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From Antitrust Law Daily, May 12, 2016

ASCAP to pay $1.75M to resolve U.S. contempt allegations regarding exclusivity provisions

By Jeffrey May, J.D.

The American Society of Composers, Authors and Publishers (ASCAP) violated a 2001 final judgment by entering into approximately 150 exclusive contracts with its composer, songwriter, and publisher members, according to allegations raised by the Department of Justice Antitrust Division in a petition for an order to show cause. In response, the performing rights licensing organization has agreed to pay $1.75 million and to reform certain practices under the terms of a proposed settlement. ASCAP also has promised not to enter into further exclusive contracts and has agreed to reform its licensing practices to remove music publishers from overseeing ASCAP’s licensing (U.S. v. American Society of Composers, Authors and Publishers, Case No. 41-1395 (DLC)).

Since 1941, ASCAP, which sells public performance licenses to those compositions in its repertory collectively on behalf of its composer, songwriter, and publisher members, has been operating under antitrust consent decrees. The decrees resolved Justice Department allegations that the organization violated Section 1 of the Sherman Act by agreeing to eliminate competition among ASCAP’s members and to grant ASCAP the exclusive right to license the works of its members.

The most recent consent decree, known as Second Amended Final Judgment or AFJ2, was entered in June 2001 (2001-2 Trade Cases ¶73,474). ASCAP allegedly violated terms of the AFJ2 by including provisions in certain non-standard contracts starting around 2008 that expressly provided that ASCAP would be the “exclusive” provider of licenses for the particular member's musical works. By making ASCAP the sole licensor of the members’ works, the exclusivity provisions also interfered with the ability of the members to license their music directly to music users, in violation of AFJ2, the government alleged.

According to the government, all of the elements of contempt were met since the language of the AFJ2 unambiguously prohibited acquiring rights of public performance on an exclusive basis. The government rejected ASCAP’s efforts to defend its conduct by arguing that neither it nor its members believed the “exclusive” contracts were actually exclusive.

Terms of proposed settlement. Under the terms of the proposed settlement, which requires approval from the federal district court in New York City, the organization will make a $1.75 million civil payment to the United States and will abide by provisions in AFJ2 prohibiting interference with direct licensing. In addition, ASCAP is taking steps to improve its corporate governance. It has agreed, as part of the proposed settlement, to insulate licensing decisions from the influence of publishers and to implement improved compliance policies. ASCAP has agreed to remove publisher board members from any involvement in licensing activities, to bar any publishers from overseeing or supervising licensing decisions, and to implement extensive compliance reforms, including training its directors, officers, and other key employees annually on the requirements of AFJ2, according to the government.

Of the approximately 150 contracts containing exclusivity provisions, about 100 had terminated of their own accord by late 2015, the government noted. Remaining agreements were rescinded.

The civil payment is intended to cover the government's costs for its investigation and prosecution of the violation. “The agreed figure of $1.75 million compensates the United States for the time of its attorneys, economists, and paralegals and reflects the seriousness of ASCAP’s repeated violations of AFJ2,” the Justice Department explained.

Acting antitrust chief's remarks. “By blocking members’ ability to license their songs themselves, ASCAP undermined a critical protection of competition contained in the consent decree,” said Renata B. Hesse, Principal Deputy Assistant Attorney General in charge of the Antitrust Division, in announcing the settlement. “The Supreme Court said that ASCAP’s consent decree is supposed to provide music users with a ‘real choice’ in how they can access the millions of songs in ASCAP’s repertory—through ASCAP’s blanket license or through direct negotiations with individual songwriters and publishers. Today’s settlement restores that choice and thereby promotes competition among the songwriters, the publishers and ASCAP. This settlement also sends an important message to ASCAP and others subject to antitrust consent decrees that they must abide by the terms of the decrees or face significant consequences.”

Review of performance rights organization judgments. In 2014, the Antitrust Division announced that it was seeking comments on its decrees with both ASCAP and Broadcast Music, Inc. (U.S. v BMI, 1996-1 Trade Cases ¶71,378). The request for comments came in response to concerns raised by ASCAP, BMI, and other music industry firms that the decrees required modification “to account for changes in how music is delivered to and experienced by listeners.” In light of comments received, in 2015, the Justice Department sought additional comments regarding ASCAP’s and BMI’s licensing practices related to jointly-owned works. The Justice Department has not yet announced any proposals to modify the consent decrees in response to the feedback received.

The case is No. 41-1395 (DLC).

Attorneys: Kelsey W. Shannon for Department of Justice Antitrust Division. Jay Cohen and Andrew Finch (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for American Society of Composers, Authors and Publishers.

Companies: American Society of Composers, Authors and Publishers

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