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Rate Court Grants Leave to Intervene to Music Publishers in Pandora Proceeding

Thursday, December 19, 2013
By Anandashankar Mazumdar

Dec. 17 --Music publishers have sufficient interest in the outcome of a licensing proceeding between the owners of the Pandora online music service and the country's largest performing rights organization such that they should be allowed to intervene to defend their position, the U.S. District Court for the Southern District of New York ruled Dec. 13 (United States v. Am. Soc'y of Composers, Authors & Publishers, 2013 BL 345729, S.D.N.Y., No. 1:41-cv-01395-DLC-MHD, 12/13/13).

Granting a motion to intervene, the court however stipulated that the publishers could not raise any new arguments; they must stick to arguments that have already been presented before the court.

The American Society of Composers, Authors and Publishers is a performing rights organization formed in 1914 that collects royalties for hundreds of thousands of individuals and entities that hold copyright interest in about 8.5 million musical works. In 1939, Broadcast Music Inc. was formed as a performance royalty collecting organization in competition with ASCAP.

In 1941, ASCAP entered into a consent decree with the federal government to settle charges of monopolization in violation of Sherman Act Section 1, 15 U.S.C. §1. The decree granted the U.S. District Court for the Southern District of New York exclusive jurisdiction to oversee licensing arrangements between ASCAP and parties seeking licenses to publicly perform musical works to rule on whether the royalties being demanded by ASCAP are reasonable. In this capacity, this court is known colloquially as the “rate court.”

In 1996, BMI entered into a similar consent decree with the government. ASCAP agreed to a new consent decree in 2001, sometimes known as “AFJ2,” under which ASCAP must grant a license known as a “through-to-the-audience” license to an entity “that transmits content to other music users with whom it has an economic relationship relating to that content.” United States. v. Am. Soc'y of Composers, Authors & Publishers, No. 41-CV-1395 (S.D.N.Y. June 11, 2001).

Such a license allows a licensee to pay once to transmit content that includes ASCAP-licensed music to downstream partners without requiring separate payments from each of those downstream entities.

ASCAP is required to grant such a license at a reasonable price to any qualified applicant when the music will be performed in the United States. The 2001 decree also required that ASCAP grant a blanket license that covers its entire repertory to any party that requested one. If ASCAP and a putative licensee are unable to agree on terms, then the rate court has the authority to determine a reasonable rate.

In 2010, EMI Group Ltd., a major music publisher, stated its intent to withdraw its works from ASCAP. In reaction, ASCAP instituted new rules to allow a publisher to withdraw from ASCAP only with respect to “new media” licensing, such as for online streaming. EMI chose this option in 2011, followed by other major music publishers, such as Warner Bros. Group, Universal Music Publishing Group, and BMG.

Pandora Media Inc. of Oakland, Calif., has since 2005 offered online streaming music services through its Pandora internet radio website. It first entered into a licensing agreement with ASCAP in 2005. In 2010, Pandora sought to terminate the 2005 agreement and enter into a through-to-the-audience licensing arrangement with ASCAP, as set forth in the 2001 consent decree, for the period 2011-2015.

At the same time, Pandora was negotiating separately with EMI--which in 2012 was absorbed by Sony/ATV Music Publishing--to license its repertory for online streaming, and reached an agreement in 2012. Pandora also entered into agreements with Warner, Universal and BMG.

In June, Pandora moved for summary judgment on the question of whether ASCAP could limit its blanket license, such that new media rights were not included. In a series of letters to the court, EMI indicated its concern over the potential impact that any resulting ruling might have on their rights under the Copyright Act, 17 U.S.C. §106.

The court directed all the parties to submit their views regarding whether EMI should participate in the proceeding. Both ASCAP and Pandora denied that EMI's interest as a copyright holder would be implicated in the proceeding. EMI also stated that, based on Pandora's statements, it accepted that its rights would not be implicated and that intervention would not be necessary.

