The missing context in the BMI Consent Decree decision

Last Friday, Judge Louis Stanton rejected the Department of Justice’s (“DOJ”) interpretation of the department’s own consent decree governing the publishing rights organization (PRO) BMI. This was an unfortunate decision, especially considering Judge Stanton seems to be missing the vital context for the consent decree’s existence, what the consent decree intends, and what it does not intend to accomplish in the music licensing world. The DOJ is not trying to rewrite copyright law or even dictate the way the market operates as a whole. Therefore, what is permitted under copyright law is largely irrelevant. Instead, this decision should turn on issues of competition that were thoughtfully explained by the DOJ yet largely ignored by Stanton.

This decision came about because music publishers and PROs asked the DOJ to modify or interpret the consent decrees to allow for fractional licensing, which is a change from the default rule of copyright law. Fractional licensing requires a music licensor to take a license from every single co-owner of a song before it can be played. Fractional licensing is perfectly legal in the context of copyright law, and remains legal in the industry after the DOJ’s decision. In this case, the DOJ made a determination of how to interpret the consent decrees based on competition law which regulates potentially anticompetitive behavior.

{mosads}After a lengthy study and public comment process, the DOJ rejected fractional licensing as an unwelcome modification to the consent decrees “based not only on the language of the consent decrees and its assessment of historical practices, but also because only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses that distinguish ASCAP’s and BMI’s activities from other agreements among competitors that present serious issues under the antitrust laws.” The substantial benefits the DOJ mentions are important because they are the same benefits that the Supreme Court cited in its decision that the BMI’s business practices were not a violation of the antitrust laws.

More than one aspect of this decision lacks context. Judge Stanton seems to rest his decision on the fact that fractional licensing is not explicitly mentioned or otherwise explicitly covered under the consent decrees. However, it is not clear why it would be. Full work licensing, meaning any co-owner of a copyright can license the full work, is the default rule under copyright law. This was the deliberate intent of Congress when it passed the Copyright Act. In addition, the DOJ’s assessment of historical practices found overwhelming evidence that PROs provide full work licenses, not fractional licenses. BMI itself admits that fractional licensing is only a decades-long practice, but the BMI consent decree was entered in 1966. In addition, there is no evidence that fractional licensing was a contemplated issue in 1994 when the consent decree was last modified.

The lack of explicit mention of fractional licensing in the consent decrees is important, but not for the reason Judge Stanton believes. If fractional licensing was not meant to be included in the consent decrees it would be a significant oversight by the DOJ. It would be like Paul McCartney making a surprise appearance at American Idol and the judges asking who he is and what he will be singing. As explained by the DOJ, fractional licensing will prevent many of the substantial procompetitive benefits that come from the PROs licensing activities. If the DOJ intended to allow fractional licensing under the decrees, there should at least be some record of this decision to write the consent decrees so that fractional licensing is allowed.

There is also context that may be missing when the public attempts to understand this issue. The position taken by the PROs is that these changes are necessary because artists are suffering. However, BMI just announced record profits for the fiscal year that ended June 30 and digital revenue was up 50% over the previous year. If artists are suffering, we should first look at whether the powerful middle-men are to blame rather than music licensors who are already paying substantial amounts of money. Additionally, this fight is by no means closed, nor was it an easy victory for the PROs. ASCAP intentionally did not challenge the consent decree before Judge Denise Cote, instead relying on the more sympathetic judge Stanton to establish precedent. This ruling is still subject to appeal, and the PROs forum shopping here is a signal of the tough fight they have ahead of them.

Context is key to understanding the DOJ’s position to not reinterpret the consent decree and why Judge Stanton is wrong. The DOJ clarified the consent decree based on the context of two years of investigation, the text of the decrees, numerous public comments, historical practices, legal precedent, and significant competitive concerns in the industry. Judge Stanton’s ruling lacks the same context.

David Balto counsels a wide variety of Fortune 500 companies, small business and consumer advocates on antitrust and consumer protection compliance, strategic alliances, distribution issues, mergers and joint ventures. He is the former Policy Director of the FTC in the Clinton Administration.

The views expressed by authors are their own and not the views of The Hill.


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