Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Music publishers’ exclusion of “New Media” rights from BMI excludes all performance licenses for withdrawn works, (Dec 23, 2013)

By Cheryl Beise, J.D.

Internet radio service Pandora Media was not entitled to a blanket license to perform works that music publishers have withdrawn from the repertory of performing rights organization Broadcast Music, Inc.(“BMI”), the federal district court in New York City has ruled (Broadcast Music, Inc. v. Pandora Media Inc., December 18, 2013, Stanton, L.). While music publishers have the right to withdraw their authorization for BMI to license the performance of their compositions by the so-called “New Media Services,” the terms of BMI’s antitrust consent decree prohibit BMI from licensing the withdrawn works to Pandora, or to any other licensee, the court held.

BMI is a non-profit performing rights organization (“PRO”) that licenses non-exclusive rights of public performance to a variety of music users on behalf of affiliates who are the music compositions’ copyright holders. Pandora is a streaming internet radio service that plays music compositions licensed directly from copyright holders, or through BMI and other PROs.

Background. Since 1941, BMI has operated under the terms of consent decree (“BMI Consent Decree”), resolving a U.S. Department of Justice antitrust lawsuit that alleged monopolization of performance rights licenses. United States v. Broad. Music, Inc., 1966 CCH Trade Cases ¶71,941 (S.D.N.Y. 1966), as amended by 1996 CCH Trade Cases ¶71,378 (S.D.N.Y. 1994). The consent decree designated the federal district court in New York City as the “rate court” charged with continuing jurisdiction over disputes regarding reasonable public performance license fees. BMI’s largest competitor, the American Society of Composers, Authors and Publishers (“ASCAP”) also has operated under a similar consent decree since 1941.

Effective January 1, 2013, BMI allowed its affiliate publishers—including the intervenors in the suit, Sony/ATV Music Publishing LLC, EMI Music Publishing, and Universal Music Publishing—to elect a “Digital Rights Withdrawal” addendum modification to their affiliation agreements. The addendum purported to exclude BMI’s right to license transmissions to “New Media Services.” New Media services are those, like Pandora, that offer transmission of musical compositions to the public “by means of the Internet, a wireless mobile telecommunications network, and/or a computer network.” Several music publishers withdrew their New Media licensing rights from BMI and entered into separate licensing agreements with Pandora.

On June 13, 2013, while Pandora and BMI were in the process of negotiating a new license, BMI filed the instant petition, asking the court to determine reasonable license fees. Before the court was Pandora’s partial summary judgment motion, seeking a determination that BMI must offer all of the compositions in its repertory to Pandora without regard to the publishers’ putative withdrawals of BMI’s right to do so.

On September 17 2013, in a nearly identical rate case between Pandora and ASCAP, U.S. District Judge Denise Cote granted summary judgment in favor of Pandora. Judge Cote interpreted ASCAP’s parallel consent decree—known as the Second Amended Final Judgment, or “AFJ2”—as prohibiting partial assignment/withdrawal of performance rights. Judge Cote found that the language of AFJ2 “unambiguously requires ASCAP to provide Pandora with a license to perform all of the works in its repertory.”

Scope of withdrawal. The court did not agree with Pandora’s interpretation of the BMI Consent Decree. Under Section XIV of the BMI Consent Decree, when an applicant requests a license for “any, some or all of the compositions in defendant’s repertory,” BMI must grant a license for performance of the requested compositions, which may range from “any” (a “per piece” license) to “all” (a blanket license). These options are open to all applicants, with fees that do not discriminate between applicants similarly situated.

As copyright holders, music publishers are entitled to divide their copyrights pursuant to the exclusive rights, including the right to publicly perform a work performance, delineated in Section 106 of the Copyright Act. “The publishers are privileged to license, or not license, the performance of their compositions as they see fit,” the court said. “In the exercise of that right the publishers have agreed with BMI to withdraw their New Media performance licensing rights from Pandora and New Media Services. That is well within their power as copyright holders.”

However, the BMI Consent Decree restricts BMI from carrying in its repertory compositions that it can no longer offer to the New Media Services, the court determined. When any portion of a public performance right is withdrawn, “the affected compositions are no longer eligible for membership in BMI’s repertory, and it cannot include them in a blanket license or license them at all,” the court explained. In other words, if BMI cannot offer compositions to New Media applicants, the compositions can no longer be held in BMI’s repertory. Since they are not in BMI’s repertory, BMI cannot deal in or license those compositions to any party.

“BMI and the intervenors argue that nothing in the BMI Consent Decree prevents BMI from agreeing not to serve particular customers. That puts matters backwards,” the court said. “Nothing in the Consent Decree settling this antitrust case can be read to allow one with BMI’s market power to refuse to deal with certain of its applicants. The copyright law necessarily gives that privilege to the intervenors, but BMI cannot combine with them by holding in its repertory compositions that come with an invitation to a boycott attached.”

Risk to competition. On December 13, 213, the U.S. Department of Justice filed a memorandum urging the court to interpret BMI’s consent decree consistently with Judge Cote’s interpretation of ASCAP’s consent decree. Conflicting interpretations of the consent decrees—even if ultimately reconciled on appeal—“would create a significant risk to…competition,” and “and irreparably change the music industry by creating incentives for publishers and composers to switch from ASCAP to BMI,” the Justice Department warned. BMI’s affiliates comprise approximately 600,000 composers, songwriters, and music publishers, and BMI’s repertory consists of approximately 7.5 million musical compositions. ASCAP collects license fees on behalf of 460,000 members.

The Justice Department added that it is actively soliciting input from the PROs and other interested parties, in the context of its ongoing consent decree oversight, regarding whether permitting partial assignment/withdrawal of performance rights would be procompetitive from a competition policy standpoint.

The court was not persuaded by the Justice Department’s concerns regarding conflicting opinions issued by two different rate courts. “The inconsistency is just a difference of view of the power of the application of Section 106 and the copyright holders’ rights under the Copyright Law, and will be resolved by the Court of Appeals for the Second Circuit or decree amendment procedures, or managed commercially,” the court said.

Pandora’s motion for partial summary judgment was denied. As the relevant compositions were not within BMI’s repertory, BMI lacked the power to license them to any applicant, including Pandora.

The case is No. 13 Civ. 4037 (LLS).

Attorneys: Atara Miller (Milbank, Tweed, Hadley & McCloy LLP) for Broadcast Music, Inc. Kenneth L. Steinthal (King & Spalding LLP) for Pandora Media, Inc. Ethan Charles Glass, U.S. Department of Justice, Antitrust Division. Donald S. Zakarin (Pryor Cashman LLP) for Intervenors Sony/ATV Music Publishing LLC and EMI Music Publishing. Glenn D. Pomerantz (Munger, Tolles & Olson) for Intervenor Universal Music Publishing, Inc.

Companies: Broadcast Music, Inc.; Pandora Media, Inc.; Sony/ATV Music Publishing, Inc.; EMI Music Publishing; Universal Music Publishing, Inc.

Cases: Antitrust NewYorkNews