and the publishers (PDF). It ruled that partial withdrawals of this kind were unlawful under the consent decrees.
It also called out the publishers for their completely unethical bargaining tactics. Here are some highlights from the court’s description of Sony’s “negotiations:”
The first substantive discussion between Pandora and Sony occurred in a telephone call on October 25 between Sony’s Brodsky and Pandora’s Rosenbloum.
Sony promptly set the tenor for the negotiations with a not-too-veiled threat. Brodsky stated “[i]t’s not our intention to shut down Pandora.” In his many years of negotiating music licenses, Rosenbloum testified that had never before heard such a threat. In some ways, this threat put on the table no more than what was obvious. Sony’s works were already being played on Pandora; they were incorporated in the MGP. Unless Pandora could do without those works and remove them from its repertoire by January 1, Pandora had to obtain a license from Sony or face crippling copyright infringement claims. Sony was in the driver’s seat and the clock was ticking. […]
On Friday, December 14, with two weeks left in the year, and one week remaining before the music industry took its annual holiday break, ASCAP notified Pandora that it would not execute the agreement they had negotiated. The following Monday, Pandora urgently made two renewed written requests for the list of Sony’s works, one to Sony and another to ASCAP.
Since the repeated requests from Pandora’s outside counsel Rosenbloum had gone unanswered, Pandora’s general counsel Delida Costin sent her own email to Brodsky on December 17 requesting the list of works. Not wishing to empower Pandora, Sony never responded.
That same day, Pandora also asked ASCAP for the list of Sony works in ASCAP’s repertoire. It would have taken ASCAP about a day to respond to Pandora’s request with an accurate list of the Sony works. But, ASCAP, like Sony, stonewalled Pandora and refused to provide the list.
In making the request to ASCAP, Pandora’s counsel wrote that “Pandora must prepare for the possibility of being unlicensed by Sony/ATV or ASCAP for [Sony’s] works effective January 1st, so it is important that we get this information from ASCAP as soon as possible.” This request set off a flurry of emails within ASCAP. ASCAP ultimately decided to contact Sony to see if it would give its permission to share the list of works. On Wednesday, December 19, ASCAP notified Sony of Pandora’s request and that it would be providing Pandora with the list of Sony works that ASCAP had previously given to Sony in connection with its withdrawal of rights. Not surprisingly, given its own refusal to share the list with Pandora, Sony did not give ASCAP permission to provide the list.46 As a result, neither Sony nor ASCAP provided the list of works to Pandora.
[Footnote 46] ASCAP personnel shared their amusement with each other over Sony’s decision to withhold the list from Pandora. In one email, DeFilippis asked ASCAP’s counsel Richard Reimer “Why didn’t Sony provide the list to Pandora,” to which Reimer replied “Ask me tomorrow,” to which DeFilippis responded “Right. With drink in hand.”
The terms of the Pandora license with Sony were negotiated in four business days during the single week that ran between ASCAP’s rejection of the Pandora term sheet and the start of the holiday break. […]
By mid-January 2013, and despite the existence of a confidentiality agreement, Sony leaked the key terms of the Pandora license to the press. The headlines in three articles said it all: “Sony/ATV ‘Now Has the Power to Shut Pandora Down…”; “Sony/ATV gets 25 percent increase in Pandora royalties”; and “Sony/ATV’s Martin Bandier on new ‘quite reasonable’ Pandora deal.” A New York Post article featured a photograph of Sony’s Bandier in shirt sleeves with a large cigar in his mouth, as it reported that Sony had “wrangled a 25 percent increase in royalties” for a one year license.
Universal was not any better:
[Pandora CEO Joseph] Kennedy indicated a preference for negotiating with the PROs, but added that, if UMPG wanted to negotiate directly with Pandora, then UMPG should provide Pandora with a list of the withdrawn compositions and UMPG’s proposal for a rate. Horowitz said he was “not sure” he was able to provide Pandora with a list, and indicated that Pandora should just make a deal based on UMPG’s representation of its overall market share. […]
In late April 2013, UMPG provided to Pandora a complete list of the UMPG works in the ASCAP repertoire, but in a way that prevented Pandora from using the information to remove UMPG compositions from its service. The list was subject to an NDA. The list itself was the very information that the NDA deemed confidential. The NDA provided that:
[Pandora] has requested that Universal provide to [Pandora] titles of songs in Universal’s music catalog controlled by ASCAP, corresponding writer names and corresponding shares owned or controlled by Universal and such writers, all of which Universal deems to be confidential (“Confidential Information”).
