You Can’t Make This Stuff Up! The Department of Justice v. ASCAP

Stephen Carlisle July 28, 2016

Seems like very recently, June 24, 2016 to be exact, I posted about how the 2^nd Circuit Court of Appeals ruled that despite there being no language that appeared in any statute, any congressional history, and any opinion of the U.S. Copyright Office, somehow section 301 of the Copyright Act didn’t really say what it plainly said. ¹ In other words, they just made it up.

Well, sad to say, they’re at it again, except this time, it’s the U.S. Department of Justice.

At issue are ASCAP and BMI and the consent judgements ² entered into with the U.S. Department of Justice way back in 1941. ASCAP and BMI are “performing rights societies” (PRO’s) that collectively license musical compositions for public performance. As Forbes Magazine explains:

“Each songwriter belongs to a PRO. That PRO is responsible for collecting royalties on the songwriter’s behalf when a composition is licensed, including licenses for digital stream services, use in public places, on radio stations, TV shows, etc. When a song has more than one writer, it’s common for PROs to share administration rights to the song specific to their individual writer member, meaning each party must license the song to be used on radio or offered to a digital music company for performance rights licensing. For example, a song with three co-writers might be equally administered by BMI, ASCAP and SESAC depending on the PRO affiliation of the writers.” ³

The benefit of this is that anyone who performs a lot of songs (say a radio station) has the cost and complexity of licensing music greatly reduced. Imagine if a radio station had to negotiate with each and every songwriter before they could play the songs! This should be a good thing, right?

Not everyone sees it that way. If you want to perform Aerosmith’s “Toys in the Attic” then you’ve got to go to Steven Tyler and Joe Perry’s publishers, ⁴ because no other song is “Toys in the Attic” and there are no substitutes for “Toys in the Attic.” There is only one.

This leads to what radio stations complained was a highly unequal bargaining position and restraint of trade and claimed the ASCAP was guilty of anti-trust violations. The result was consent decrees with the U.S. Department of Justice, which governed how ASCAP and BMI operate. A third PRO, SESAC, is privately owned ⁵ and is not subject to the consent decrees. ⁶ More about them later.

Back in 2014, the Justice Department solicited comments on the future of the consent decrees and how they might be changed. ⁷ The result was that, after two years and many comments, the Justice Department adopted no recommendations from songwriters, but went straight down the party line of the tech interests, which is no surprise because the top DOJ attorney on the case used to do “a lot of work for Google…” ⁸ (owner of YouTube). Conflict of interest anyone?

What the DOJ did was to impose a requirement for 100% licensing on ASCAP and BMI. It ruled (though this ruling has yet to be reduced to writing) that if either ASCAP or BMI owned a fractional share, that a license from ASCAP or BMI was a license for the whole composition, regardless of who owned the other shares. ⁹ As Chris Castle explains in this excellent piece:

“Simply put, 100% licensing derives from the English common law—even older than the consent decrees. It refers to the ability of a co-owner of an undivided interest in real property to grant a nonexclusive license to allow a third party to use the whole parcel without the consent of her other co-owners. A co-owner relying on this rule also assumes the obligation of accounting to her other co-owners and may not license at a rate that constitutes economic waste of the property.” ¹⁰

This is indeed the law. Any co-owner of a copyright can make a non-exclusive license for the use of a copyright, subject to the duty to account to the fellow co-owners of the copyright. However, in the music business, this is virtually never done. The standard business practice (of which the DOJ should have taken note) is that every co-composer licenses their own share. In fact, in the agreements that I drafted, it was stated that one co-owner could not license the other owners’ shares.

So how can the DOJ do this?

It can’t, and it’s violating the clear law by attempting to do so.

There are three ways that consent decrees get amended:

• The parties agree to the amendment, which is approved by the Court overseeing the case. ¹¹
• One party goes to Court to amend the consent decree. ¹²
• The DOJ tries to make the change via rulemaking. ¹³

Obviously, the first and second have not happened. In order for the third to occur, the DOJ has to issue a “notice of proposed rulemaking.” This provides:

“(b) General notice of proposed rule making shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include –

(1) a statement of the time, place, and nature of public rule making proceedings;

(2) reference to the legal authority under which the rule is proposed; and

(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.

