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From Antitrust Law Daily, August 4, 2016

Justice Department rejects changes to ASCAP, BMI consent decrees

By Jeffrey May, J.D.

Modifications to antitrust consent decrees proposed by performing rights organizations American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) "would disrupt the status quo, would not be consistent with the purposes of the consent decrees, and would not be in the interest of consumers," the Department of Justice Antitrust Division announced today. The government has closed its investigation into modifications of the decades-old consent decrees, which resolved price fixing allegations against the performing rights organizations. It will not join the groups in recommending modifications to the settlements, according to the closing statement (U.S. v. American Society of Composers, Authors and Publishers, Case No. 41-1395; U.S. v. Broadcast Music, Inc., Case No. 64 Civ. 3787).

The ASCAP consent decree (2001-2 Trade Cases ¶73,474) and the BMI consent decree (1996-1 Trade Cases ¶71,378) "seek to prevent the anticompetitive exercise of market power while preserving the transformative benefits of blanket licensing," according to the Antitrust Division's closing statement. The "blanket licenses" provide music users, such as bar owners, television and radio stations, and Internet music distributors, with access to millions of songs without resorting to individualized licensing determinations or negotiations, thereby enabling the users to publicly perform the musical works of the thousands of songwriters and music publishers who are members of the performing rights organizations.

In 2014, the Antitrust Division undertook its investigation of the consent decrees in response to requests from ASCAP and BMI that the government support proposed modifications. According to the Justice Department, the most significant of the proposed modifications was a proposal supported by ASCAP, BMI, and music publishers to allow music publishers to "partially withdraw" from ASCAP and BMI, thereby prohibiting the performing rights organizations from licensing the withdrawing publishers’ music to digital services such as Pandora or Spotify. In May 2015, the U.S. Court of Appeals in New York City held that the ASCAP consent decree precluded partial withdrawals of public performance licensing rights. The appellate court upheld a decision of the federal district court that oversees the continued operation of the decrees.

The Antitrust Division has now concluded that the consent decrees require full-work licensing and that the decrees should not be modified to allow so-called fractional licensing. For the next year, where ASCAP and BMI proceed in good faith, the Antitrust Division will not take any enforcement action based on any purported fractional licensing by the performing rights organizations. However, ASCAP and BMI are expected to take the steps necessary to eliminate uncertainty, by obtaining from songwriter and publisher members the assurances that works can be offered on a full-work basis and by removing works from their licenses if they cannot be offered on a full-work basis.

"A full-work blanket license from ASCAP or BMI allows the music user to publicly perform, without risk of copyright infringement liability, all works in the licensing [performing rights organization]’s repertory," Renata Hesse, Acting Assistant Attorney General in charge of the Antitrust Division, said in announcing the investigation closure. However, the Antitrust Division has not "ruled out the possibility of pursuing modifications, including to allow for partial withdrawal, sometime down the road."

Noting that "blanket license is a central component of the licensing framework established by the decrees, and is relied upon by songwriters and users alike for the effective functioning of performance rights licensing by ASCAP and BMI," Hesse added that the closing statement was intended "to make clear what the consent decrees have always required so that any practices that have developed that are inconsistent with those requirements can be adjusted accordingly."

Complying with full-work licensing requirements. In its closing statement, the Justice Department identified practices that industry participants might find useful in complying with the consent decrees’ full-work licensing requirements while maintaining most current licensing practices. Among the practices identified for both rightsholders and users are:

  • continuing to allow co-owners of a song who are members of different performing rights organizations to have their songs included in one or more of the full-work licenses and be paid based on their fractional ownership;
  • reminding ASCAP and BMI members that they made grants of rights 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 such licensing;
  • adjusting pricing for a user that seeks to stop obtaining licenses from multiple performing rights organizations and to rely on a single performing rights organization’s license to get access to songs that have multiple owners.

Legislative solution. The government has concluded that the ASCAP and BMI consent decrees continue to serve the purposes for which they were put in place in 1941 and, therefore, should remain in place. However, it suggested that "a comprehensive legislative solution" might be a better approach. In light of "incongruity in the oversight over the licensing of performance rights and other copyrights in compositions and sound recordings," the Justice Department suggested "a legislative solution that brings performance rights licensing under a similar regulatory umbrella as other rights" and that "ensures a competitive marketplace and obviates the need for continued Division oversight" of the performing rights organizations. However, the Antitrust Division did not provide additional details for a legislative fix.

Companies: American Society of Composer, Authors and Publishers; Broadcast Music, Inc.

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