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US Department Of Justice to amend collective licensing consent decrees in the one way the publishers don’t want

By | Published on Thursday 30 June 2016

US Department Of Justice

So this will be interesting. Slash annoying. Slash significant. Slash possibly game changing. Slash potentially a “clusterfuck”. And that last one, in case you wondered, is the conclusion of an unnamed music publishing executive who spoke to Billboard.

The US Department of Justice has seemingly decided not to amend the so called consent decrees that regulate the two big collecting societies in America, except to force onto the PROs the one thing the music publishers definitely didn’t want added. So that’s fun.

Whenever the music industry licenses collectively it raises competition law concerns, so it’s common for copyright law to apply some extra regulation in collective licensing scenarios. In the US, that regulation comes via the consent decrees, agreements between the DoJ and the two biggest songwriter societies – BMI and ASCAP – in which the PROs agree to certain regulations to overcome anti-trust concerns.

In recent years the music publishers have been calling for the consent decrees to be revised, arguing that the agreements – which date from the 1940s – aren’t fit for purpose in the digital age. A key change that the big publishers have been seeking is the right to partial withdrawal, basically to force digital services into direct deals with the publishers, rather than them getting licenses from the societies at rates usually set by the courts.

Such partial withdrawal is already possible in Europe, but when the major publishers in America told Pandora that they would stop licensing digital through the collective licensing system, the courts that oversee the consent decrees said they couldn’t do that – the rule, the judges said, was that with collective licensing you are either all in or your all out.

Which means that the only way to stop Pandora from licensing the song rights through the collecting societies would be pull from ASCAP and BMI entirely, meaning the publishers would have to license every radio station, gig venue, bar and restaurant directly too. No one really wants to do that, but Sony/ATV chief Marty Bandier said he’d consider it. Though some lawyers argue that the publisher’s songwriter contracts wouldn’t allow such a unilateral move, and the consent of the writers would be required.

Either way, the DoJ announced a review of the consent decrees, which meant that the stand-off on partial withdrawal was postponed, with the publishers hoping to get partial withdrawal rights via the review, so they could just pull digital out of the system. Meanwhile some digital services – Pandora in particular – started doing direct deals with some publishers anyway, because in the US the licensee can circumvent the societies if it so wishes, even though the publishers are obliged to license via the collective system.

According to Billboard, the publishers are not going to get the big change they wanted to the consent decrees on partial withdrawal. Instead, the DoJ is going to introduce the one big change the publishers did not want – 100% licensing.

Basically, this mean that if BMI controls 50% of a song, and a licensee has a BMI licence, it will be able to make use of that song without getting a licence from whoever controls the other 50%, which might be ASCAP, or one of the smaller US societies, SESAC and GMR. The licensee will pay 100% of the royalty at the rate it agreed with BMI, which will then be responsible for passing half the money onto the other party.

In theory this system already exists in the US for direct licensing, in that any publisher with a stake in a song has the power to license that song in its entirety, providing it shares the money with whoever else has a stake. Though in reality agreements between songwriters and publishers mean this rarely happens. Nevertheless, the DoJ wants to force the 100% licensing principle onto collective licensing.

Because so many songs are co-written and therefore co-owned – and in the US, therefore, represented by multiple societies – many publishers fear that this move will enable licensees to push down the rates by licensing songs in their entirety by whichever society offers the best deal – possibly to the detriment of songwriters who possibly chose one of the smaller societies to get a better rate in certain scenarios. It’s also not clear how BMI, for example, would pay an ASCAP member, and whether two commissions would be applied to that income before it reached the songwriter (ie if it went from BMI to ASCAP to writer).

Hence “this decision will create a clusterfuck of epic proportions for the US music publishing industry”. BMI and ASCAP have to agree to the revised-in-the-wrong-way consent decrees, so could fight the DoJ’s decision through the courts. Plus the rate courts that oversee collective licensing Stateside need to approve any amendments too, and the publishers hope that they might have an opportunity to object at that point. So the battle isn’t lost as yet.

Though if none of that is successful, the publishers have to decide whether or not to go for the nuclear option – pull from collective licensing in its entirety, even though that raises all those legal questions around songwriter consents, not to mention issues with the non-US repertoire BMI and ASCAP represent through their reciprocal agreements with societies elsewhere in the world. Clusterfuck indeed.

ASCAP and BMI have confirmed that they met with the DoJ this week to discuss the proposed amendments of the consent decrees, adding: “We are both evaluating the information presented and informed the DOJ we will respond to its proposal in the near term”.

Officials at the department are expected to meet with publishers and digital services next week to discuss the revisions, after which the publishing sector will have to decide it’s next move. Which will be interesting. Slash… well, you decide.