Direct Licensing Carve-Outs For PRO Blanket Licenses — Oral Arguments This Thursday

Of inter­est to those of us who prac­tice in the area of com­pul­sory (or consent-decree) copy­right licens­ing and rate-setting:  oral argu­ment will be heard by the Sec­ond Cir­cuit this Thurs­day, June 16, in two appeals (one by ASCAP and one by BMI) of sep­a­rate rate court deci­sions won by com­mer­cial back­ground music provider DMX.  In both cases, the respec­tive dis­trict court judge (Judge Stan­ton han­dles rate-setting lit­i­ga­tion under the BMI con­sent decree and Judge Cote recently took over the ASCAP rate-setting docket) sub­stan­tially decreased the prior rate charged by ASCAP and BMI for the the right to pub­licly per­form the songs in their respec­tive cat­a­logues as part of a com­mer­cial back­ground music ser­vice (i.e., the music you hear in the back­ground while you shop in a retail store).

Per­haps the most inter­est­ing issue raised in these appeals is whether licensees are enti­tled to a “carve out” fea­ture, allow­ing licensees to obtain licenses for some of the songs in the ASCAP or BMI cat­a­logues directly from music pub­lish­ers with­out double-paying for those rights.  ASCAP and BMI offer blan­ket licenses of the per­for­mance right.  In other words, one roy­alty pay­ment cov­ers all of the songs rep­re­sented by ASCAP or BMI.  In some instances, how­ever, licensees may be able to strike bet­ter deals by going directly to the indi­vid­ual music pub­lish­ers who own the songs.  In such instances, BMI and ASCAP essen­tially refused to give the licensees any dis­count from the “full” blan­ket license rate, either by refus­ing to allow a rate carve-out at all or by charg­ing a pre­mium fee for such a carve-out (which min­i­mizes or elim­i­nates and sav­ings to the licensee).  Both dis­trict court judges held that licensees were enti­tled to a carve-out license, and with­out any finan­cial penalty for direct licensing.

Although both appeals are obvi­ously dis­tinct, they raise many of the same issues and have been assigned to the same appel­late panel and will both be argued this Thurs­day.  In an inter­est­ing move, ASCAP has hired for­mer Solic­i­tor Gen­eral Ted Olson to argue its appeal, and BMI has hired for­mer Solic­i­tor Gen­eral Seth Wax­man.  As for­mi­da­ble as these gen­tle­men are as appel­late advo­cates, I am not aware of either hav­ing much copy­right law expe­ri­ence, much less in this very nar­row and spe­cial­ized area of copy­right law.  Bruce Rich, on the other hand, will be argu­ing both appeals for DMX and is one of the most expe­ri­enced lawyers on the planet with respect to rate-court pro­ceed­ings.  Should make for an inter­est­ing argument!



  1. Bozwell says:

    Should this ren­dered deci­sion affect Muzak roy­al­ties for com­po­si­tions that were not directly licensed?

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