Except when notice or hearing is required by statute, this subsection does not apply –

(A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” ¹⁴

The DOJ has not done this either. Instead, the DOJ has taken the position that the 100% licensing rule has always been there. As reported by David Lowery over that The Trichordist:

“According to multiple sources David Kullly Chief of Litigation Section III in the Antitrust Division of the DOJ told songwriters on a conference call last week that the 100% licensing rule is not a rule change at all.  The rule was always there. He claims the DOJ analysis concludes it is “implied” in the original ASCAP consent decree.   Thus the DOJ is not changing a rule it is simply clarifying existing rule.” ¹⁵

Really? Let’s take a look at the existing consent decree and see if anywhere is says such a thing, or nearly such a thing, that the 100% rule is implied. The last time the ASCAP consent decree was modified was in 2001, by agreement of the parties. By its very terms, this “Second Amended Final Judgement” vacates and replaces all previous consent decrees. You can find it here:

https://www.justice.gov/atr/case-document/file/485966/download

Feel free to read it. If you don’t have the time, I’ll clue you in: the 100% licensing language is nowhere to be found. There is nothing anywhere that implies 100% licensing. Instead, we find this language starting at the bottom of page 19:

“ASCAP shall not restrict the right of any member to withdraw from membership in ASCAP…provided that any writer or publisher member who resigns from ASCAP and whose works continue to be licensed by ASCAP by reason of continued membership of a co-writer, writer or publisher of any such works, may elect to continue receiving distribution for such works on the same basis and with the same elections as a member would have, so long as the resigning member does not license the works to any other performing rights organization for performance in the United States.” ¹⁶

So, in essence, ASCAP cannot do, by the very terms of the consent decree, what the DOJ is now saying they have an obligation to do.

• Any continuation of licensing and collection by a resigning member requires the affirmative action of notice of its election to do so to ASCAP, and:
• ASCAP cannot continue to license and collect for that share if the resigning member licenses the song to another PRO.

The rule for this is simple. It avoids “double dipping” by the songwriter by having songs licensed by two different PRO’s.

So what did the DOJ do for the “new rule” which they claim is not really a “new rule” after all?

They just simply made it up. And you can’t just make this stuff up. Because, you know, the laws of the United States, due process and all that other pesky stuff you don’t want to deal with.

So why not move for a change to the consent decree? The DOJ faces significant hurdles in doing so. To quote the Supreme Court:

“[A] party seeking modification of a consent decree bears the burden of establishing that a significant change in circumstances warrants revision of the decree. If the moving party meets this standard, the court should consider whether the proposed modification is suitably tailored to the changed circumstance.

A party seeking modification of a consent decree may meet its initial burden by showing either a significant change either in factual conditions or in law…

[H]owever, modification should not be granted where a party relies upon events that actually were anticipated at the time it entered into a decree. (citation omitted) If it is clear that a party anticipated changing conditions that would make performance of the decree more onerous but nevertheless agreed to the decree, that party would have to satisfy a heavy burden to convince a court that it agreed to the decree in good faith, made a reasonable effort to comply with the decree, and should be relieved of the undertaking under Rule 60(b).” ¹⁷

So, in essence, the DOJ is hamstrung by its own inaction. So now we get instead “the new rule that’s not really a new rule.”

The problems with the 100% licensing rule are manifest. The fees that the PRO’s collect are many times based upon decision by the Court that administers the consent decrees. This new “rule which is really not a new rule” has the effect of placing new costs in the form of accounting costs, without a corresponding adjustment to the revenue streams the PRO could expect. This would render it, IMHO, an unconstitutional taking under the 5^th Amendment.

Next, what about SESAC? They are not parties to the consent decrees. ¹⁸ But to read the “new rule that is not really a new rule” correctly, would be that if a SESAC writer composed a song with an ASCAP writer, that ASCAP would not only have the right, but the obligation to license the SESAC share, making SESAC a party to a consent decree that they never were a part of in the first place.

This is a complete violation of due process.

And finally, what about my contracts? They say that no one writer can license the work without the consent of the other writer. The DOJ’s “new rule which is not really a new rule” completely abrogates my client’s contract rights, another violation of due process.

And what’s the point of all this? It’s to lower the fees that independent PRO’s like SESAC and Irving Azoff’s fledging GMR might demand, since 100% of the licensing might be obtained from ASCAP and BMI instead. This benefits, guess who? Pandora, Siruis XM, and of course, YouTube.

Consent decrees are subject to challenge as legislation in disguise if their reach goes beyond the parties to the dispute and they hamper the otherwise established rights of third parties. ¹⁹ This “legislation in disguise” should be aggressively challenged by the PRO’s, within or without the terms of the consent decrees.

Because that’s what the legislative rules, rulemaking procedures, and yes, due process are all about.

You can’t just make this stuff up.