Court of Appeals Sides With Songwriters, Publishers on Fractionalized Licensing: 'This Is a Massive Victory'

      

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As the music industry heads into the holiday season, the U.S. Second Circuit Court of Appeals just gave songwriters and music publishers a gift with its decision that the consent decree allows fractionalized licensing.

Fractionalized licensing means that in cases of songs written by multiple songwriters music users need to get a license from all of the songwriters, or their representatives. The U.S. Dept. of Justice had said that the industry had been misinterpreting the consent decree by doing fractionalized licensing and instead insisted that the agreement called for full-works licensing, which means that a music user only needed a license from one of the songwriters.

When the DOJ informed the industry of the full-works licensing requirement, BMI, Broadcast Music Inc,. sued the DOJ in the BMI rate court and Judge Louis Stanton ruled that the consent decree neither bars fractional licensing nor requires full-work licensing. But the DOJ appealed it to the Second Circuit in the Southern District of New York; and after hearing verbal arguments on Dec. 1, issued their ruling today.

Circuit Judges Dennis Jacobs, Reena Raggi, and Christopher Droney affirmed Judge Stanton's ruling. "This appeal begins and ends with the language of the consent decree," according to the summary order issued by the Judges. "It is a well-established principle that the language of a consent decree must dictate what a party is required to do and what it must refrain from doing."

Yet, the Judges noted, "The decree does not address the issue of fractional versus full work licensing, and the parties agree that the issue did not arise at the time of the 1966 and 1994 amendments."

Consequently, the Circuit Judges cited existing case law noting "the scope of a consent decree must be discerned within its four corners; and that the courts “must abide by the express terms of a consent decree and may not impose additional requirements or supplementary obligations on the parties," -- even to fulfill the purposes of the decree more effectively."

Although the relief sought by the DOJ may be in keeping with the purposes of the antitrust laws, "we do not believe that it is supported by the terms of the consent decree." So even though the DOJ asked the Judges to read additional requirements into the consent decree to advance pro-competitive objectives, case law forecloses the Circuit Judges from doing so, the document stated.

"This is a massive victory for songwriters, composers, music publishers and the entire industry," BMI president Mike O'Neill said in a statement. "We have said from the very beginning that BMI's consent decree allowed for fractional licensing, and we are incredibly gratified that Judge Stanton and the Second Circuit agreed with our position. We thank all the songwriters, composers, publishers and organizations who supported us throughout this process, which unfortunately, has been a nearly two-year distraction from our original intent which was to update our outdated consent decree and modernize music licensing. We look forward to our continued efforts to protect and grow the value of music."

ASCAP, which sat out the legal proceedings while concentrating on lobbying for U.S. legislation that addresses all publisher and songwriting issues, hailed the decision. 

"The Second Circuit’s ruling today is an important victory for music creators across the country," ASCAP CEO Elizabeth Matthews said in a statement. "The Court affirms what we have known all along, that the right of public performance allows for the fractional licensing of musical works in our repertories, and the consent decrees do not limit that right. ASCAP and BMI can now continue to offer blanket licenses to our hundreds of thousands of licensees that contain all the shares of works that are in our repertories and the livelihoods of our 650,000 ASCAP songwriter, composer and publisher members can continue to depend on a strong collective licensing system. ASCAP remains committed to making music licensing more efficient, effective and transparent for today’s digital music marketplace."

The decision also played well in Washington, where the NMPA is headquartered. "Today’s affirmation of Judge Stanton’s decision is vindication for all songwriters and music publishers that the Justice Department overreached when it wrongly claimed that split works should be licensed on a 100 percent basis," NMPA president & CEO David Israelite said in a statement. "DOJ’s disastrous interpretation was an attack on songwriters and we congratulate BMI and the industry effort on successfully fighting against this massive government overreach."

Peermusic CEO Ralph Peer agreed with the PROs and the NMPA. "BMI's resounding victory today over the DOJ (in United States v. Broadcast Music, Inc.) which affirms Judge Stanton’s ruling that that the consent decree neither requires full-work licensing nor prohibits fractional licensing of BMI's affiliates' compositions, is an important win for songwriters and publishers worldwide which we warmly welcome,” he said in a statement.

