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!