The NDA then restricted Pandora’s use of the list. It provided that
[Pandora] agrees not to use any Confidential Information for any purpose except to evaluate and engage in discussions concerning a potential business relationship between the Parties.
Pandora correctly interpreted this provision as forbidding it from using the list to remove the UMPG works from its service.
It should be noted that the songwriters represented by ASCAP were generally against this partial withdrawal scheme:
Songwriters, and at least some independent music publishers, were concerned about the damage that might be wrought from the Compendium modification and the partial withdrawal of rights from ASCAP. Songwriters trusted ASCAP to account reliably and fairly for the revenues ASCAP collected and to distribute the portion of revenues owed to writers promptly and fully. Songwriters were concerned about the loss of transparency in these functions if publishers took over the tasks of collection and distribution of licensing fees. They were concerned as well that the publishers would not manage with as much care the difficult task of properly accounting for the distribution of fees to multiple rights holders, and might even retain for themselves certain monies, such as advances, in which writers believed they were entitled to share. Overall, they were concerned about the increasing concentration of the publishing industry and the willingness by some, particularly Sony, to engage in direct licensing outside the framework of the PROs.[…]
Some of this tension is captured in an email sent by ASCAP member and composer [REDACTED] to LoFrumento on September 6, 2012. In that email, [REDACTED] explained the conflicts that he perceived between the major publishers and writers of ASCAP:
[W]riters and (the major) publishers differ. Writers, I believe are concerned with the health and well being of ASCAP. As small business owners we are dependent upon ASCAP for our success . . . . Today’s publishers (the majors) are executives not owners. Their focus is on the well being of their company, their investors and their own perceived performance all of which is reflected in the quarterly bottom line. In their vision of the future, ASCAP plays an inconsequential role.
[REDACTED] was not alone among writers in his concern about the publishers’ plan for new media withdrawals. Writer [REDACTED] wrote in an email of August 28, 2012 to LoFrumento, that there was a “disintegration of trust between writers and publishers,” and that “the new breed of publishers was understood by writers to be motivated primarily by profits, and that writers would not look positively on ASCAP becoming a clearinghouse for processing direct licensing royalties.”
So, how was ASCAP convinced to let publishers do this, over the songwriters’ objections?
The large publishers were well aware of the discomfort that at least some writers felt with the new media withdrawals and made the following argument to convince them to come on board: if the major publishers could get higher license rates by direct negotiations with new media companies outside of ASCAP then those rates could be used in rate court litigation to raise the ASCAP license fees. The publishers found an ally on this issue in writer and ASCAP chairman Williams, who agreed with the new media rights withdrawal strategy. His email illustrates the strategy he pursued to get writers to support the publishers’ partial withdrawal of rights from ASCAP:
My job is to make this transition as smoothly as possible in the board room . . . to assuage the fears of the writers who may see this as an ASCAP death knoll …. [W]e are in fact giving [the major publishers] the right to negotiate. The end result being that they will set a higher market price which will give us bargaining power in rate court.
Yes, this is exactly the type of “rate court manipulation” that Pandora has been accused of.
But it all failed miserably. (Unsurprising, given the quotes above.) Partial withdrawals were invalidated, and the rates obtained from them were (correctly) not considered “reasonable.” The rate court decision was appealed by ASCAP and the publishers, but the appeals court affirmed the decision.
The BMI case didn’t do much better. (Sorry, I can’t find a link to it.) The judge in that case also ruled that partial withdrawals were unlawful under the consent decrees. However, there was one silver lining: that judge eventually accepted BMI’s rate of 2.5% of Pandora’s income, significantly more than the 1.85% accepted in the ASCAP case. (Still a far cry from the 8% that Universal was demanding, though.)
To overcome their failures in the rate courts, both ASCAP and BMI then petitioned the DOJ to amend the consent decrees. It is important to understand this. Pandora didn’t want to amend the consent decrees; other music users didn’t want to amend the consent decrees; most of the PRO’s songwriters didn’t want to amend the consent decrees. This was a move that was specifically, and exclusively, so publishers could do these partial withdrawals.
And early on, it appeared that the DOJ might be willing to let them do it. See e.g. Billboard, Dept. of Justice Considering Major Overhauls on Consent Decrees, Sources Say.