After a hearing on Pandora's summary judgment motion, EMI again expressed its concern to the court that its rights were being implicated, but it did not move to intervene.

In September, the rate court ruled that ASCAP must grant the through-to-the-user license covering all the works in its repertory, even with respect to works whose copyright holders had withdrawn ASCAP's authority to grant licenses to new media outlets like Pandora (183 PTD, 9/20/13). Sony/ATV and EMI then moved to intervene.

Granting the motion, Judge Denise Cote applied a four-part test as set forth in MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377 (2d Cir. 2006), which stated that in order for a party to intervene pursuant to Fed. R. Civ. P. 24(a)(2), it must show that:

(1) the motion is timely; (2) the applicant asserts an interest relating to the property or transaction that is the subject of the action; (3) the applicant is so situated that without intervention, disposition of the action may, as a practical matter, impair or impede the applicant's ability to protect its interest; and (4) the applicant's interest is not adequately represented by the other parties.

 

Addressing the timeliness factor, the court found support on either side. The court expressed doubt at the reasonableness of EMI's conclusion prior to the summary judgment hearing that it was assured that its rights would not be implicated. However, the court found no prejudice to the parties in the proceeding were EMI permitted to intervene.

On the other hand, EMI's rights would definitely be implicated should its intervention be rejected as untimely, the court said. Finally, the court said that EMI's failure to intervene when the court invited it too was a strike against it.

However, in balance, the court determined that “it would be unfair to Pandora and to the efficient administration of the judicial system to permit the Publishers to raise new arguments on appeal which were not raised by ASCAP in this Court.”

Turning to the second factor, the court rejected the argument that EMI's rights had been affected by the September order. The court said:

Nothing in the September 17 Opinion reduced the Publishers' Section 106 rights in the slightest. AFJ2 does not regulate publishers. it only regulates ASCAP. It is true that AFJ2's restriction on ASCAP means that the Publishers cannot use ASCAP to grant and withhold certain rights selectively. But an ancillary effect on third party's ability to use an entity is present anytime an entity is restricted from doing something. As Pandora correctly notes, the Publishers' decision to grant licensing rights to ASCAP is an exercise of their Section 106 rights. And in deciding to exercise those rights by granting ASCAP licensing authority over compositions the Publishers acknowledge that they are aware that AFJ2 places restrictions on ASCAP's ability to license their music in certain ways.

 

For example, the consent decree prohibits ASCAP from licensing use to movie theaters. However, the court said, this restriction on ASCAP was not a restriction on the copyright holders, because they were free to license to movie theaters on their own.

The court accepted EMI's claim that it did have a financial interest in the outcome of the proceeding, based on the argument that if it were forced to license works for new media use through ASCAP, then it would be obligated to pay ASCAP's fees. Whereas, if it licensed to Pandora independently, then at the very least, it would be saved from paying the ASCAP fee. The court accepted this as a legitimate argument for intervention.

Under the third factor, the court again found reasons to allow intervention. Turning to the final factor, the court said that it did not have enough information on the internal operations of ASCAP--whose board includes representatives of music publishers--to determine whether ASCAP would adequately represent EMI's interests.

Taking all the factors together, the court concluded that it was appropriate to allow EMI to intervene to appeal the Sept. 13 ruling. However, it stipulated that EMI “may not raise new arguments on appeal that were not raised by ASCAP.” The court did allow EMI to argue that its Section 106 rights were being infringed by the ruling.

Pandora was represented by Kenneth L. Steinthal of King & Spalding LLP, San Francisco. Sony and EMI were represented by Donald S. Zakarin of Pryor Cashman LLP, New York.

 


Text is available at http://www.bloomberglaw.com/public/document/United_States_of_America_v_American_Society_of_Composers_Authors_/1.

To contact the reporter on this story: Anandashankar Mazumdar in Washington at amazumdar@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

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