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Second Circuit Give Summary Victory to Songwriters

Before getting to the Summary the Summary Order issued by the Second Circuit on December 19, a bit of a review is appropriate. The Second Circuit’s decision has to do with whether the consent decree under which BMI has operated for decades requires it to engage in “100% licensing” (also known as “full work licensing”) as the Justice Department argued or whether BMI (and ASCAP under its very similar consent decree) could engage in “fractional licensing” as both entities – and indeed the entire music industry – has done for decades.  As I’ve previously written extensively about this issue I won’t repeat the background here but I would implore my gentle readers to review my prior blog post, Why DOJ’s Mandate of 100% Licensing of Works by ASCAP and BMI is 100% Lunacy, for an explanation of what 100% and fractional licensing are and why the former, if adopted, would have upended decades of music industry practice and many thousands of individually negotiated contracts.  And to quote again from the U.S. Copyright Office’s  report on the issue:

In sum, an interpretation of the consent decrees that would require 100-percent licensing or removal of a work from the ASCAP or BMI repertoire would appear to be fraught with legal and logistical problems, and might well result in a sharp decrease in repertoire through these PROs’ blanket licenses. It would seemingly punish copyright owners who have chosen to exercise their rights under the Copyright Act to manage their separate interests through the PRO of their choice.

ASCAP and BMI adopted parallel strategies to deal with DOJ’s edict. BMI would seek judicial review in the Southern District of New York before Judge Louis L. Stanton, the judge overseeing the BMI consent decree. ASCAP would lobby Congress for a legislative fix.  As I again had previously written, on September 16, 2016, on what had been scheduled to be a pre-motion conference, Judge Stanton decided to hold an evidentiary hearing on the 100% licensing issue. He then issued a six-page summary opinion rejecting DOJ’s view that the BMI consent decree required works to be licensed on a whole work basis:

The phrase in Art. II (C) of the Consent Decree defining 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 score or form, to be determined by processes outside the Consent Decree. The Consent Decree neither bars fractional licensing nor requires full-work licensing.

While BMI – and ASCAP were pleased with this result, DOJ was not. It appealed Judge Stanton’s order to the Second Circuit. Oral arguments on the appeal were held on December 1, 2017. A mere two weeks later, on December 19, 2017, the Second Circuit issued its seven-page Summary Order affirming Judge Stanton’s ruling.  The Court noted:

This appeal begins and ends with the language of the consent decree. 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.” Perez v. Danbury Hosp., 347 F.3d 419, 424 (2d Cir. 2003); United States v. Armour & Co., 402 U.S. 673, 682 (1971) (“[T]he scope of a consent decree must be discerned within its four corners…”). “[C]ourts 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.” Perez, 347 F.3d at 424; see also Barcia v. Sitkin, 367 F.3d 87, 106 (2d Cir. 2004) (internal citations omitted) (The district court may not “impose obligations on a party that are not unambiguously mandated by the decree itself.”). Accordingly, since the decree is silent on fractional licensing, BMI may (and perhaps must) offer them unless a clear and unambiguous command of the decree would thereby be violated. See United States v. Int’l Bhd. Of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFLCIO, 998 F.2d 1101, 1107 (2d Cir. 1993); see also Armour, 402 U.S. at 681-82.

(Opinion at p. 4).  The Second Circuit also noted that looking beyond the four corners of the consent decree was similarly of no avail:

Extrinsic evidence does not assist the DOJ. The decree was amended in 1994 at a time when fractional licensing was apparently common practice. “If the parties had agreed to such a prohibition, they could have chosen language that would have established the sort of prohibition that the Government now seeks.” Armour, 402 U.S. at 679.

(Opinion at p.5)

Not surprisingly, both BMI and ASCAP were delighted that the Second Circuit dispensed with DOJ’s purported mandate in the same summary manner as did Judge Stanton.  BMI, CEO, Mike O’Neill stated:

This is a massive victory for songwriters, composers, music publishers and the entire industry. 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.

Similarly, ASCAP’s CEO, Beth Matthews, also applauded the decision:

The Second Circuit’s ruling today is an important victory for music creators across the country. 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.

