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In finding that ASCAP, BMI does need not power of selective “partial” blanket licensing, DOJ also finds fractional licensing precluded.

Posted on August 11, 2016

The Department of Justice’s Antitrust Division recently concluded a two year review of the consent decrees governing the music licensing practices of the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI).  The DOJ deemed both consent decrees still to be appropriate in their current form, “determining that no modifications are warranted at this time,” but also confirmed that the decrees permitted “full work” licensing only. 
ASCAP and BMI, which hold the exclusive licensing rights for the collective works of large numbers of performing artists, grant licenses to radio stations, television stations, bars, restaurants, digital music services, and other users for the right to publicly perform musical works.  In the 1940s, the United States sued ASCAP and BMI for antitrust violations based on abuses of the monopoly power held by the two performing rights organizations (PROs).  To settle the antitrust suits, ASCAP and BMI each entered into separate consent decrees governing the terms of licensing by the respective organization.  Both consent decrees have been periodically reviewed and modified, most recently in 2001 for the ASCAP consent decree and in 1994 for the BMI consent decree.
In 2014, ASCAP and BMI asked the DOJ to join them in requesting further modification — or possibly the complete elimination — of the two consent decrees based on the rise of Internet music providers:
The PROs proposed three significant modifications: first, to allow publishers to partially withdraw works from the PROs, thereby preventing the PROs from licensing such works to digital music users; second, to streamline the process by which fee disputes are resolved; and, third, to permit the PROs to offer licenses to rights other than the public performance right, particularly for users who also need a performance license.
Two years earlier, in the midst of negotiations by ASCAP to increase the rates paid by online music providers over radio stations and other licensees, major labels nominally withdrew from ASCAP, such that their works were purportedly no longer covered by the blanket license — but only for licensing to “new media” (online music providers).  In 2013, a court ruled that such practices violated the ASCAP consent decree, a ruling subsequently affirmed on appeal.    
In deciding that further modification of the consent decrees was not warranted to allow for only “partial” blanket licensing to selected categories of licensees, the DOJ also determined that “fractional” licensing is precluded by the blanket licensing requirements of the consent decrees.  Fractional licensing arises in the context of split works, where (for example) one entity holds the rights to the music but another entity holds the rights to the performance.  If ASCAP and BMI hold only the power to license one of the two entities’ rights, the consent decree does not permit charging for that license, according to the DOJ:
The Division’s review has made clear that the consent decrees require ASCAP’s and BMI’s licenses to provide users with the ability to publicly perform, without risk of infringement liability, any of the songs in the respective PRO’s repertory. This determination is compelled by the language and intent of the decrees and years of interpretations by federal courts. 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. ASCAP’s and BMI’s licenses have for decades purported to do exactly that. See, e.g., BMI Music License for Eating & Drinking Establishments, available at (“BMI grants you a non-exclusive license to publicly perform at the Licensed Premises all of the musical works of which BMI controls the rights to grant public performances during the terms.”) (emphasis added).
Moreover, only full-work licensing achieves the benefits that underlie the courts’ descriptions and understandings of ASCAP’s and BMI’s licenses. For example, the 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.” BMI, 441 U.S. at 21-22 (emphasis added). In so doing, they provide “unplanned, rapid, and indemnified access” to the works in ASCAP’s and BMI’s repertories. Id. at 20. 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. And such fractional licenses would not avoid the delay of additional negotiations, because users would need to clear rights from additional owners of fractional interests in songs before performing the works in the ASCAP and BMI repertories. 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.” Pandora Media, Inc. v. ASCAP, 785 F.3d 73, 77-78 (2d Cir. 2015) (emphasis removed). The Second Circuit rejected arguments that this decree requirement conflicted with copyright law, noting that “[i]ndividual copyright holders remain free to choose whether to license their works through ASCAP.” Id. at 78. The logic of the Second Circuit’s decision applies to BMI as well.
ASCAP and BMI have announced plans to seek either or both of judicial modification of the consent decrees without the approval of the DOJ and/or legislative approval of their practices.