Music Rights Group, Government Face Off Over Licensing Practice

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By Anandashankar Mazumdar

The country’s largest music licensing organization goes up against the U.S. Justice Department before a federal appeals court on Dec. 1 to preserve the way it’s been licensing songs to radio stations, restaurants, bars, and other businesses.

If Broadcast Music Inc. loses its bid to get the U.S. Court of Appeals for the Second Circuit to affirm a federal district court ruling, it could overturn decades-old music licensing practices, potentially making it difficult for businesses to play many of the most popular songs for its customers ( United States v. Broad. Music, Inc., 2d Cir., No. 16-3830, to be argued 12/1/17 ).

BMI opposes the DOJ’s position that it must provide complete licenses for songs even when it represents only some of the song’s writers. Regardless of what BMI might have done historically, the government said that the rules set down by an antitrust consent decree first issued in 1966 require full-work licensing.

According to the government, this particular question hasn’t come up before, because most licensees went ahead and got blanket licenses from all three of the collective music licensing groups, called performance rights organizations or PROs, that were important at the time.

Now, however, things have changed, the DOJ says. Other licensing collectives have popped up, and some music publishers aren’t even joining the collectives. The question of fractional licensing is now relevant, and the government says that the consent decree prohibits it. If BMI can’t offer full-work licensing for a composition, then it has to drop that song from its repertory, the government argues.

Both Sides Predict Disaster

“Everyone would lose if the DOJ’s position” prevailed, Frank P. Scibilia of Pryor Cashman LLP, New York, told Bloomberg Law.

Scibilia, who represents copyright owners and specializes in digital music issues, said BMI’s position is “precisely how the PROs have been licensing all along” and this system has assured “the availability of public performances of songs for the benefit of consumers, writers and licensees alike.”

However, supporters of the DOJ’s position make very similar arguments. Preserving fractional licensing sets up a risk that someone will buy up tiny fractions of song rights and hold them hostage, Matthew Lane of McLane Consulting, Washington, who advises clients in the tech industry on competition and copyright issues, told Bloomberg law.

“Let’s say a bar wants to play the top 100 pop songs,” Lane said in an email. “If these PROs are only offering these songs as a fractional license, then someone could buy up 5% of each of the 100 songs and prevent the bar owner from playing any of the songs.”

Business Frustration Over Licensing

The Copyright Act says that an owner of rights in a musical composition—usually a songwriter or his or her music publisher—can demand royalties when a business publicly plays a recording based on that composition. This is called the public performance right. BMI and the American Society of Composers, Authors, and Publishers (ASCAP) administer the composition rights for some 90 percent of the music commonly played in the United States. Two smaller organizations—SESAC and Global Music Rights—control much of the rest.

Businesses have frequently complained that they can’t tell exactly what they’re getting when they pay for a license. So they can’t just buy one license; they end up paying for all four, which small businesses consider a hardship. This issue has prompted some legislative proposals. In July, Rep. F. James Sensenbrenner Jr. (R-Wis.) introduced the Transparency in Music Licensing Ownership Act (H.R. 3350), which would require the Copyright Office to maintain a database showing exactly who owns rights in musical compositions.

Unpleasant Surprise From DOJ

Decades ago, both ASCAP and BMI became subject to consent decrees as a result of antitrust law concerns. The antitrust decrees covering ASCAP and BMI require them to offer blanket licenses for all the works in each of their repertories. The Justice Department monitors the terms and rates for those licenses. Some copyright owners didn’t like the rates they were getting for new media, such as online streaming, and wanted to negotiate those rates separately.

But a federal court said that ASCAP and BMI couldn’t leave new media rights out of their blanket licenses. They then asked the Antitrust Division of the Justice Department to review the consent decrees, hoping to get some leeway for publishers to “partially withdraw” from the blanket licenses.

The DOJ rejected their request, but came out with an interpretation of the consent decrees that didn’t allow partial licenses.

BMI went back to the district court to challenge the DOJ’s new interpretation. The court sided against the government and the government appealed to the Second Circuit.

Several companies that pay royalties to play music and organizations representing such licensees—including Google LLC, Netflix Inc., the National Association of Broadcasters, and the Restaurant Law Center—have filed briefs supporting the government’s position, as have consumer advocacy groups Consumer Action and Public Knowledge. Organizations representing music copyright holders have filed in support of BMI’s position, including ASCAP and SESAC.

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

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bloomberglaw.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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