Southern District of New York Holds Music Publishers Cannot Selectively Withdraw New Media Rights from ASCAP's Repertory

by Wilson Sonsini Goodrich & Rosati
Contact

On September 17, 2013, the United States District Court for the Southern District of New York held that the consent decree entered into by and between the American Society of Composers, Authors and Publishers (ASCAP) and the United States Department of Justice (DOJ) required ASCAP to license its entire catalog of musical works to all licensees, rendering the purported withdrawal of certain new media rights from ASCAP by certain music publishers moot.1 This ruling, if upheld on appeal, has significant implications for online service providers. Absent a requirement for ASCAP to license all works in its repertory, certain types of online service providers would likely have to consider obtaining licenses for the public performance of musical works not only from the three well-established performing rights organizations (PROs) in the United States—ASCAP, Broadcast Music, Inc. (BMI) and SESAC, Inc. (SESAC)—but also from potentially scores, hundreds, or even thousands of individual music publishers.

Background

ASCAP administers and licenses the public performance copyright in musical works for its composer and publisher members. All major music publishers, including EMI Music Publishing (EMI) (whose catalog is now administered by Sony/ATV Music Publishing) and Universal Music Publishing Group, have performance rights administered by ASCAP, along with its competitors BMI and SESAC. These three PROs collect nearly 100% of public performance royalties.2

Beginning in 1941, ASCAP has been subject to a consent decree entered into with DOJ, which addresses the anti-competitive concerns stemming from a licensing organization comprised of competitors.3 ASCAP currently operates under the Second Amended Final Judgment (AFJ2).4 The AFJ2 requires ASCAP to, among other things, provide its entire repertory to licensees on a non-discriminatory basis (as between similarly situated licensees).

Pursuant to AFJ2, ASCAP is required to "grant to any music user making a written request therefor a non-exclusive license to perform all of the works in the ASCAP repertory."5 If ASCAP and a licensee cannot agree on a rate, the parties may petition to a "rate court" in the Southern District of New York (ASCAP Rate Court) for a determination of a reasonable rate.6

In re Pandora Media, Inc.

Pandora Media, Inc. (Pandora) is the largest non-interactive Internet streaming service in the United States. In July 2005, Pandora obtained a license from ASCAP to publicly perform all of the works in the ASCAP repertory.7 On October 28, 2010, Pandora terminated its license with ASCAP, effective December 31, 2010, and applied for a new license from ASCAP for the period January 1, 2011, through December 31, 2015.8

Beginning in late 2010, EMI notified ASCAP of its intent to withdraw from ASCAP in the entirety—the first major publisher to do so.9 In response to the threatened withdrawal by EMI but before the withdrawal was to go into effect, ASCAP's board of directors in April 2011 amended ASCAP's Compendium Rules (i.e., its membership rules) to permit music publishers to withdraw certain, limited rights for the public performance of New Media Transmissions.10 This unprecedented rule change allowed a music publisher to remain a member of ASCAP for all purposes but denied ASCAP the right to license online music services such as Pandora for the right to make public performances of musical works owned by such withdrawing publisher.

If publishers were permitted to withdraw their "New Media Transmission" rights from ASCAP, online music service providers subject to the withdrawals would have to negotiate licenses directly with such "withdrawing" music publishers, run the risk of infringement liability for continued use of such publisher's musical works, or remove the musical works (and the sound recordings in which the works are embodied) from the provider's online streaming service.

Effective May 2011, EMI became the first major music publisher to claim that it had "withdrawn" its New Media Transmission rights from ASCAP. Other publishers, including Sony/ATV, BMG/Chrysalis Music, and Universal Music Publishing Group, subsequently claimed that they had availed themselves of the right to partial withdrawal of New Media Transmission rights from ASCAP pursuant to the change in the Compendium Rules, withdrawing New Media Transmission rights and requiring licensees to negotiate with each publisher individually and the PROs (for any New Media Transmission rights they continued to administer for non-withdrawing publishers).

In November 2012, Pandora petitioned the ASCAP rate court to establish a royalty rate for Pandora's right to publicly perform all of the works in the ASCAP repertory during the period January 1, 2011, through December 31, 2015. In response to the purported withdrawal or purported pending withdrawal of certain New Media Transmission rights by multiple publishers, Pandora also negotiated direct license agreements with those entities that had purportedly withdrawn rights from the PROs. Music publishers maintained that these agreements were evidence of their right to withdraw from ASCAP, while Pandora maintained that the agreements were entered into defensively in order to avoid the risk of infringement liability but without admission as to the permissibility of such alleged withdrawals.