Needless to say as happy as the music publishing community was, the music licensees sector was just as unhappy.

"Today's decision by the Court of Appeals for the Second Circuit will have devastating consequences for the future of music licensing," the MIC Coalition said in a statement. "If left unchallenged, this decision will fundamentally alter decades of business practices while destroying the value of collective licensing and threatening to throw the entire music marketplace into chaos."

The radio sector also expressed its displeasure with the decision."“NAB is extremely disappointed with the court’s decision... If sustained, this decision could disrupt the music licensing marketplace and impede the delivery of music to listeners and viewers, resulting in less airplay of their favorite songs," according to a statement from NAB VP of communications Dennis Wharton. Nevertheless, Wharton said that the NAB would look forward to "finding common ground with our songwriter friends to continue [its] partnership."

However, while today's decision counts as a victory for songwriters and publishers, whether the issue of full works licensing versus fractional licensing is fully resolved is now up to the DOJ.

The Circuit Judges noted that if DOJ still had anti-competitive concerns, "it is free to move to amend the decree or sue under the Sherman Act in a separate proceeding." Or the DOJ can appeal the Second Circuit ruling to the Supreme Court.

In fact, the MIC Coalition said in a statement that they hope they do just that: "We urge the Department of Justice to challenge today's decision all the way to the Supreme Court, if necessary. We believe that the clear precedent on the scope of the consent decree will prevail."

O'Neill acknowledges that the DOJ always had the ability to sue based on the Sherman Act, but he questions whether they had a case. "We are not going to be in violation of the Sherman Act," he tells Billboard. "As long as we operate in the bounds of the consent decree, I am not nervous" about the DOJ deciding to pursue a Sherman Act case.

Back on today’s decision, “I hope this decision puts [the issue] to bed,” O’Neill says. From his perspective, the Circuit Judges decision today “gives a definitive answer to the question that has been raised. The question was asked, it was answered and it was answered again today and we like the answers.”

But the DOJ’s comment on the decision doesn’t give a clear answer on whether it considers the matter closed; or if it will pursue further action.

“Today’s Second Circuit decision highlights the challenges of behavioral consent decrees in antitrust cases,” Assistant Attorney General Makan Delrahim of the Department’s antitrust division, said in a statement. “Such decrees, over time, effectively become perpetual regulations that the Department of Justice and the courts are often not well-suited to enforce. He added, “we will review the court’s decision and determine the best course of action for competition and the American consumer.”

Before the DOJ contemplates pursuing the issue further, Israelite extended an olive branch: "We are encouraged it is a new day at the Justice Department with new leadership that we trust will respect the rights of songwriters and ultimately address the larger problems with the outdated WWII-era consent decrees that continue to harm music creators," he said in a statement.

With new leadership, Israelite is referring to the appointment and confirmation of Delrahim to lead the DOJ’s anti-trust efforts in the fall. Many top publishing industry executives hope that the DOJ will now be willing to sit down and talk about revising the consent decree to bring it in line with the realities of the digital marketplace.

Like Israelite, BMI's O'Neill says he is hopeful that the industry can now sit down with the new leadership at the DOJ and talk about modernizing the consent decree.

But the last time, the music publishing industries approached the DOJ about revising the consent decree, when it was still staffed with appointments by President Barack Obama, the industry not only didn't get what they wanted, that process opened up the whole fractional versus whole works licensing can of worms.

Also unclear is how today’s ruling will impact the lawsuit brought against the Dept. of Justice for its stance on full-works licensing by the Songwriters of North America group. That lawsuit has yet to have a court date set.

Labeling the DOJ decision a big win for songwriters and publishers, SONA executive directors and songwriters Michelle Lewis and Kay Hanley said in a joint statement, "We applaud the Second Circuit Court for being able to clearly see the real issues in this case, despite the DOJ’s tactics.... We are very hopeful that this is an indicator of 'good things to come' in our own case to further fight injustice against songwriters.”

Another issue on which music publishers are anxiously awaiting a resolution is the submission to the U.S. Congress of the Music Modernization Act, which is aimed at changing the way on-demand streaming service pay mechanicals; and which will change the standard that the Copyright Royalty Board sets mechanical rates. That bill is set to be introduced in Congress before Christmas.