William Reed
For nearly 80 years, songwriters and composers have monetized their exclusive right to the public performance of their works through licenses administered by Performance Rights Organizations (“PROs”). In 1941, the Department of Justice entered into consent decrees with ASCAP and BMI, the two largest PROs, after the DOJ brought litigation alleging antitrust violations. In 2019, the Department of Justice (“DOJ”) opened a review of the continued viability of the consent decrees, which have been modified only minorly since their creation.[1] The rise of digital streaming and shifts in the power of various industry players has transformed music performance and consumption and sparked calls from the PROs and music publishers that the consent decrees are no longer necessary to maintain the strength of the market.
The current DOJ review follows a similar review of the consent decrees that concluded in 2016. In 2016, large publisher members of the PROs, like Universal Music Publishing Group and Sony/ATV, wanted the right to “partially withdraw” from their agreements with the PROs. Partial withdrawal would allow the publishers to negotiate new performance rights deals directly with “new media” companies, like Pandora and Spotify, while retaining representation by the PRO for licensing to “old media” venues, like restaurants and theatres. The publishers and PROs believed that this new arrangement would allow these major publishers to leverage their market power to get higher rates from the licensees. Pandora sued to invalidate partial withdrawal as a violation of the PRO consent decrees. Judge Cote and Judge Stanton (S.D.N.Y) both ruled that the consent decrees did not allow partial withdrawal.[2] The Second Circuit affirmed. The PROs then petitioned on behalf of the publishers seeking to convince the DOJ to amend the decrees to authorize partial withdrawal.
At the conclusion of its 2016 review, the DOJ declined to authorize partial withdrawal and controversially issued a statement interpreting the consent decrees to require “full-work licensing” of songs with multiple composers or songwriters.[3] Basically, under a full-work system, a licensee that wishes to license the right to perform a song that was written by multiple songwriters must receive a separate license from each PRO that represents each song writer. Fractional licensing, a mutually exclusive alternative licensing system, allows a licensee to license a work from only one songwriter. The PROs sought declaratory judgment that the DOJ interpretation was an invalid modification of the consent decrees. The PROs argued that fractional licensing was the industry standard and had always been allowed by the consent decrees. Judge Stanton agreed with the PROs and the Second Circuit affirmed.[4] If the DOJ wanted to force full-work licensing, it would have to formally amend the decrees.
The 2019 review seeks to determine generally whether the consent decrees are still serving a necessary purpose. The DOJ sought public comment on a range of issues to inform its decision on whether to leave the consent decrees untouched, modify the consent decrees, or terminate them entirely.
The PROs advocate for a modification to the consent decrees that would decrease regulation in the immediate-term and, in the long-term, allow for the eventual transition to a free-market system (i.e. termination of the decrees).[5]The PROs’ proposed “transitional decree” would keep the most crucial and popular provisions of the current decrees (for example, the automatic license requirement and mandatory alternatives to blanket licensing provision, among others) while adding a sunset provision to the decrees. The PROs’ argument rests on the contention that other PROs have entered the market, increasing competition to the point that BMI and ASCAP no longer pose an antitrust threat. Further, the PROs argue that the licensee side of the market is now dominated by large, powerful new media corporations that do not need the government’s protection – a sharp contrast to the mom-and-pop operations that the consent decrees were originally meant to protect.
Licensees, ranging from new media giants like Spotify to restaurants and local theatres, advocate for maintaining the consent decrees as they exist now. They argue that industry players rely too heavily on the current market structure to risk upending it by eliminating the decrees altogether.[6] Additionally, licensees argue that sunsetting or terminating the decrees without an alternative regulatory framework is dangerous.
The DOJ under Assistant Attorney General Makan Delrahim has indicated a preference for eliminating all consent decrees in favor of a free market system. Since 1979, most DOJ consent decrees have contained a 10-year term limit or “sunset provision.”[7] The PRO decrees contain no sunset provision. In 1999 the DOJ issued a policy that “legacy” consent decrees from before 1980 should be terminated except where there is “a pattern of noncompliance with the decree or there is long-standing reliance by participants.”[8] Significantly, in November of 2019, the DOJ moved to terminate a similar consent decree with Paramount Studios that regulated conduct in the motion picture licensing industry.[9]
Ultimately, the DOJ is not obligated to amend or terminate the consent decrees at the conclusion of its review. As the public comments submitted make apparent, there is no possible modified version of the consent decrees that will please every party. Following the lead set by the Paramount Studios decision, the most likely scenario is the DOJ will move to terminate the ASCAP and BMI consent decrees after a specified sunset period to allow the industry participants to adjust to a free-market system. Termination of the decrees would be seen as a major win for the PROs and the songwriters whose copyright interests the PROs serve. It would mark arguably the most significant change to the music licensing system since the decrees were enacted.
[1]For a full list of the questions posed by the DOJ, see https://www.justice.gov/atr/antitrust-consent-decree-review-ascap-and-bmi-2019.
[2]In re Pandora Media, Inc., No. 12 Civ. 8035 (DLC), 2013 WL 5211927, at *5 (S.D.N.Y. Sept. 17, 2013), aff'd, sub nom. Pandora Media, Inc. v. ASCAP, 785 F.3d 73, 77 (2d Cir. 2015); Broad. Music, Inc. v. Pandora Media, Inc., No. 13 Civ. 4037 (LLS), 2013 WL 6697788, at **3-4 (S.D.N.Y. Dec. 19, 2013).
[3]U.S. Dep’t of Justice, Statement on the Closing of the Antitrust Division’s Review of the ASCAP and BMI Consent Decrees, at 8 (Aug. 4, 2016), https://www.justice.gov/atr/file/882101/download
[4]United States v. Broad. Music, Inc., 207 F. Supp. 3d 374, 376 (S.D.N.Y. 2016).
[5]BMI’S Response to the Department Of Justice’s June 5, 2019 Request For Public Comments Concerning the BMI And ASCAP Consent Decrees, at 2 (August 9, 2019); ASCAP’S Response to the Department Of Justice’s June 5, 2019 Request For Public Comments Concerning the ASCAP And BMI Consent Decrees, at 2 (August 9, 2019).
[6]See, e.g. Comments Of iHeartMedia On Preserving The ASCAP and BMI Consent Decrees, at 8 (Aug. 9, 2019)
[7]See Dep’t of Justice, Antitrust Division Manual at III: 147 (5th ed., last updated April 2018).
[8]Id. at 147-148.
[9]Dep’t of Justice, Department of Justice Files Motion to Terminate Paramount Consent Decrees, https://www.justice.gov/opa/pr/department-justice-files-motion-terminate-paramount-consent-decrees