DOJ could try to seek review in the Supreme Court, a very uphill battle as that tribunal only elects to hear about 80 cases a year. Its only other option would be to seek review of ASCAP’s similarly worded consent decree in the Southern District of New York before Judge Denise Cote, who oversees that consent decree. And even if successful (a dubious proposition given the Second Circuit ruling on the BMI decree) such a ruling would only apply to ASCAP and would then be subject to appeal to the Second Circuit. Perhaps the 100% licensing issue has finally been dealt the death it so richly deserves.

Update: As of March 23, 2018, the deadline to file an appeal of the Second Circuit decision with the U.S. Supreme Court has passed.

BMI Rate Court Judge KO’s DOJ on 100% Licensing

In what had been scheduled to be a mere pre-motion conference, the federal district judge overseeing the BMI Consent Decree, Louis L. Stanton, decided to hold a hearing on Friday, September 16. He then issued a six-page Opinion and Declaratory Judgment, ruling against DOJ’s interpretation of the decree which would have required 100% or “whole work” licensing:

The phrase in Art. II (C) of the Consent Decree defining 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 score or form, to be determined by processes outside the Consent Decree. The Consent Decree neither bars fractional licensing nor requires full-work licensing.

Please read my prior post for more background, including a discussion on what is meant by the 100% or whole work licensing sought by the Justice Department as opposed to the fractional licensing regime under which ASCAP, BMI and the rest of the music industry operate.

Both BMI and ASCAP have operated on a fractional licensing basis for all of the 75 years since the consent decrees were entered into, offering licensees for only that percentage of a particular work that each respective performing rights organization (PRO) controls pursuant to its agreements with its member copyright owners and pricing their licenses accordingly. And both PROs declared the Court’s decision to be a major victory for songwriters.

After a brief recitation of the facts, including DOJ’s outlining its position last month and BMI’s seeking a declaratory judgment in support of fractional licensing, Judge Stanton began his discussion by stating: “Nothing in the Consent Decree gives support to the  [Antitrust] Division’s views.” He went on hold that the BMI Consent Decree “does not address the possibilities that BMI might license performances of a composition without sufficient legal right to do so, or under a worthless or invalid copyright, or users might perform a composition licensed by fewer than all of its creators.” The Court supported its conclusion by relying on Section XIV (D) of the Consent Decree, which reads as follows:

Nothing in this Article XIV shall prevent any applicant from attacking the aforesaid [rate court] proceedings or in any other controversy the validity of the copyright of any of the compositions in defendant’s repertory nor shall this Judgment be construed as importing any validity or value to any of said copyrights.

The Court construed this provision to mean that “[q]uestions of the validity, scope and limits of the right to perform compositions” are left, like the redress of copyright infringement, to determinations outside of the application of the Consent Decree. Neither DOJ in its statement, nor the Copyright Office in its memorandum addressing 100% licensing, nor BMI in its application for a declaratory judgment, cited Section XIV (D).

Judge Stanton then distinguished the situation where he had ruled in the Pandora case that the BMI decree forbids the partial withdrawal of rights by publisher members (i.e., where BMI would not be authorized to license performances online services like Pandora, leaving the publishers to license such services directly.  With regard to “partial withdrawal,” the Court, quoting its prior decision in the Pandora case, stated that “[t]he BMI Consent Decree requires that all compositions in the BMI repertory be offered to all applicants” that seek a license.

Judge Stanton’s quick and summary rejection of 100% licensing gives BMI a knockout victory over DOJ. However, this is not the end of the matter. ASCAP is governed by a separate but very similar Consent Decree that is overseen by its own Rate Court judge, Denise Cote, also of the Southern District of New York. Either ASCAP or DOJ could seek a declaration from Judge Cote, who could rule contrary to Judge Stanton. Similarly, DOJ could appeal Judge Stanton’s decision to the Second Circuit, regardless of whether Judge Cote rules on the issue. Moreover, as DOJ’s review of the ASCAP and BMI Consent Decrees encompassed several other issues besides 100% licensing, ASCAP has already started the process of seeking relief from Congress – something even DOJ suggested. BMI beat DOJ in the first battle but the war wages on.