However, in its recent decision, the DOJ has agreed with both courts, ruled that partial withdrawals are not allowed, and refused to amend the consent decrees to allow them. As you could probably tell from reading my submitted comment, I agree with the ASCAP songwriters quoted above that partial withdrawals would be a terrible idea. In this, I am in agreement with the Future of Music Coalition, the Songwriters Guild of America, and the Council Of Music Creators.
But the DOJ is also demanding 100% licensing – something that angers publishers and the PRO’s much more than the ruling against partial withdrawals ever could. So, if you (like them) don’t appreciate 100% licensing, you know who to blame. The chickens have come home to roost.
Luckily, 100% licensing is not nearly as bad as they claim.
The idea behind this requirement is simple: in order for a PRO to license a song, the PRO must be able to license 100% of that song. This isn’t an issue if there is a single songwriter who is a member of that PRO, nor if there are multiple songwriters who are all members of that PRO. The issue is when there are multiple songwriters, and they are members of different PRO’s (or no PRO at all).
In this case, ASCAP and BMI have been engaging in “fractional” licensing. Fractional licensing means that each PRO issues a license (and pays its members) for only the fraction of the copyright interest that is held by its own members. Thus, users with a blanket license from that PRO would not be protected from a copyright lawsuit by the song’s co-writers. (The PRO’s have apparently been doing this without letting their licensees know.) The DOJ ruling says that such fractional licensing is not allowed.
This is the part that has caused a panic among PRO’s, publishers, and songwriters. The music media was inundated with a ton of stories about how 100% licensing would mean the end of the industry as we know it. Here’s a sampling:
The DOJ decided PROs and Publishers must adopt “100% Licensing.” This means the person or group that controls even just 1% of a song has the authority to license the full 100% of the song, without permission from the other songwriters/owners.
– Consent Decree Impact Infographic (Music Think Tank)
The DOJ made another decision that will displease publishers: It is moving ahead with its interpretation that the two PROs must use 100-percent licensing and can no longer engage in fractionalized licensing – meaning that any rightsholder in songs with multiple songwriters, who may be represented by different PROs, has the right to license the entire song to a user, as long as he accounts to and pays the other songwriters. […]
Also, some wonder if this ruling will hurt or help the PROs not covered by the consent decree, like SESAC and Global Music Rights.
On one hand, it could hurt those PROs because licensees of songs with multiple songwriters would likely rather cut deals with ASCAP and BMI — whose rates are hampered by the consent decree and rate court — than with the two PROs that have the ability to seek market rates. In the future, digital services would only have to agree to market rates for songs 100 percent controlled by SESAC and GMR, some sources suggest.
– Department Of Justice To Deny Consent Decree Amendment (Billboard)
We regard the announced intentions of the DOJ […] to impose mandatory “full work licensing” on a copyright co-owner or co-administrator if is so requested by a copyright user, as serious injustices that will further damage the ability of songwriters and composers to earn a living through our chosen profession.
Next, what about SESAC? They are not parties to the consent decrees. But to read the “new rule that is not really a new rule” correctly, would be that if a SESAC writer composed a song with an ASCAP writer, that ASCAP would not only have the right, but the obligation to license the SESAC share, making SESAC a party to a consent decree that they never were a part of in the first place.
This is a complete violation of due process.
And finally, what about my contracts? They say that no one writer can license the work without the consent of the other writer. The DOJ’s “new rule which is not really a new rule” completely abrogates my client’s contract rights, another violation of due process.
And what’s the point of all this? It’s to lower the fees that independent PRO’s like SESAC and Irving Azoff’s fledging GMR might demand, since 100% of the licensing might be obtained from ASCAP and BMI instead. This benefits, guess who? Pandora, Siruis [sic] XM, and of course, YouTube.
– Stephen Carlisle, You Can’t Make This Stuff Up! The Department of Justice v. ASCAP
Adding to the confusion, the DOJ’s ruling was not made public until August 4th. Until then, the music press only had access to second-hand accounts from people who were directly involved. And the only sources they had were the (biased) accounts of alarmists from the PRO’s and publishers.
Well, as it turns out, these people were making this stuff up. It is actually the opposite of the DOJ’s 100% licensing requirement.
In fact, if the songwriter does not (or cannot) issue a license to their PRO for 100% of the song, the PRO cannot include that song in their blanket licenses. Users like Pandora, Sirius XM, or YouTube won’t be able to obtain any of the license of that song from ASCAP or BMI, much less 100%.
