ASCAP , BMI And The Terrible, Horrible, No Good, Very Bad DOJ Decision That’s Creating Chaos In The Music Industry

In this article, Stephen Carlisle dives back into the controversial decision handed down by the Department of Justice, breaking it down piece by piece and looking both at why the decision is harmful to the industry, and a violates due process.

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Guest Post by Stephen Carlisle on Nova Southeastern University

My previous blog post detailed all the reasons why the U.S. Department of Justice could not do what it had announced it was going to do: rule without any hearing, court order or rule-making procedure that ASCAP and BMI were required to engage in 100% licensing. ¹ Now, we have seen the written ruling, and you can read along if you wish.² With all apologies to author Judith Viorst for stealing the title of her book ³ (which I read to my sons many times), what happened last week was a terrible, horrible, no good, very bad decision by the DOJ, which, in truth, is an unmitigated assault on the rights of composers by their own government.

What this decision represents is a thoroughly dishonest explanation of what is in fact a gross violation of due process. So, let’s take these one at a time.

PART I

The DOJ claims:

“First, the plain text of the decrees cannot be squared with an interpretation that allows fractional licensing: the consent decrees require ASCAP to offer users the ability to perform all ‘works’ in its repertory and BMI’s licenses to offer users the ability to perform all ‘compositions’ in its repertory.” ⁴

No, the consent decrees fully endorse fractional licensing. Here is what the 2001 revision to ASCAP’s consent decree says:

“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.” ⁵

So, ASCAP cannot, by the very plain text of the consent decree, continue to license and collect the share of a former member who has licensed his share to another PRO. Yet, this is exactly what the DOJ says that ASCAP must now do:

“[F]or a song co-written by one ASCAP member and one BMI member, the co-writers might designate the ASCAP member to collect all revenues from the licensing of public performance rights to the song and require that the ASCAP member distribute a share of the revenues to the BMI member.” ⁶

Did you read your own consent decree, DOJ? You just suggested what the plain text of the consent decree states unequivocally is prohibited conduct!

The DOJ tries to wiggle out of these consequences by stating:

“Under these circumstances, the song would not be included in BMI’s repertory.” ⁷

No, you can’t go there either. Because your rationale for reading into the consent decrees the 100% licensing rule is that a PRO writer agrees to license everything in which they have an ownership interest to their PRO. Here is the direct quote from your ruling, DOJ:

“Similarly, a songwriter affiliating with BMI grants to BMI the right to license non-dramatic public performances of ‘all musical compositions . . . composed by [the member] alone or with one or more co-writers’ and promises that ‘no performing rights in [these compositions] have been granted to or reserved by others except as specifically set forth therein in connection with Works heretofore written or co-written by [the author].’ BMI Writer Agreement, available at http://www.bmi.com/forms/affiliation/bmi_writer_kit.pdf.” ⁸

Followed by this threat:

“In the process of clarifying the works that ASCAP and BMI are able to continue to license under a full-work licensing requirement, the PROs may remind their members that the members made grants of rights to their PRO to license all works of which a member is a partial or complete owner and warranted that there were no other agreements that would prevent licensing on the basis described in the grant of rights.” ⁹

In other words, DOJ, you’ve just recommended that composers breach their licensing agreements with their own PRO’s.

So, let’s recap the loopy logic of the DOJ’s argument:

An ASCAP and BMI writer write a song together.
ASCAP must now license both the ASCAP and BMI share and can collect for both writers, because “[u]nder the copyright law, joint authors of a single work are treated as tenants-in-common, so ‘[e]ach co-owner may thus grant a nonexclusive license to use the entire work without the consent of other co-owners, provided that the licensor accounts for and pays over to his or her co-owners their pro-rata shares of the proceeds.’” ¹⁰
This is the case even though the ASCAP consent decree says that ASCAP cannot do this.
The remedy for this is for the BMI writer to breach his agreement that licenses “all” of his works to BMI, and instead agree to let ASCAP collect everything.

So, this reading of the consent decrees is inconsistent with not only the plain text of the consent decrees, but the plain text of your own opinion.

PART II

Next, the DOJ attempts to say that the Courts have consistently ruled in favor of 100% licensing. Of course, it’s no surprise they have never said such a thing. The DOJ contends:

“[T]he Supreme Court explained that the ASCAP and BMI blanket license ‘allows the licensee immediate use of covered compositions, without the delay of prior individual negotiations, and great flexibility in the choice of musical material’… If the licenses were fractional, they would not provide immediate use of covered compositions; users would need to obtain additional licenses before using many of the covered compositions.” ¹¹

This is, in fact, the time honored practice of taking a quote out of context. What the SCOTUS is explaining here is why the blanket license is not an anti-trust violation, not that fractional licensing is not allowed in the blanket license system. Because, without the blanket license, the broadcaster would have to perform thousands of individual negotiations, a net benefit to the broadcaster.

