USCA, Second Circuit, December 19, 2017

In Depth

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Second Circuit affirms district court’s interpretation of 1966 anti-trust consent decree governing performing rights organization Broadcast Music Inc., holding that, when BMI’s members control less than 100 percent of musical composition, decree neither requires BMI to license full share of composition nor prohibits BMI from licensing fractional interests its members control.

In 2014, BMI asked the DOJ to review and consider possible changes to a 1966 consent decree (amended in 1994) between the two parties. After concluding its two-year review, the DOJ released a statement on August 4, 2016, in which it concluded that when BMI and its primary competitor, ASCAP, cannot license 100 percent of the performance right to a composition, those compositions are ineligible for licensing under the terms of the consent decree. According to the DOJ, if BMI were allowed to grant a partial license for the right to perform a certain composition, music users seeking to avoid infringement liability would have the “daunting task” of obtaining licenses from all partial owners.

BMI then filed a declaratory judgment action in the Southern District of New York seeking a ruling that the consent decree does not require full-work licensing. The district court agreed with BMI, holding that the consent decree neither bars the fractional licenses nor requires BMI to issue full licenses where its members control less than 100 percent of a composition. The district court explained that the consent decree’s definition of BMI’s “repertory” as “those compositions, the right of public performance of which [BMI] has ... the right to license or sublicense” is descriptive, not prescriptive. The “right of public performance” is left undefined as to scope or form, to be determined by processes outside the consent decree, it held.

The district court noted that the consent decree addresses neither whether the copyrights in BMI’s repertory are valid nor the value of fractional versus full-work licensing. Therefore, the issue of fractional licensing was left to be determined under the applicable copyright, property and other laws, the district court held.

On appeal, the DOJ argued that the consent decree’s requirement that BMI license “the right of public performance” means that BMI must grant “the immediate right to actually perform” the musical work without risk of infringement, which fractional licensing does not provide.

The court was unpersuaded by the DOJ’s argument. It first explained that the Copyright Act contemplated that the right of public performance “may be transferred in whole or in part” and “owned separately,” including as a “subdivision” of the right. (See 17 U.S.C. § 201(d).) Thus, “[e]ach individual co-owner has a right to public performance, and such a right is not associated specifically with ‘full-work’ licensing or with an indivisibility principle.”

Nor did extrinsic evidence aid the DOJ, the court explained. If the parties had intended to ban fractional licensing, they would have done so expressly when the decree was amended in 1994, at a time when fractional licensing was a common practice.

The court also found that the authorities cited by the DOJ were unavailing. The DOJ relied on the Second Circuit’s 2015 decision in Pandora Media, Inc. v. ASCAP, which held that the consent decree governing ASCAP prohibited ASCAP from licensing its publishers’ works to transitional music users but not digital music services. The court found Pandora to be inapposite, because BMI was not proposing to discriminate between licensees: “BMI seeks to offer all its interests, full and fractional, to any user in a manner entirely consistent with Pandora.”

Nor did the court find BMI v. CBS to be on point. In that 1979 case, the Supreme Court had identified a procompetitive benefit of the blanket licenses offered by BMI: such a license allows “immediate use of the covered compositions, without the delay of prior individual negotiations and great flexibility in the choice of musical material.” But the Second Circuit explained that neither the language of the Supreme Court’s opinion nor the consent decree itself guaranteed immediate performance with respect to every composition. To the extent the DOJ asked the court to read an additional requirement into the decree in order to advance procompetitive objectives, the court deemed itself foreclosed from doing so.

The court concluded by noting that if the DOJ believes the consent decree, as interpreted by the district court, failed to achieve certain procompetitive outcomes, the DOJ’s recourse was to seek to amend the decree or commence a separate anti-trust proceeding.