This is how the DOJ describes it:
[T]he consent decrees must be read as requiring full-work licensing. ASCAP and BMI can include in their repertories only those songs they can license on such a basis. […] To the extent allowed by copyright law, co-owners of a song remain free to impose limitations on one another’s ability to license the song. Such an action may, however, make it impossible for ASCAP or BMI – consistent with the full-work licensing requirement of the antitrust consent decrees – to include that song in their blanket licenses.
In its statement about the ruling, the DOJ lays out a number of reasons why 100% licensing must be the law, and why (in their opinion) it won’t significantly disrupt the music publishing industry.
It is in the existing language of the consent decrees
Consistent with the Supreme Court’s guidance [in Broadcast Music, Inc. v. CBS, Inc.], the consent decrees seek to preserve the transformative benefits of blanket licensing, including the “immediate use” of the works within the PROs’ repertories. To this end, the ASCAP consent decree requires ASCAP to offer users a “license to perform all the works in the ASCAP repertory.” ASCAP Consent Decree VI (emphasis added [in original]). The BMI consent decree similarly requires BMI’s licenses to provide music users with access to its “repertory,” which includes “those compositions, the right of public performance of which [BMI] has or hereafter shall have the right to license or sublicense.” BMI Consent Decree II(C). […]
ASCAP and BMI did not concede that the existing consent decrees prohibited fractional licensing, but proposed that their consent decrees be modified to explicitly allow them to offer fractional licenses. […]
[T]he plain text of the decrees cannot be squared with an interpretation that allows fractional licensing: the consent decrees require ASCAP to offer users the ability to perform all “works” in its repertory and BMI’s licenses to offer users the ability to perform all “compositions” in its repertory. […]
Moreover, only full-work licensing achieves the benefits that underlie the courts’ descriptions and understandings of ASCAP’s and BMI’s licenses. For example, the Supreme Court explained that the ASCAP and BMI blanket license “allows the licensee immediate use of covered compositions, without the delay of prior individual negotiations, and great flexibility in the choice of musical material.” In so doing, they provide “unplanned, rapid, and indemnified access” to the works in ASCAP’s and BMI’s repertories. If the licenses were fractional, they would not provide immediate use of covered compositions. And such fractional licenses would not avoid the delay of additional negotiations, because users would need to clear rights from additional owners of fractional interests in songs before performing the works in the ASCAP and BMI repertories. Similarly, the Second Circuit has held that ASCAP is “required to license its entire repertory to all eligible users,” and that the repertory includes “all works contained in the ASCAP repertory.”
ASCAP and BMI market themselves as offering 100% licensing
Music users claimed that the PROs had always offered licenses to perform all works in their repertories, whether partially or fully owned, and urged modifications to confirm their view. Rightsholders, by contrast, claimed that the PROs had never offered full licenses to perform fractionally owned works, and also urged modifications to confirm their view. […]
As BMI itself argued in a recent rate-court filing, a BMI license grants to a music user “insurance against copyright infringement … and immediate access to more than 10.5 million works in BMI’s repertoire.” A fractional license could not provide these benefits.
100% licensing is already in the ASCAP and BMI songwriter agreements
As the DOJ points out, the agreements between the PRO’s and their songwriter members include language that the songwriter be able to grant a non-exclusive license (at least) for 100% of the song. Here are the relevant parts of each agreement:
1. As used in this agreement: […]
(b) The words “Work” or “Works” shall mean:
(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; […]
4. 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.
– BMI standard writer agreement (PDF)
1. The Owner [songwriter] grants to the Society [ASCAP] for the term hereof, the right to license non-dramatic public performances (as hereinafter defined), of each musical work: […]
Which the Owner, alone, or jointly, or in collaboration with others, wrote, composed, published, acquired or owned; or
In which the Owner 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 Owner, alone, jointly or in collaboration with others; or
In which the Owner 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 Society by this instrument for the term hereof, immediately upon the work being written, composed, acquired, owned, published or copyrighted.
– ASCAP Writer Agreement (PDF)
It is the default for joint works under copyright law
As the DOJ explains:
Under the copyright law, joint authors of a single work are treated as tenants-in-common, so “[e]ach coowner 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.”
The DOJ is quoting the Copyright Office on this point. If you don’t believe them, try William Patry:
Each joint author is a co-owner of the work and, as a tenant in common, possesses an equal, undivided interest in the whole, absent a contractual agreement to the contrary, and regardless of the relative extent or quality of their contributions. Thus, two joint authors each own a 50% interest in the whole, even if one author contributed only 10% of the work. As a co-owner in the whole, each joint author may utilize the work him- or herself without the other’s permission and indeed over the other author’s objection. A co-owner may also sue for infringement by third parties without joining the other co-owner in litigation.
