Today's Biggest Antitrust Targets: Facebook, Google and Music Licensing (Yes, Really)

Beatles: Eight Days a Week - The Touring Years - Still 1 -H 2016
Courtesy of Hulu

What is the biggest antitrust conundrum for the U.S. Department of Justice at the moment?

It's not Facebook. Evidently, in a bit of regulatory horse-trading, the Justice Department just agreed to confer jurisdiction to the Federal Trade Commission to investigate Mark Zuckberg's social media juggernaut. In exchange, the Justice Department is now taking the lead in a probe of Google over its influence in the online advertising industry. But Google might not represent such a tough call to prosecute, either. Not when the might of big tech commands bipartisan concern. Maybe instead, as President Donald Trump takes a tour of London, the toughest choice for William Barr's DOJ is what to do about the British invasion. That's right, we're talking about The Beatles a half century after the breakup of John Lennon and Paul McCartney. More specifically, the DOJ has a decision on its hands with respect to the future of music licensing.

Since the 1940s, BMI and ASCAP — the two largest performance rights organizations in the country — have been operating under a consent decree whereby they must provide blanket licenses to the songs in their repertory upon request. That means when television and radio stations, sports stadiums, restaurants and other public establishments wish to broadcast songs, they can gain such rights for a flat fee. When a licensee doesn't like the pricing that is offered by the behemoths, the music user can take BMI or ASCAP to "rate court," where each side presents evidence about what is most fair.

For the past decade, the Justice Department has been reconsidering those consent decrees, which at the time were a settlement to an antitrust investigation. While the previous administration decided not to modify the licensing rules, the DOJ's new antitrust stewards have been looking more critically at legacy antitrust judgments. ASCAP and BMI have made no secret of their wish to escape the consent decrees. In February, both issued an open letter to the Justice Department that endorsed sunsetting those decrees. Getting rid of anything that smacks of onerous and outdated regulation could appeal to Barr's Department of Justice.

On the other hand, the prospect of hurting mom and pop stores that enjoy background music is causing consternation in some unexpected quarters. Take the Heartland Institute, a libertarian think tank that is typically associated with conservative causes such as rejecting the scientific consensus on climate change. In May, The Heartland Institute picked up one author's column at RedState. That column discussed the evils of Big Tech before moving onto a "lesser known example of this anti-free market monopolistic dominance ... the music royalty business," which in the author's view, required government intervention. "Attorney General William Barr — gird your loins," warned Seton Motley.

(Update June 5: The Justice Department has announced that it is indeed going to open a new review of the consent decrees.)

What does this have to do with The Beatles?

Well, the Justice Department could get rid of the consent decrees. But there's an alternative path. As shown by a just-amended antitrust lawsuit from a coalition of radio stations, Barr's team could instead expand its focus by tackling an alleged new problem that has arisen in music licensing. That includes famous songs by Lennon and McCartney.

While BMI and ASCAP are hamstrung by the consent decrees, a new player in the music licensing space is not.

Irving Azoff's Global Music Rights has become an upstart competitor to BMI and ASCAP by promising songwriters better royalties once free of the onus of the consent decrees. The firm's repertory includes works performed by Eagles, Jay-Z, Taylor Swift, Drake, Madonna, Bruce Springsteen and on and on. 

For the past few years, GMR has been locked in a legal fight with the Radio Music License Committee, which represents some 10,000 radio stations throughout the nation. GMR accuses the RMLC of operating an illegal cartel attempting to artificially depress the license fees that member stations pay to air music on the radio. In turn, the RMLC accuses GMR of making extortionate demands for songs that radio stations simply must have.

The latest version of RMLC's antitrust lawsuit — filed on Monday (see here) — essentially demands that GMR be subjected to the same kind of forced licensing put on BMI and ASCAP. Except the radio stations go even further by addressing the controversial subject known as "fractional licensing," the phenomenon caused in part when a song is written by two or more songwriters.

Of course, The Beatles provide a handy illustration.

"For example, the Beatles song 'Eight Days a Week' is in GMR’s repertory," write RMLC's attorneys at Latham & Watkins. "Because that song was co-written by John Lennon and Paul McCartney, and GMR has the rights only to John Lennon’s ownership share (via his estate), GMR avers that its license does not grant licensees the right to publicly perform 'Eight Days a Week' without also purchasing a license from whoever controls Paul McCartney’s public performance right."

As RMLC points out in its complaint, the Justice Department attempted to crack down on fractional licensing a few years ago by taking a certain interpretation of the BMI and ASCAP consent decrees. Afterwards, BMI went to court seeking a declaratory judgment to establish that the consent decrees did not expressly prohibit fractional licensing. In December 2017, BMI scored success on this front before the Second Circuit Court of Appeals. 

But what the appellate court did not decide — and what RMLC is now emphasizing — was the legality of fractional licensing.

As the Second Circuit decision stated, "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."

With an antitrust investigation into Google now on the DOJ's plate, Barr might not wish to get into antitrust issues raised by today's music licensing practices.

But then again, consider the following...

We're heading into the 2020 presidential election cycle. It's almost certain that musicians will be kicking up a fuss over the performance of their treasured songs at campaign rallies. To address the issue, BMI now offers a "Music License for Political Entities or Organizations" but has also has taken the position that songwriters are allowed to exclude their musical works from the blanket license.

In the fight over fractional licensing, the Justice Department once made an analogy.

"In pizza terms, the fractional license is closer to a cup of flour," wrote DOJ lawyers. "And anyone who delivers only a cup of flour after agreeing to deliver a pizza plainly is in breach."

Could the Justice Department reprise such an argument in any new antitrust suit given how performance rights organizations are denying the use of their music? Keep in mind that Trump has been known to nudge aides to pursue antitrust action as a punitive measure for slights. (See his previous efforts to block the merger between AT&T and Time Warner, owner of CNN.)

A few months ago, after BMI took the position that Rihanna's works were excluded from the music license for political entities, The Hollywood Reporter asked the Justice Department its view about whether this was consistent with the government's interpretation of the consent decree. A spokesperson responded, "We must decline to comment."

And oh, yeah, The Beatles (McCartney, Ringo Starr and the estates of Harrison and Lennon) have let it be known they don't want their songs played at Trump campaign rallies, either. But really, thanks to fractional licensing and song rights now outside of BMI and ASCAP's grips, only Yoko Ono would need to object.