Here are the sentences that immediately precede the language quoted by the DOJ:

“This substantial lowering of costs, which is of course potentially beneficial to both sellers and buyers, differentiates the blanket license from individual use licenses. The blanket license is composed of the individual compositions plus the aggregating service. Here, the whole is truly greater than the sum of its parts; it is, to some extent, a different product.” ¹²

And the sentences which immediately follow the DOJ quote:

“Many consumers clearly prefer the characteristics and cost advantages of this marketable package, and even small-performing rights societies that have occasionally arisen to compete with ASCAP and BMI have offered blanket licenses. Thus, to the extent the blanket license is a different product, ASCAP is not really a joint sales agency offering the individual goods of many sellers, but is a separate seller offering its blanket license, of which the individual compositions are raw material ASCAP, in short, made a market in which individual composers are inherently unable to compete fully effectively.” ¹³

Quite a different thing, isn’t it? Nothing in this opinion says anything about fractional shares.

Next, the DOJ asserts:

“Similarly, the Second Circuit has held that ASCAP is ‘required to license its entire repertory to all eligible users,’ and that the repertory includes ‘all works contained in the ASCAP repertory…’ Accordingly, the consent decrees must be read as requiring full-work licensing.” ¹⁴

Baloney. Again the quote is taken out of context. The Second Circuit isn’t ruling on anything in the quote, it’s just providing factual background. In fact, all the Court is doing here is directly quoting from the consent decree! Here’s the complete quote, which, by the way, is contained in a section of the opinion labeled “Background:”

“The core operative provision of AFJ2 provides, in pertinent part, that ASCAP must ‘grant to any music user making a written request therefor a non-exclusive license to perform all of the works in the ASCAP repertory.’ AFJ2 § VI. The decree defines ‘ASCAP repertory’ as ‘those works the right of public performance of which ASCAP has or hereafter shall have the right to license at the relevant point in time.’ Id. § II(C). ‘Right of public performance’ is defined, in pertinent part, as ‘the right to perform a work publicly in a nondramatic manner.’ Id. § II(Q).” ¹⁵

The Court’s ruling here was whether ASCAP could withdraw “subsets” of their license, particularly digital broadcast rights. The Court concluded it could not. It did not rule that the consent decrees require 100% licensing. No Court has ever said that or anything close to that.

The DOJ is just making this up.

PART III

Then there’s this doozy of an explanation:

“This statement seeks to explain the bases for the Division’s determination and describe why an express recognition that ASCAP and BMI do currently and must continue to offer full-work licenses should not meaningfully disrupt the status quo in the licensing of public performance rights. As discussed below, the Division encourages the industry to use the next year, during which the Division will forgo enforcement of the full-work licensing requirement, to transition to a common understanding regarding the scope of the ASCAP and BMI licenses. This period should allow stakeholders to resolve any practical challenges relating to complying with the fullwork licensing requirement, including the identification of songs that can no longer be included in ASCAP’s or BMI’s repertories because they cannot be offered on a full-work basis or the voluntary renegotiation of contractual agreements between co-owners to allow ASCAP or BMI to provide a full-work license to the song.” ¹⁶

Let me get this straight:

The Consent Decrees currently, and have always, required full work licenses.
The fact that everyone thought differently doesn’t matter, and this does not evidence a change in policy.
The fact that the PRO’s based their entire business model on an entirely contrary reading of the consent decrees will “not disrupt the status quo in the licensing of public performance rights.”
Since this will not disrupt the status quo, we will NOT enforce what is NOT a new rule for a year, so you can figure out the “practical challenges” of what is NOT a new rule.
And, BTW, since this is NOT a new rule, some songs will no longer be available through ASCAP and BMI as they were in the past.

If this were not bad enough, here’s the kicker:

““[T]he Division will not take any enforcement action based on any purported fractional licensing by ASCAP and BMI for one year, as long as ASCAP and BMI proceed in good faith to ensure compliance with the requirements of the consent decrees.” ¹⁷

Gee. You might as well get out your signet ring and hot wax, my liege. ¹⁸

Words cannot convey how much I resent being threatened by my own government. Because they won’t enforce their “new rule that’s not a new rule” for the next year, only if ASCAP and BMI knuckle under to their heavy handed violation of my due process rights as a composer. So, if the PRO’s go to Court to challenge this “new rule that’s not a new rule” (which BMI has already started ¹⁹), is the DOJ is going to drop the hammer on them?

You seriously call yourself the “Justice Department?”

PART IV

It’s an unconstitutional taking under the 5^th Amendment.

Says the DOJ:

“In the unlikely event that a user sought to depart from this practice by relying on a single PRO license as a basis to perform all co-owned works, the Division anticipates that the user would see an increase in the license fee corresponding to that portion of the works it is no longer paying for through a different PRO, as well as an additional administrative fee to cover the PRO’s costs associated with the license (which may include the cost of contracting with other PROs to make payments to those PROs’ members).” ²⁰

Except there’s only one problem with this thinking. In the event of a dispute, the “rate court” gets to decide what ASCAP and BMI charge. Surely you remember, DOJ. You participated as amicus curae in the suit by Pandora Media against ASCAP on those very grounds. ²¹ So, the rate for thousands of licensees is already set (like Pandora), the result being that the PRO’s will be unable to charge any extra “administrative fees” as you so blithely indicate. This means the PRO’s will in fact earns less money, which turns into songwriters getting less money.

