The DOJ yesterday issued its long-awaited review of the ASCAP and BMI antitrust consent decrees. We wrote about the issues raised by the DOJ in its initial inquiry here. The questions that had been advanced in DOJ’s initial notice included (1) whether to allow music publishers to partially withdraw their catalogs from one of the PROs (Performing Rights Organizations) to negotiate directly with some class of music users (principally a review to determine if certain big publishers could negotiate digital rights directly, while allowing ASCAP or BMI to continue to license less lucrative and more difficult-to-administer music users like bars, restaurants and retail establishments), (2) whether to strengthen the payment and enforcement rights of the PROs (including questions of how services should be paying before rates for a class of user are established, and whether rate courts were appropriate for all disputes over rates), and (3) whether the PROs should be allowed to license more than just the public performance rights (perhaps getting into licensing mechanical rights, as their Canadian counterpart SOCAN and their US competitor SESAC are now doing – see our article here). The DOJ’s report decided to hold off on addressing any of these questions, and instead focused solely on one issue – requiring that the PROs offer full-work licensing on all songs within their catalogs (which the DOJ raised in a second request for comments about which we wrote here).
Already, there has been much angst within the PRO and publishing worlds about this decision, while there has generally been relief among the users of music that there were no fundamental changes in the way that music is licensed through the PROs. But just what are the issues with full-licensing of musical works?
The concept is basically that, when a user pays ASCAP or BMI for the right to use their catalog, the user should get all of the rights they need to publicly perform all of the songs in that catalog. Most users probably already assumed that they were getting all of those rights when they paid the PROs their monthly fees. But the DOJ discovered that there was a basic conceptual question about just what the user was getting when they paid their license fee – and that question could prove even more problematic were the DOJ to agree to some of the requested more fundamental changes in the consent decrees, such as allowing partial withdrawal of catalogs by publishers. The question is whether a user gets all the rights to the songs that are listed in a PRO’s catalog, or merely the “fractional interest” that is owned by the songwriter or publisher who is a member of that PRO.
In the real world, for most users, the difference between full-work and fractional licensing was meaningless – as virtually all songwriters and publishers have been represented by one of the three big US PROs, ASCAP, BMI and SESAC. So, when a user got a license from each of the three PROs, each PRO paid their own affiliated songwriters their fractional share of a musical composition. All those with an ownership interest in the song got paid. The fact that different PROs were paying fractional interests in the same song to their own rightsholders was invisible to the music user. The user just paid their fees to the three PROs and got all the rights to all the songs, and the composers got paid by those PROs.
But in a world where partial withdrawals are possible, and even where they are not (where there may be complete withdrawals and the establishment of new PROs or organizations that function like PROs, with GMR – Global Music Rights – being perhaps the most visible manifestation of that possible trend), the issue becomes more important. Because if a user pays ASCAP, BMI and SESAC now, they may find that some composer who did the chart for background brass instruments in some pop song and owns 5% of the rights to that song could decide not to join one of the big PROs. If the PRO could only offer a fractional license, that 5% owner could force the user to make a payment to them (perhaps an outsized payment – almost a ransom) for clearances so that the user can use the song in which they had an interest.
But fractional licensing is even more problematic for the music user. The DOJ points to two realities that make fractional licensing even more difficult to administer in the real world. One is that many music users have no control over the music that they publicly perform. For instance, a bar that has bands playing at their venue may have no idea what songs the band will play, and who wrote each of those songs. A retail outlet subscribes to some music service, or plays the local radio station in the background at their business location, and that business has no idea what songs their music provider will play. Even a radio or TV station that buys syndicated or network programs may have no idea in advance what music is used in that programming that it ends up broadcasting. So these users may not find out until after the fact (probably when they get an infringement notice) that they played a song where a 5% owner of a composition was not a member of any of the PROs to which they had paid their royalties, and therefor that user could be liable for statutory damages.
The DOJ notes a further complication – that there is no simple way for any user, especially one not sophisticated in the music industry and willing to pay big bucks for music administration, to determine who owns what fractional share of any musical work. The Copyright Office does not track such ownership in any accessible database. While there are some private companies that claim to have somewhat complete databases, these are not readily used or accessible to most music users. Moreover, issues that have arisen in connection with many music services and their difficulties in paying all the mechanical royalties that they owe. While these users were using data from some of these companies who claim to have relatively complete databases, the issues that have been raised demonstrates that even these services have holes in their database. And the ownership of publishing catalogs is regularly changing. So for an unsophisticated music user to determine what rights to what songs it has purchased when it pays ASCAP or BMI for their music is simply unrealistic.
Of course, there is nothing in the music industry that is simple, especially when it comes to royalties. The PROs and publishers have decried this decision. First, they argue that this upends the way that the PROs operate as the PROs themselves have paid the composers and publishers based on the fractional shares that they own, not based on full-work licensing. So this could require that they change the way that they account for payments. For instance, they could have to pay their composers 100% for any song in their catalog, and then the composers would be obligated to pay other co-composers their fractional shares (which is the way the Copyright Office indicates that licensing is supposed to be done – that each co-composer can give a nonexclusive license to use a work, and then be responsible to paying the other composers of that work, unless there is a specific contrary agreement requiring that each co-composer agree to any licensing). But, as the DOJ points out, it is easier for the PROs and publishers to work out these payment issues than it is for the licensees who have little knowledge of all of the factional owners of musical works. The DOJ has also given the PROs a year to come into compliance with these requirements, so they have time to adjust to the ruling if adjustments in their payment methodology are needed.
Some also argue that this makes it more difficult for owners to assert control over their works. But, as the DOJ makes clear, if the co-owners of a musical work want to each have veto power over the licensing of that work, they can agree to that arrangement in a contract. And if each of those owners is not affiliated with the same PRO, and full-work licensing is not available for that work, it just won’t be included in the catalog offered by the PRO.
Finally, there is the argument that this will mean that users can “catalog shop” and decide to forego licenses with certain PROs. The theory is that a user can decide that, as they get full rights to a song from one PRO, they don’t need to pay royalties to the other PRO at all. But that would only be a concern if a PRO represented only a single song, or a handful of songs, all of which had fractional ownership registered with multiple PROs. Only then could a user decide to forego getting rights to that PRO’s catalog, as they could get the rights to the songs that they need through the fractional interest held by other PROs. But, in reality, where PROs each hold the rights to hundreds of thousands of songs, many exclusive to that PRO, full-work licensing really gives users no more ability to pick and choose among PROs then they have now. Few if any music services would be willing to forego the exclusives held by any of the major PROs.
We have not heard the last of this matter. There have already been promises by the PROs and publishers to raise issues about the DOJ’s decision with the judges who administer the consent decrees. And there have been pledges to ask Congress to address these issues. While time is short in the current Congress to do anything on copyright reform, there have been promises to take up comprehensive copyright reform in the next Congress after the elections – so we can certainly expect this debate to go on.