A license from one co-owner is a defense to a claim of infringement brought by the other, nonlicensing joint owner. This is a significant point: a co-owner may unilaterally grant nonexclusive licenses; a joint author (or co-owner by assignment) is immune from an infringement claim by the other author or co-owner; and, a joint author has an independent right to use or license others to use the work.
The only obligation of a co-owner is to account for any profits earned from the exploitation.
His point is certainly backed up by case law:
Corgan’s position as a joint author of View Marked gives him the power to grant a non-exclusive license for the use of this work. See Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558-59 (9th Cir.1990). Consistent with this right, Corgan granted Defendant Virgin Records America a non-exclusive licence to distribute Vieuphoria, which contained scenes from View Marked. A non-exclusive license to use a joint work need not be explicit. See id. By conveying a video that used material from his joint work, Corgan impliedly granted a non-exclusive license to Virgin to distribute this material. Virgin, as a non-exclusive licensee of a copyright co-owner, therefore cannot be subject to copyright liability for its use of Video Marked.
– Morrill v. Smashing Pumpkins (PDF)
Note, however, that these rights can be (and often are) altered by contract. This is what Stephen Carlisle was talking about above. I don’t know if the practice is as widespread as he claims, but I’m certain that there are a significant amount of songwriting contracts that restrict the rights of co-writers, so that each can only license their own share of the song. (These contracts are only between co-writers; they are separate from each songwriter’s contract with their respective PRO.)
The DOJ is aware of this, which is why they’ve given everyone involved a year to get their ducks in a row.
It’s important to note one important fact: the notion that a co-writer may issue a license for 100% of a song, does not mean that this co-writer recieve 100% of the royalties for this song. They may (and likely will) still recieve fractional payments according to their share. In the words of the DOJ, “Full-work licensing and fractional payments are not incompatible.”
Let’s take a simple example. Alice and Bob are songwriters, and they co-write a song called “The Awakening.” Each songwriter holds a 50% share in the song. Alice’s PRO is ASCAP, and Bob’s PRO is BMI.
There are a number of ways that Alice and Bob can treat their co-ownership contract. (And, lest you think I’m making this up, these scenarios come from the DOJ’s comments.)
- Alice and Bob can only license their share of the song, but sign a “carve-out” for their respective PRO. In other words, Alice can offer a non-exclusive license for 100% of “The Awakening” to ASCAP (and only ASCAP), while Bob can offer a non-exclusive license for 100% of “The Awakening” to BMI (and only BMI). But in all other transactions – such as synchronization rights – Alice and Bob can only grant licenses for their 50% of “The Awakening.” (I suspect this is what most will do.)
- Alice and Bob can each license 100% of the song on a non-exclusive basis. Basically the same as above, but for all non-exclusive uses of “The Awakening.”
- Alice and Bob can specify that one PRO can license 100% of “The Awakening.” In this situation, they both agree that either ASCAP or BMI will have 100% licensing, and the other PRO wouldn’t be able to license the song at all.
- Neither Alice nor Bob can license 100% of “The Awakening” to anyone. If this is the contract they have, neither of their PRO’s can license “The Awakening.” (And under the DOJ’s ruling, neither PRO should have ever been licensing it.)
In all of the situations above, except (obviously) the last one, Alice and Bob can set up contracts (between themselves, and with their PRO’s) such that each person would only receive a fractional payment from their PRO. Alice could still collect from ASCAP, and be paid a 50% share; Bob would collect from BMI for his 50% share. In other words, they can receive exactly the same amount, from exactly the same people, that they have been for years.
That would be the least disruptive, but of course, they could set up other types of fractional payments as well. For example, Alice and Bob can get each paid a 100% share by their PRO, but pay half of what they collect to the other party, whatever that would be. (This is the default situation under copyright law.) Or, each can agree to take 100% of the licensing from their own PRO and none from the other’s.
The PRO’s, in turn, can offer to pay out such fractional payments themselves, and/or sign reciprocal agreements that co-writers who license 100% of the song would nonetheless be paid for their share. I suspect that the PRO’s will start doing something like this in the coming year.
But whatever choices Alice and Bob make, it’s clear that neither one is going to be forced into signing away their rights. The situation may or may not be ideal, but the “sky is falling” stories propagated by the PRO’s and major publishers is pure FUD.