Three judges for the U.S. Second District Court of Appeals in New York City -- Dennis Jacobs, Reena Raggi and Christopher Droney -- are now weighing the merits of the arguments put forth by both sides, after sharp questioning earlier today.
In the early moments of the hearing, things appeared to be going BMI’s way as Judge Raggi noted that the consent decree doesn’t specifically address the issue of full-works vs. fractional licensing and further pointed out that courts “are not supposed to add things,” only rule on the interpretation of what is in the agreement. At one point, she wonder why the DOJ didn't put full-works licensing in the consent decree if that was what it wanted, or simply to “start an enforcement."
Meanwhile, Judge Jacobs asked the DOJ to explain what anti-trust activity occurs when fractional licensing is practiced, saying, “I’m not sure what relief you are looking for."
But DOJ attorney Mary Helen Wimberly responded that when the consent decrees were written back in the early 1940s and subsequently updated, fractional licensing vs. full-works licensing wasn’t an issue, nor was it seen as a potential problem when U.S. Copyright Law was revised in 1976. She also added that fractional licensing doesn’t “add value to the consumer [licensees],” but creates potential problems for them. Judge Jacobs was quick to seize on that aspect, noting that, for instance, while a local pizza shop needs a license to play music, the owner wouldn't know if they had a fractional license or a full-works license, nor if the license was from BMI or one of the other PROs.
Wimberly also pointed out that BMI’s own contract with the radio industry specifically grants the licensee the right to play all songs in their repertoire, without spelling out if it is granting full-works; and if not, which songs it is only granting a partial license.
Judge Jacobs wondered whether, in this example, the pizza shop would have the burden of finding those things out. (As it stands now, in industry practice, the burden falls on the licensee.) Later, Judge Raggi said BMI should have that burden.
The judges' questioning on this topic showed that they are worried about smaller licensees and how fractional licensing will impact them. But other lawyers cautioned against interpreting one way or another what kind of ruling will come based on the questions the judges asked.
Scott Edelman, chairman of Milbank, Tweed, Hadley & McCloy LLP, handled BMI's rebuttal to the DOJ and began by pointing out that the law gives writers the right to determine if their song can be performed publicly. In cases where songs are written by multiple writers, each writer has to grant that right. That’s the way the industry has worked -- and worked fine -- since at least 1976.
Until now, Edelman explained, no one had to bear that burden, because licensees are typically licensed by all the PROs, eliminating the need to distinguish between fractional and full-works licenses. He argued that the DOJ started insisting on full-works licensing because of unspecified future fears, claiming that their interpretation can’t be found in the consent decree and that the government is trying to see meaning in “the shadow of [unwritten] words.”
“The government is trying to re-read the consent decree” and wants the music publishing industry to re-order the way it does licensing, he said, adding that the government position on the issue solves nothing while the music publishing industry wants to be able to “just keep doing what [it] has been doing.”
Wimberly countered that the government’s interpretation doesn’t change “the scope of the [blanket] license” and that the PROs can very easily deal with the issue through fractional payments.
The issue, she explained, came up because the PRO and some publishers wanted to have the ability to partially withdraw their music from the blanket license. Those publishers -- which included Sony/ATV Music Publishing, Universal Music Publishing Group, BMG and Kobalt Music Group -- wanted the ability to license directly to music users like Pandora while still realizing the benefit of the blanket licenses when dealing with tens of thousands small licensees such as stores, bars and hotels, referred to as general licensing. But both ASCAP rate court Judge Denise Cote and BMI rate court Judge Stanton ruled that publishers either had to be all in or all out, meaning that they either use the benefit of the blanket license for all licensees or they need to completely withdraw and do all their performance licensing on their own.
Whether or not the consent decree should be amended to allow for partial withdrawal, she explained, is how the issue of full-works versus fractional licensing emerged.
After oral arguments ended, BMI issued a statement. “We stand by our original position and Judge Stanton’s ruling that BMI is free to engage in the longstanding industry practice of fractional licensing,” BMI CEO Michael O’Neill said. “The DOJ has consistently presented a flawed interpretation of our decree, and their wavering arguments only underscore their lack of understanding about BMI’s decree and the negative impact their interpretation would have on songwriters and the industry.
"This has been a massive, nearly two-year-long distraction from our original goal, which was to modernize our decades-old consent decree that was last modified before the advent of digital music. Rather than work with us to modernize our decree, the DOJ instead decided to interpret our decree as a means to regulate other players in the industry. We remain steadfast in our belief that Judge Stanton’s decision should be affirmed and look forward to getting back to the business of advocating for our affiliates and modernizing music licensing.”
Likewise, ASCAP also issued a statement. "ASCAP stands shoulder to shoulder with the entire creative community in our fight to protect the rights of songwriters," ASCAP CEO Elizabeth Mattews said. “The DOJ's effort to upend the longstanding industry practice of fractional licensing is completely misguided and would have a negative impact on the efficiencies of collective licensing for songwriters and licensees alike. We hope the Second Circuit ultimately decides to protect the futures of over 1 million American songwriters and affirms Judge Stanton’s decision.”