No time for weaker antitrust enforcement

In the complicated world of music licensing there is a disturbing trend – even though there is clear evidence that publishers are exercising market power and consumers are paying more – many self-interested parties are currently lobbying the Department of Justice (“DOJ”) to loosen the consent decree in order to give it more options to raise licensing fees. And to show their level of regulatory gall, they are seeking to weaken the order after the DOJ just fined ASCAP (the licensing entity) $1.75 million for violating the consent order. If there is one thing the DOJ should learn from dog owners, it’s that you don’t give a wily dog a longer leash.

It’s easy to forget that the way music is licensed through publishing rights organizations (“PROs”) like ASCAP is price fixing. However, the music industry stands as one of the rare exceptions to the rule that price fixing is illegal. That is because the DOJ and the Supreme Court both concluded that, due to the complicated nature of music licensing, the blanket licenses offered by licensing entities do more good than harm.

{mosads}This exception from regular antitrust laws was never a blank check, and the DOJ obtained a consent decree from the major PROs ASCAP and BMI to protect consumers. When the Supreme Court examined blanket licenses, it relied on the consent decree and certain benefits in finding the activity legal. The Supreme Court especially highlighted the ability of music users to negotiate directly with composers and publishers under the consent decree, which is the provision that ASCAP violated.

The question is: if the DOJ is having a hard time preventing ASCAP, BMI and their members from violating the terms of the consent decrees, then why are they entertaining calls to loosen other provisions of the same decrees? Consumer advocates and watchdogs like Public Knowledge have been warning that modifications proposed by ASCAP, BMI, and publishers could create new avenues of abuse that would leverage market power to jack up fees to internet music services—which would undoubtedly be passed on to consumers. 

One proposed DOJ action is to state that PROs are explicitly permitted to only license fractions of a song (fractional licensing). Many songs are written by several different composers. Copyright law accounts for this by explicitly permitting any copyright holder to license the whole work, and then be responsible for paying the co-owners their fair share of the royalties. In this way, Copyright law is designed to encourage works of art to be easily made available for others to enjoy. This is the main reason that blanket licenses from PROs like ASCAP provide so much value and simplification to the music industry (which in turn was part of the Supreme Court’s reasoning for ruling that blanket licenses are legal).

Today, many composers and publishers have started to restrict each other from licensing whole works by contract. This gives even owners of small shared of a song tremendous power, because a music user, like a radio station, must track down every co-owner and get a license from them to play a song. If an internet music service could only license 99% of a song, then playing it would be a violation of copyright law and could cost them an enormous amount of money in damages.

Fractional licensing creates numerous problems and opportunities to game the system. History has shown that PROs have prevented the sharing of information on who owns what songs, confirming just how little transparency there is in song ownership. Having to sort through millions of songs and keep track of what percentages of each track is licensed could add costs sufficient to bring even large internet music services grinding to a halt.

With a substantial record of ASCAP and music publishers already trying to subvert the intentions of the consent decree, it makes little sense to trust them with a longer leash. As the Supreme Court acknowledged, music licensing is a complicated balance between normally anticompetitive behaviors and certain benefits and safeguards. Shifting any weight would send the whole system toppling like a house of cards. And then consumers would be the ones losing.

David A. Balto is an antitrust attorney based in Washington D.C. specializing in consumer protection, intellectual property, and health care. He previously served as policy director at the Federal Trade Commission and as an attorney in the Justice Department’s antitrust division. 

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