DOJ's ASCAP/BMI Consent Decrees Decision Faces Legal, Lobbying Challenges

DOJ's closing statement on the consent decrees review mirrored a preliminary version circulated in July. Stakeholders' reactions to the final decision reflected parties' earlier positions, particularly on the issue of 100 percent licensing. The PROs, music publishers and songwriters opposed 100 percent licensing, while broadcasters, tech sector groups and public interest groups have supported it (see 1607070040, 1607190063 and 1607220046).

“We believe that pursuing the requested modifications at this time would disrupt the status quo, would not be consistent with the purposes of the consent decrees and would not be in the interest of consumers,” said Antitrust Division head Renata Hesse during a call with reporters Thursday. Antitrust's investigation into the partial withdrawal request also led the division to conclude it needed to specify that the music industry's use of fractional licensing is inconsistent with the consent decrees' language, Hesse said. “We see no reason why today's full-work licensing but fractional payments practice cannot continue into the future, with each songwriter continuing to be paid by the PRO with which he or she is affiliated,” Hesse said. “In the unlikely event that a user obtains a license from only one PRO, that PRO would have reason to increase the rate for the license to account for the full share of all the songs it licenses rather than according to the shares on which the license fee is normally calculated.”

Multiple tech groups praised the decision in statements Thursday. Computer and Communications Industry Association President Ed Black said that “keeping the current protections against anticompetitive behavior is important” because ASCAP and BMI “control 90 percent of the music marketplace.” CTA President Gary Shapiro said the decision will “ensure an efficient and fair licensing system for all stakeholders,” and the 100 percent licensing language will allow music users an “unlimited right to play the songs in these organizations' repertories.” NAB CEO Gordon Smith said the decision “will ensure that ASCAP and BMI continue to fairly and efficiently license music works in a manner that is pro-competitive.” The Internet Association believes “ASCAP and BMI's market power is at an all time high and should not be left unfettered,” said CEO Michael Beckerman. “The legal certainty and careful guidance provided by DOJ maps out helpful rules of the road regarding access to creative works. This is particularly relevant for music delivered through the internet, which must be afforded fair and equal treatment by all actors in the digital music ecosystem.”

ASCAP and BMI quickly announced their plan Thursday to challenge the DOJ's decision via a coordinated lobbying and litigation-based effort. BMI began a legal challenge Thursday to the decision via the U.S. District Court in New York, where BMI counsel at the Milbank Tweed law firm filed a pre-motion conference request with District Judge Louis Stanton, the rate court judge in charge of adjudicating the BMI consent decree. New York-based District Court Judge Denise Cote is the rate court judge for the ASCAP consent decree. BMI challenged DOJ's interpretation of the consent decrees' language as requiring 100 percent or full work licensing. The PRO said in a letter that the consent decrees have never “required full work licensing and to read it as doing so now would contradict decades of historical practice, undermine the purposes of the Consent Decree, and reduce the benefits of the blanket license.”

ASCAP will lead efforts to lobby Capitol Hill to enact legislation “to address the outdated consent decrees in favor of legislative solutions that make sense for the future of American music,” said President Paul Williams in a letter to ASCAP members. “ASCAP has been working closely with other music industry stakeholders for some time to educate key members of Congress in both the House and the Senate about the unique challenges faced by music creators in the new music economy, and we already have a strong base of support in both parties. We will work closely with our allies to develop the framework for legislative proposals to be introduced in the next Congress.” ASCAP lobbied in May for legislation aimed at revamping music licensing laws, particularly those that affect the consent decree (see 1605180076).

House IP Subcommittee Vice Chairman Doug Collins, R-Ga., pushed again Thursday for DOJ to “take a closer look at the fallout from these decisions that could fundamentally change the landscape of the music industry.” Collins and four other House Judiciary Committee members wrote Attorney General Loretta Lynch in July seeking an independent review of Antitrust's expected consent decrees decision and to give deference to the Copyright Office's earlier opposition to 100 percent licensing language (see 1607200075). “Unfortunately, DOJ appears to have deviated from that request,” Collins said in a statement. “The DOJ has shown a lack of understanding of the music industry.”

A coalition of songwriters is considering a separate legal challenge to DOJ's consent decrees decision but isn't ready to comment on its exact strategy and timeline for a challenge, said IP and entertainment lawyer Dina LaPolt, attorney adviser to the Songwriters of North America. A combination of challenges via courts and the Hill is the most effective response to the decision, LaPolt said in an interview. Although it would be strategic to focus on the 100 percent licensing issue since the PROs, music publishers and music creators were solidly unified there, it would be wise for opponents of the DOJ decision to also challenge the decision not to allow partial withdrawals, several industry lawyers told us.

The decision against partial withdrawals is “almost as disruptive” to the music industry as the 100 percent licensing mandate, said Jay Rosenthal, a Mitchell Silberberg lawyer who represents music industry content owners. Rosenthal spoke with us in his personal capacity rather than behalf of clients. “If it was up to me, I would challenge everything,” Rosenthal told us. “The partial withdrawals request was reasonable within the parameters of the consent decree, so the DOJ's arbitrary refusal is worth examining.” Opponents “could be strategic and just pick one of the two issues but I think you have to hit them both,” said music industry attorney Chris Castle. He said 100 percent licensing language could be particularly ripe for a challenge because Cote and Stanton “have had the opportunity to say 100 percent licensing is required in the past and they haven't.”

Hesse and industry supporters of the DOJ decision acknowledged that legal challenges of the decision were likely but said they were confident the decision can withstand judicial scrutiny. Hesse told reporters the DOJ notified Cote and Stanton about the decision but doesn't believe either judge needs to sign off on it for it to have an effect after the department-imposed one-year grace period. Legal challenges to the DOJ decision would need to go through either Cote or Stanton, Hesse said. The blanket licenses issued via the consent decrees would “lose their value as indemnifiers against copyright infringement” under a fractional licensing regime because licensees would “suddenly be at risk of infringement” from owners outside a particular PRO, an industry lobbyist told us. Broadcasters and other supporters of the DOJ decision will “want to be heard in this process,” the lobbyist said. Other DOJ decision supporters also are interested in filing amicus briefs on the department's behalf but haven't committed to doing so yet, a tech sector lobbyist said.

Digital Media Association General Counsel Greg Barnes said he's confident that the DOJ's rationale for its decision “would completely hold up in court” in the BMI lawsuit and other possible legal challenges. BMI cited the actual consent decree language and prior case precedent to counter the DOJ's reasoning for its decision on 100 percent licensing but failed to note past statements by the PROs themselves “that suggest full work licensing” and previous Supreme Court precedents, Barnes told us. Many in the tech sector also support the DOJ's position “that those who acquire a license from ASCAP or BMI should be able to use all the works in their catalogues even though a work might have multiple authors,” a tech sector lobbyist said. “The general principle in U.S. copyright law is that any co-owner may license a work, and this is supported by the legislative history of the Copyright Act, as well as copyright scholars.”

There's room for music licensing issues to be heard as part of the House Judiciary Committee's ongoing copyright legislative work, but the committee is likely to make that part of a comprehensive bill that would benefit all stakeholders “rather than dole it out in a piecemeal form that caters a certain special interest” as ASCAP seeks, Barnes said. “It would not surprise me if the music industry tried to get Congress involved on this, but we hope members of Congress will listen to all stakeholders and preserve balanced antitrust and copyright policies that promote a competitive music marketplace that benefits authors, consumers, and users of music,” a tech sector lobbyist said.