On July 1, 2013, Pandora filed a motion for summary judgment with the ASCAP Rate Court seeking a determination that the publishers' purported withdrawal of New Media Transmission rights from ASCAP did not affect the scope of the ASCAP repertory subject to Pandora's consent decree license request under the AFJ2.

The principal dispute between Pandora and ASCAP was whether the repertory for which Pandora sought a license could be something less than the entirety of the ASCAP repertory. Pandora maintained that ASCAP was required to license all of the works in the ASCAP repertory to Pandora for the entirety of the period for which Pandora sought a license. ASCAP, on the other hand, maintained that the ASCAP repertory licensable to Pandora was the entirety of the ASCAP repertory, less any musical works for which the right to license New Media Transmissions had been withdrawn by an ASCAP member publisher.

The ASCAP Rate Court, following a review of multiple provisions in the AFJ2, concluded that ASCAP was required to grant to "any music user making a written request?a non-exclusive license to perform all of the works in the ASCAP repertory."11 The court determined that "works in the ASCAP repertory" meant individual musical works, not the copyrights embodied in such works.

The court held that if ASCAP had a right to license a work for one class of licensees (e.g., radio stations, television stations, or even small online music services referred to as "Standard Services"), then it had that right to license that work for all purposes. The court concluded that music publishers cannot withdraw musical works from ASCAP only with respect to a limited class of licensees while keeping those works in the ASCAP repertory for some or all other purposes.

Under the ASCAP Rate Court ruling, if a music publisher wishes to be a member of ASCAP for any purpose, then it must be a member of ASCAP for all purposes. Conversely, if a music publisher wishes to license services such as Pandora directly, then the music publisher must withdraw from ASCAP entirely and presumably not enjoy any of the benefits of collective licensing and administration.

The court also rejected ASCAP's argument that Pandora's conduct in negotiating direct agreements with music publishers evidenced the right of publishers to withdraw in part from ASCAP, stating Pandora's actions were not unreasonable as a result of "commercial necessity."12 Furthermore, the court noted that Pandora's response to the publishers' withdrawal had no bearing on the interpretation of the AFJ2, as Pandora was not a party to that contract.13 Under principles of contract law, a non-party's conduct cannot influence the interpretation of an agreement.

Implications

For new media licensees seeking blanket licenses from ASCAP, the uncertainty of whether publisher withdrawals subject a licensee to securing public performance licenses from individual music publishers directly is over, absent a higher court overturning the ASCAP Rate Court decision. From this point on, an ASCAP licensee will be entitled to perform all of the works in the ASCAP repertory and partial publisher withdrawals will be void. All music services will be on an equal playing field, including terrestrial radio stations that simulcast their over-the-air broadcasts on the Internet or operate Internet-only side channels and Internet-only streaming services.

What the ASCAP Rate Court decision did not do is establish the rate to be paid by Pandora for publicly performing works in the ASCAP repertory. It also did not determine whether publishers may exercise partial withdrawals from BMI. The rate to be paid by Pandora to ASCAP will be established in a trial scheduled to commence in December 2013 before the ASCAP Rate Court, absent a negotiated settlement between ASCAP and Pandora. The issue of whether publishers may withdraw rights in part from BMI may require a separate ruling from the "BMI Rate Court," which is overseen by a different federal judge in the United States District Court for the Southern District of New York than the judge sitting in the ASCAP Rate Court.


1 In re Petition of Pandora Media, Inc., No. 1:12-cv08035-DLC (S.D.N.Y. Sept. 17, 2013) (Pandora).

2 See Frederic Choquette, "The Returned Value of PROs," Music Business Journal, May 2011, available at http://www.thembj.org/2011/05/the-returned-value-of-ascap-and-bmi/.

3 United States v. Am. Soc'y of Composers, Authors & Publishers, Civ. No. 41-cv-1395, 2001 WL 1589999 (S..D.N.Y. June 11, 2011). BMI is subject to a related consent decree.

4 Second Amended Final Judgment (AFJ2). See United States v. Am. Soc'y of Composers, Authors & Publishers, Civ. No. 41-CV-1395, 2001 WL 1589999 (S.D.N.Y. June 11, 2001).

5 AFJ2 § VI.

6 Id. § IX(A).

7 Pandora, at *5.

8 Id.

9 Id.

10 Id. at *6.

11 Id. at *11.

12 Id. at *25.

13 Id.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wilson Sonsini Goodrich & Rosati | Attorney Advertising

Written by:

Wilson Sonsini Goodrich & Rosati
Contact
more
less

Wilson Sonsini Goodrich & Rosati on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!