Pandora's effort to get BMI rate court Judge Louis L. Stanton to rule that the digital service has a "license-in-effect" with the performance right society has failed, with the Judge ruling last Friday (Nov. 21) against the Oakland, Calif.-based company.
Initially intended to determine if Pandora could file a motion on the license-in-effect, the hearing evolved into the Judge making a ruling on the company's proposed motion. Despite Pandora's plea in favor of ruling for the existence of a license-in-effect, the judge said that there was no such license because Pandora was still an applicant for a license and not yet a license holder, according to BMI senior vp and general counsel Stuart Rosen. While the service can use the music, it wouldn't become a license holder until the rate and length of the deal were determined.
Pandora sought a motion for such a ruling because, the company explained in an Oct. 21 letter to the court, that: "BMI announced -- for the first time ever -- that Pandora’s final license in this proceeding would not have the status of a license-in-effect," Pandora said in its Nov. 5 letter to Judge Stanton. "That result would be unprecedented and inequitable."
In a Nov. 5 letter to Judge Stanton on the issue, Pandora had argued that it needed the Judge to rule on a motion that it possessed a license-in-effect, because without such a ruling "Pandora's BMI license would differ from every license ever emanating from this rate court in that the publishers could withdraw en masse at any time during the term of Pandora’s license, even after trial." Consequently, without such an order Pandora would have a "less-valuable blanket license than every other licensee who has come before the court."
In fact, Pandora argued that BMI and its publishing affiliates have consistently used a license-in-effect stance once the PRO issues a license to a digital service. Up to now, once a license was issued, it locked in all BMI repertory. When publishers contemplated withdrawal for licenses to certain digital services, they only did so for those licenses that were expiring, not those still ongoing. Furthermore, PROs themselves also benefit from the license-in-effect concept for its members because it provides stability, helping them to "allocate costs among affiliates while locking in more steady royalty streams." Pandora argued it would be "fundamentally unfair and senseless to allow BMI to change the nature and scope of the license."
However, last December Judge Stanton ruled that publishers didn't have the power to withdraw just digital rights -- that publishers had to be "all-in or all-out" of BMI. Since that ruling, Sony/ATV Music Publishing, which administers EMI Music Publishing, the Universal Music Publishing Group, and BMG Chrysalis have all entered into direct deals with Pandora under the ruling, which declared those publishers all-out, since the three companies had intended to withdraw digital rights by the end of the year. But UMPG made a direct deal with Pandora on Dec. 31, Sony/ATV made a direct deal with the service in February 2014 and BMG made a direct deal in September, 2014. And all three publishers subsequently stayed within BMI, deciding not to withdraw.
Pandora's motion, if it had been approved by Judge Stanton, conceivably could have rendered those market-negotiated rates void and would have made those publishers part of the blanket license at the rate and length still to be determined by the court next year.
When Judge Stanton made that ruling, he said that it would impact any licenses then in effect. But any licenses entered into after his all-in or all-out decision are made with eyes wide open.
As it is, the rate and length of Pandora's license from BMI will be determined by a rate trial scheduled to begin on Feb. 9. "At trial, both parties will have to propose to the court on how to deal with publishers leaving BMI and how that would impact the rate," Rosen says. One option is for the BMI license to Pandora to have a carve-out mechanism to adjust the rate, should a publisher withdraw.