Pandora was struck a blow on Wednesday when a rate court ruled that the Internet radio leader doesn’t have a blanket license that includes the songs of publishers who have withdrawn their digital rights.

The BMI/Pandora rate court ruling means if Pandora doesn't cut some kind of deals with publishers like Universal Music Publishing Group, BMG and Kobalt -- who all have notified BMI that come Jan. 1, they intend to withdraw their digital rights -- Pandora could be in copyright violation if they haven’t pulled those songs by that date.

Judge Louis L. Stanton has ruled the exact opposite of what occurred when Pandora squared off with ASCAP -- a rival collection society to BMI -- at another rate court hearing on Sept. 17. Judge Denise Cote ruled that Pandora had a license in effect and were covered by the ASCAP blanket license, including songs from all the publishers that intended to withdraw.

Yet both judges came to the same reasoning on how the consent decrees disallow the partial withdrawals of rights. Stanton agreed with Cote that publishers are either all in or all out, a position which was bolstered by Ethan Glass, a lawyer from the Department of Justice. Glass said the consent decree doesn't allow for partial withdrawals, although he did say whether the consent decree should be amended is a matter for the DOJ and the PRO's to discuss, not for the Judge to rule on. So far, no such consent decree review has begun, although some in the publishing community have reached out to the DOJ in the hopes of getting that process started, sources say.

Where Judge Stanton differed with Judge Cote was on whether there was a license in effect. Stanton pointed out that while Pandora had asked for a five-year license beginning Jan. 1, 2013, BMI had already amended their rules to allow publishers to withdraw digital rights as of the same date. So instead of looking at whether Pandora had a license in effect, he seemed to place more credence on when the BMI agreement allowed publishers to withdraw.

"When BMI no longer is authorized by music publisher copyright holders to license their compositions to Pandora and new media services, those compositions are no longer eligible for inclusion in BMI's repertory," he wrote in his decision. "BMI can no longer license them to Pandora or any other applicant."

Now, the publishers are faced with a decision of whether they follow through on withdraw on Jan. 1, 2014. If they do, that triggers their immediately complete withdrawal from BMI, although any existing blanket licenses would include those publishers' repertoire until they expire.

That means publishers have to take a hard look at what type of BMI licenses are expiring in 2014 and whether they have the capabilities to handle all the different types of licensing BMI does--including general, radio and TV and other licensing. Publishers had only intended to partially withdraw some digital rights to do direct deals with big digital services while leaving smaller digital services and all other performance licensing to BMI and ASCAP.

So the ruling could cut into BMI's revenue and negotiating power when it comes to setting new rates in the future. But the idea of completely withdrawing from a PRO is daunting to even the biggest publishers. Some of them are probably hoping that digital services will reach out to cut voluntary licenses deals, which is allowed under the consent decree. If enough of the digital services chose to cut direct deals with the large publishers, then the publishers wouldn't have to withdraw. But the publishers can't make that choice for direct deals with services, unless they withdraw all their digital rights.

Meanwhile, DOJ's Glass testimony was very contradictory to many of the stances taken by the publisher and reinforced Judge Cote's interpretation of the consent decree. He also opined that whether the consent decree should be amended is outside the jurisdiction of the two rate court judges.

He did say that if Judge's Stanton ruling, which at that point had yet to be made, resulted in one set of rules applying to one PRO and not the other could create a competitive imbalance that would be of concern to the DOJ.