Pandora, Publishers Left Uncertain by Judge's Latest Clarification in BMI Case

In a series of requests for clarification on his Dec. 18 ruling, the BMI/Pandora rate court judge has thrown the song publishing community and Internet radio service Pandora into disarray that might not be resolved until after Jan. 1, 2014.

Pandora Faces Setback As Judge Rules Blanket License Doesn't Include Songs of Publishers Leaving BMI

If that's the case, Pandora may have to make some quick tough choices with how to deal with any publishers that decide to go ahead and withdraw their entire repertoire from BMI as of Jan. 1.

On Friday (Dec. 20), in what was a follow-up clarification to a previous clarification of his initial ruling, Judge Louis Stanton of the Federal Court in the Southern District of New York said that Pandora may not in fact have a license to play songs managed by BMI if both sides have not previously agreed on a fee. The clarification caused further confusion with both sides in an already complicated case.

In his initial ruling on Dec. 18, Judge Stanton denied Pandora's motion for a summary judgment on whether publishers could withdraw just their digital rights by saying that publishers can withdraw but they have to withdraw all their songs from BMI for all music uses, not just digital.

By telling BMI that it was no longer authorized to license Pandora and other digital services, the judge ruled that those publishers compositions are no longer eligible for inclusion in BMI's repertoire and cannot be licensed to Pandora or any other music user, not just digital services. In other words, Judge Stanton agreed with the ASCAP/Pandora rate court that publishers cannot withdraw partially -- they are either all in or all out.

Since it denied Pandora's motion, both the publishers and the digital music services sector interpreted the ruling as allowing publishers to withdraw completely from BMI and that the PRO's blanket license therefore wouldn't include any of withdrawing publishers songs.

So publishers were wrestling with whether they wanted to pull out completely come Jan. 1. While such a withdrawal would only be for licenses that have expired, their songs will remain a part of BMI's repertoire for blanket licenses still in effect. As those licenses expired, withdrawing publishers would have to negotiate their own licenses with music users and set up administration to deal with reporting and paying songwriters their proper royalties, which publishing sources say is incredibly complicated.

Some sources were skeptical that publishers would give up a chance at BMI's more than $900 million in total collections for its digital licensing revenue which is about $35 million in the U.S., although in reality any withdrawing publishers will still be paid its fair share of much of that $900 million because there are still plenty of unexpired blanket licenses in effect that the ruling doesn't impact.

But while publishers were wrestling the wisdom being all in or all out of BMI, Pandora's lawyer, Kenneth Steinthal of the King & Spalding law firm, asked the judge on Dec. 19 to clarify his order even as his client was preparing to deal with possibility that some publishers might withdraw entirely from BMI as of Jan. 1, 2014.

When the clarification came back, Judge Stanton said presently existing … interim licenses are included in and protected by the final paragraph of the Dec. 18, 2013, order, which said that his ruling does not impact presently existing licenses; they continue according to their terms until their expiration.

Sources in both the publishing community and the digital services community initially thought that the judge just had just up-ended their first interpretation of the ruling and said that Pandora had an interim license, which when final rates were set, would convert into a license-in-effect that would expire on Dec. 31, 2017.

While that interpretation was causing consternation in the publishing sector, BMI, Sony/ATV and Universal Music Publishing Group made requests for clarification on his first clarification. Judge Stanton's response Friday (Dec. 20) brought yet another turn of events in how the ruling is interpreted. The judge said that just because an applicant requests a license and is immediately granted the right to perform the BMI compositions, it is not a license until an interim fee is fixed.

While there seems to be agreement among publishers and Pandora that there is an interim license, there are circumstances in the underlying agreement for that interim license that may require further clarification from the judge. But sources say because the judge is now on vacation, and any further clarification requests may not be responded to before Jan. 1. 

That could create a problem for Pandora, because sources say UMPG may be getting set to withdraw from BMI on that date, if it can't reach a voluntary agreement with Pandora and whatever other digital services licenses expires on Dec. 31, 2013.

While BMI and Pandora supposedly hammered out an interim agreement and fee while waiting to either negotiate a rate or for rate court to set one, sources say the agreement was never signed. Yet, Pandora has been paying the agreed upon rate all along, even after it told BMI it was rejecting the interim license when it bought the South Dakota radio station.

However, music publishing sources tell Billboard the interim agreement that Pandora has been acting under includes provisions that allows publishers to withdraw. Moreover, sources say that in another behind the scenes chess move, after the judge issued his second clarification, BMI has told Pandora today that it views its agreement with the digital service as an interim license. 

So Pandora may make further requests for clarification based on the latest maneuvering, but its unclear if the judge will continue to respond throughout his vacation.

"Pandora has three choices before it, it can cut a license deal with withdrawing publishers, it can pull down songs, or it can leave them up and hope that the judge's ruling will require further clarification or rulings that will allow them to not be in copyright violation," a source in the publishing camp says.

In the meantime, Jan. 1 looms large for both the music publishers who are considering withdrawing; and Pandora, who will have important business strategy decesions to make if they do.