ASCAP Court Rules for Pandora: Music Publishers Cannot Partially Withdraw Songs From ASCAP Catalog for Only Certain Users

Judge using his gavel In a major vic­tory for Pan­dora (and all other dig­i­tal music ser­vices), the ASCAP Rate Court has ruled this evening that ASCAP’s recent changes to its gov­ern­ing rules, which pur­ported to allow music pub­lisher mem­bers to selec­tively with­draw their cat­a­logs from the ASCAP reper­tory for cer­tain dig­i­tal music ser­vices while keep­ing the songs in the reper­tory for other licensees (such as broad­cast­ers, bars and restau­rants), vio­lated the ASCAP con­sent decree and there­fore any pur­ported with­drawals were ineffective.

This whole mess started a cou­ple of years ago.  After a series of losses in the ASCAP and BMI Rate Courts (in cases where ASCAP and BMI sought out­ra­geously high roy­alty rates and were rebuffed by the Courts), var­i­ous ASCAP mem­bers wanted to find a way out from the scrutiny pro­vided by the Rate Courts.  Of course, the Rate Courts were estab­lished pre­cisely because of the anti-competitive effects and behav­ior of the PROs, inher­ent in the mar­ket power that comes along with the con­glom­er­a­tion of a large num­ber of copy­rights that are nec­es­sary to pro­vide any com­mer­cially viable music ser­vice.  The ASCAP and BMI con­sent decrees are intended to allow the PROs to oper­ate, pro­vid­ing effi­cien­cies and ben­e­fits both to rights own­ers (which could not prac­ti­cally enter into direct licenses with all of the bars, restau­rants, broad­cast­ers, dig­i­tal music ser­vices, etc.) and to the licensees (which sim­i­larly could not effi­ciently enter into direct licenses with all of the thou­sands of rights own­ers), while pro­vid­ing Rate Court super­vi­sion to ensure that rates were rea­son­able and were not dis­torted by the mar­ket power inher­ent in the PROs.

The major music pub­lish­ers, ini­tially led by EMI and then Sony, came up with the idea of selec­tively with­draw­ing their cat­a­logs from ASCAP and BMI, but only with respect to cer­tain dig­i­tal music ser­vices.  These pub­lish­ers thought that this would allow them to keep all of the ben­e­fits of hav­ing ASCAP and BMI license all of those bars, restau­rants, broad­cast­ers, etc., while forc­ing the web­cast­ers and other stream­ing ser­vices to enter into direct licenses with them out­side the pro­tec­tion of the Rate Courts.  In direct nego­ti­a­tions, each of the major pub­lish­ers would enjoy absolute pric­ing power, because no music ser­vice can oper­ate with­out licenses from all of those pub­lish­ers (i.e, there is no competition).

ASCAP, and then BMI, had to amend their var­i­ous rules and mem­ber­ship agree­ments to allow these par­tial with­drawals and promptly did so.  Within short order, all of the majors pur­ported to with­draw their cat­a­logs from the ASCAP reper­tory for cer­tain dig­i­tal music ser­vices, while Sony and EMI did the same with respect to BMI (with the other majors pre­sum­ably to fol­low as soon as their BMI agree­ments came up for renewal).  Even more per­versely, the pub­lish­ers entered into deals with ASCAP and BMI, pur­suant to which the PROs would con­tinue to admin­is­ter the direct licenses so that the pub­lish­ers would retain many of the ben­e­fits of the PROs while com­pletely avoid­ing any of the per­ceived detri­ments.   Or so they thought …

The first dig­i­tal music ser­vice tar­geted in this scheme was Pan­dora.  Pan­dora took ASCAP to Rate Court, and was taken to Rate Court by BMI.  In both pro­ceed­ings, Pan­dora is (among other things) chal­leng­ing these selec­tive with­drawals.  And now the first deci­sion is in and Judge Cote has granted Pandora’s motion for sum­mary judg­ment, rul­ing that ASCAP’s rule changes pur­port­ing to allow these selec­tive with­drawals vio­lated the applic­a­ble con­sent decree and there­fore any such with­drawals were inef­fec­tive.  Put another way, unless and until the pub­lish­ers pull their cat­a­logs entirely from ASCAP’s reper­tory (i.e., for all types of licensees), any com­pany that applies for an ASCAP license imme­di­ately gets a license for the entire reper­tory, includ­ing the songs owned by the major publishers.

This should not have been a sur­pris­ing result.  As Judge Cote’s excel­lent and cogent opin­ion sets out, the con­sent decree clearly requires ASCAP to grant licenses on a non-discriminatory basis to any appli­cant, and that license must cover the entire ASCAP reper­tory.  ASCAP’s argu­ment, that the reper­tory con­sists of rights , and not songs, was sternly rejected as the non­sense that it is.

Here is the deci­sion, for your read­ing pleasure.

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