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May 6 — The largest performance rights organization for music rights cannot withhold online streaming rights when services like Pandora seek to obtain a blanket license, the U.S. Court of Appeals for the Second Circuit ruled May 6.
The PRO's argument would require the court to “rewrite” a consent decree that it operates under for antitrust purposes, the appeals court said. This requires music publishers—which had wanted to negotiate streaming rights directly with Pandora—to decide whether to keep their works in the PRO system or withdraw them completely to directly negotiate rates.
The court also affirmed a decision that set rates for Pandora's use of the blanket licenses for the period 2011-2015.
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 interests in about 8.5 million musical works.
In 1941, ASCAP entered into a consent decree with the U.S. Department of Justice to settle charges of monopolization in violation of Sherman Antitrust Act Section 1of 1890, 15 U.S.C. § 1. The decree gave the U.S. District Court for the Southern District of New York—the “rate court”—the authority to oversee licensing arrangements between ASCAP and parties seeking licenses to publicly perform musical works.
Under the consent decree—which was updated in 2001—ASCAP is required to grant a “through-to-the-audience” license at a reasonable price to any qualified applicant. It also requires that ASCAP grant a blanket license that covers its entire repertory to any party that requests one.
Starting 2010, major music publishing companies became dissatisfied with the rates that ASCAP was getting for “new media” rights, such as online streaming, in the blanket licenses.
Thus, ASCAP altered its rules to allow copyright holders to withhold new media rights, which the music publishers began negotiating for independently with streaming services.
Pandora Media Inc. of Oakland, Calif., has since 2005 offered online streaming music services through its Pandora internet radio Web site. Pandora asserted that under the consent decree, ASCAP must include new media rights in its blanket licenses.
Judge Denise L. Cote of the U.S. District Court for the Southern District of New York granted summary judgment in favor of Pandora on this question. ASCAP appealed this ruling.
Furthermore, Pandora sought rulings on reasonable rates for its licenses. Pandora wanted to pay 1.70 percent of its revenue for each year from 2011 to 2015. ASCAP wanted the rate to increase from 1.85 percent in 2011 to 2.5 percent in 2013, and then to 3 percent in 2014.
Following a bench trial, the court set the rate at 1.85 percent of revenue for each of the years from 2011 to 2015. ASCAP thus also appealed the rate-setting ruling, with respect to the final three years.
In a per curiam ruling, the appeals court first rejected ASCAP's argument that the consent decree allowed it to withhold new media rights from its blanket licenses.
ASCAP “would have us rewrite the decree so that it speaks in terms of the right to license the particular subset of public performance rights being sought by a specific music user,” the court said. “This reading is foreclosed by the plain language of the decree.”
Music publishers are free to choose whether to allow ASCAP to license their works, but under the consent decree, ASCAP must include the streaming rights in its blanket licenses.
Turning to the rate-setting question, the court rejected ASCAP's argument that the district court had improperly presumed that a rate that was reasonable for 2011 would automatically be reasonable for later years.
Indeed, the appeals court said, “the district court expressly observed that its holding did not depend on the existence of such a presumption.”
The court found no clear error in the lower court's ruling. Furthermore, there was no abuse of discretion in the district court's rejection of ASCAP's request for additional discovery with respect to Pandora's licenses.
The court's opinion was issued by Judges Pierre N. Leval, Chester J. Straub and Christopher F. Droney.
Pandora was represented by King & Spalding LLP. ASCAP was represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP.
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