You cannot do this under the 5^th amendment, namely, impose costly new regulations without “due process of law,” which you have utterly failed to do. Which, of course, is why the DOJ continues to insist that this is not a new rule, when it clearly is a new rule.

And what about SESAC? They are not a party to any consent decree. But this “new rule that’s not a new rule” makes them a party to the consent decrees if their writer has co-written with an ASCAP or BMI writer. What happened to their due process rights?

As explained before, this is really rule-making. ²² This would require all sorts of notices and procedures, and yes, due process that the DOJ doesn’t want to do.

PART V

Finally, don’t kid yourselves, folks. It’s going to be chaos.

The Copyright Office, in opposing the interpretation of 100% licensing, listed the numerous ways in which the current, very effective, licensing system would be damaged, not only in a practical basis but an economic basis: http://copyright.gov/policy/pro-licensing.pdf.

It’s already started. The Songwriters of North America have released the following statement:

“Based upon the marketplace uncertainty the DOJ’s proposal is likely to cause, some music licensees have already insinuated that they intend to withhold payments from ASCAP and BMI and rely upon an application for a license to continue to use our works free of potential infringement.” ²³

This is because under section VI of the consent decree, ASCAP must give a license to anyone who requests one. They don’t have to pay what ASCAP wants. If there is a disagreement, they can then go to the “rate court” under section IX, under which ASCAP has the burden of proof. So, the music goes on playing, but the user stops paying.

And what about restrictive agreements between co-writers? At least the DOJ acknowledges that it cannot invalidate them.

“Of course, the obligation under the consent decrees that ASCAP and BMI offer full-work licenses binds only the two PROs and not any individual songwriter. Co-writers of songs remain free to split up their joint rights by contract in a way that makes their songs unlicensable (sic) by ASCAP or BMI… If co-owners decline to grant ASCAP and/or BMI the right to license the song on a full-work basis, the PROs will not be able to license that song.” ²⁴

David Lowery over at The Trichordist has already suggested a civil disobedience strategy that will make the DOJ’s new interpretation unworkable.

How Songwriters Could Legally Strike and Bring the Entire Music Licensing System Down

A further complicating factor is that many times in this day and age, one becomes a co-writer of a song without a conscious collaboration to do so. This happens when a song gets sampled without permission, or in some cases, stolen.

It happened to a client of mine. Another writer completely ripped off my client’s song to serve as the verses for his song. Of course we caught him, but the problem was, the song was a hit. A Top Ten Billboard hit, in fact. So the smart thing to do was take ownership of part of the copyright of the new song, and not deep-six a song that was a hit. But, being the cautious attorney that I am, in the agreement, I provided that neither writer could license the song without the consent of the other. So, up to this point, we all assumed that BMI had one share and ASCAP had the other.

What happens now? Neither writer can grant full rights to ASCAP or BMI by themselves that the DOJ says they must have. So, if the other writer declines, or my writer declines, this song vanishes out of their catalogs. And this song is still popular, I just worked out placing it into a TV show. (And please note, the production company cleared both ends of the song without asking if it was necessary.) But now, the network that wants to show it, can’t, because neither ASCAP of BMI hold the necessary rights.

See? This “new rule that’s not a new rule” really isn’t going to cause any problems at all.

So, does either ASCAP or BMI know about our restrictive agreement? Nope. How could they? I guess the DOJ is going to insist that they send out letters to the composers of several million musical compositions to try and find out if there are any restrictive covenants between writers that they need to know about.

See? This “new rule that’s not a new rule” really isn’t going to cause any problems at all.

Further consider that “[i]n jurisdictions outside the United States, the default rule is that individual co-authors may license only their fractional share in a work (absent an agreement by all co-authors to the contrary). See 1 Nimmer on Copyright § 6.10 (“[I]n foreign jurisdictions, a license will not be valid unless all joint owners are party to it.”). ²⁵

So, did you co-write a song with Max Martin, who is a resident of Sweden? Whose law applies, DOJ? Perhaps we’re going to see his 21 Billboard #1 hits ²⁶ vanish from the airwaves?

See? This “new rule that’s not a new rule” really isn’t going to cause any problems at all.

Finally, consider that this “new rule that’s not a new rule” is likely to cause writers to remove their works from ASCAP and BMI, maybe taking them to SESAC, and maybe taking them to Irving Azoff’s GMR.

And then the fun really starts.

Consider an artist like Billy Joel. He single-handedly wrote all the music and all the lyrics to virtually every song he recorded. ²⁷ What if he pulls his catalog and takes it to GMR? That means no Billy Joel gets played anywhere, unless you pay what he wants. If you do, you get a lawsuit by return mail. What if others do the same?