Appeals Court Upholds Decision Allowing Fractional Licensing of Songs

Music School Illo - THR - H 2017
Illustration by: Jean de Wet

When radio stations, TV broadcasters, bars, restaurants, fitness clubs and others wish to transmit music to the public, they may be dealing with some complication. That's because on Tuesday, the 2nd Circuit Court of Appeals ruled that BMI is not precluded by an old consent decree from offering the fractional licensing of song compositions.

BMI and ASCAP are the two largest performance rights organizations in the country. Since 1941, they have been required to provide blanket licenses to the songs in their repertory upon request. Consent decrees, agreed upon to resolve a government antitrust investigation, ensure this.

Times have changed, but the consent decrees still reign.

A few years ago, the Justice Department decided to review whether these consent decrees were still necessary. Some in the music industry suggested the rules had become outdated in the digital age, but the Justice Department concluded otherwise. What's more, the government decided that 100 percent licensing, or "full-works licensing," was required under the consent decree.

BMI and ASCAP objected to the interpretation. With warnings of administrative mayhem and interference to the collaboration between song co-authors, the PROs went to a New York federal judge to clarify that consent decrees don't bar the issuance of fractional licenses. U.S. District Court Judge Louis Stanton obliged.

The Justice Department's subsequent appeal resulted in today's decision affirming Stanton's.

During the appeal, various users of songs, including Viacom, Google, Netflix and Spotify, stood up for the Justice Department's position. They warned that the right to get a compulsory license to publicly perform music would be undermined by fractional licensing. Since songs can be co-authored by various songwriters and/or owned by multiple publishers using different PROs, access to a song catalog might not be able to be presumed from a blanket license. They warned this would give music publishers "inordinate market power."

But what's most important in the eyes of the three judges on the 2nd Circuit who issued today's summary order is the language of the consent decree.

"[S]ince 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," states the order.

The Justice Department attempted to argue that BMI's "repertory" meant compositions a user had the "immediate right to actually perform" without risk of infringement.

Disagreeing, the 2nd Circuit panel points to the Copyright Act, which contemplates that rights may be transferred in whole or in part.

"As Judge Stanton observed, the blanket license itself does not necessarily confer a right of immediate public performance: the license covers all the rights held by the PRO regardless of whether those rights are valid or invalid, exclusive or shared, complete or incomplete," continues the decision. "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.”

Here's the full decision, which also addresses newer developments, such as the way that publishers have teased withdrawing digital rights from ASCAP and BMI.

The Justice Department could seek another review before a fuller panel of judges at the 2nd Circuit or could press the case up to the Supreme Court, but under the Trump administration, the government has already been backing off from its hard line on music licensing. That's upset users including iHeartMedia, the National Association of Broadcasters and SoundCloud.

The 2nd Circuit also suggests another course. The judges write, "If the DOJ decides that the consent decree, as interpreted by the district court, raises unresolved competitive concerns, it is free to move to amend the decree or sue under the Sherman Act in a separate proceeding."

In the meantime, BMI is hailing today's decision. 

"This is a massive victory for songwriters, composers, music publishers and the entire industry," says BMI president Mike O'Neill. "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."

ASCAP echoes the sentiment.

Elizabeth Matthews, chief of ASCAP, says, "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."