PRO DMX Commercial Background Oral Argument – Recap

Having watched the oral arguments in the ASCAP and BMI appeals of the DMX commercial background music service rate decisions, I thought I would post a few of my impressions.

Overall, the arguments went as I expected.  Seth Waxman and Ted Olson performed like the former Solicitors General that they are: very polished speakers.  But they argued as if this was a Supreme Court case, and it is not (at least not yet).  Both emphasized big-picture policy grounds over the specific evidentiary record in the case.  On the rate side of the equation, both ASCAP and BMI argued that both rate court judges erred, as a matter of law, by rejecting ASCAP’s and BMI’s proposed benchmarks.  The PROs seem to believe that even if the judges find that the proffered benchmark is not sufficiently similar or reliable to serve as a valid benchmark, the judges must still use the benchmark and fin some way to adjust it to compensate for the problems.  According to this argument, the district court judges are powerless to actually reject the PROs’ benchmarks and select a different one.

I think there are a few problems with this argument.  First of all, the PROs seem to premise this line of attack on the argument that the selection or rejection of a benchmark is a pure question of law.  It seems to me that this is a classic mixed question of law and fact, however.  Neither Judge Stanton nor Judge Cote simply rejected the PROs’ proffered benchmarks (the deals between ASCAP and BMI, respectively, and Muzak) as a matter of law.  Rather, they reviewed specific fact evidence about those licenses at trial and found various facts, including  that the Muzak licenses were entered into as part of larger settlements of past periods (for amounts yielding effective rates substantially lower than the nominal rate in the going-forward license) and therefore the rate reflected in the going-forward license did not reflect an arms-length, willing buyer-willing seller benchmark that was the product of a competitive marketplace.  Moreover, the courts both, independently, found that the fact that other background music services accepted the Muzak rates did not indicate that those rates were valid benchmarks because the courts found, again as a factual matter based upon record evidence, that those other services were small businesses without the resources to effectively negotiate against the PROs or the budgets to afford the absurdly expensive process of rate court.

Neither ASCAP nor BMI argued that there was a lack of evidence in the record to support these findings.  Instead, they largely ignored the factual record, other than to make general allegations about the record, usually without providing cites to the record supporting those allegations.  Again, it seemed much more like a Supreme Court argument, sticking largely to policy proclamations about how important and valuable the ASCAP and BMI licenses are and the negative impact that the new rates will have.  But this was expected, given ASCAP’s and BMI’s tandem decision to hire famous Supreme Court advocates, neither of whom were involved in the litigation below, to argue the case.

Similarly as expected, the approach of DMX’s counsel, Bruce Rich, presented a stark contrast.  Rich not only tried both cases below, but he is also one of the most experienced rate court litigators on the planet.  His argument constantly focused on the adequacy of the record below.  For every point of argument, he was able to effortlessly provide record cites, backing up his assertions that the courts made their decisions based upon the evidence.  This is crucial because of the standard of review.  The Second Circuit is not supposed to reverse the district court decisions merely because it would have decided the cases differently; as long as no legal error was made and the decisions were founded upon a reasonable consideration of the evidence at trial, the decisions have to be affirmed.  Rich also countered the policy arguments, but he did so employing a facility with the precedent engendered by the fact that he personally litigated many of the key presidential cases.  His adversaries simply could not match that facility, not because they are not brilliant appellate advocates (they obviously are), but because they simply do not have that specialized experience.

During the portions of the arguments about benchmarks and rates, the Second Circuit panel seemed concerned that the PROs’ position would deprive the rate court judges of the flexibility needed to adapt the terms of the blanket licenses to the changing realities of the marketplace.  If I am reading this concern correctly, and this concern drives the decision, the PROs’ are not likely to prevail on their appeals.  On the other hand, having clerked for a federal appellate judge in addition to the appeals I have handled, I have seen hundreds of oral arguments and know from experience that you cannot always predict the result from the questioning.

With respect to the carve-out issue, which I discussed in my prior post, the issue was not raised during BMI’s argument, unless I missed it.  Olson focused on the point during the ASCAP argument, however.  Seeming to implicitly acknowledge that carve-out licenses were available under the BMI consent decree, he argued that the ASCAP consent decree is different because it defines the term “blanket license” as a “non-exclusive licenset hat authorizes a music user to perform ASCAP music, the fee for which does not vary depending on the extent to which the music user in fact performs ASCAP music.”  Olson repeatedly quoted the “fee does not vary” part of this definition, arguing that because a carve-out structure causes the license fee to vary, it is not allowed under the consent decree.  As Rich pointed out, however, this argument seems to ignore the rest of the definition.  The carve-out structure does not cause the license fee to vary depending on the amount of ASCAP music performed (the type of variance addressed in the definition).  Rather, it varies based upon the source of the license for the ASCAP music.

Judge Chin picked up this point and asked Olson to counter the argument, but Olson was not able to effectively do so, other than to say that ASCAP had included a formula in its brief that showed the license fee would vary with a carve-out structure.  Although he did not come out and say it expressly, ASCAP seems to be arguing that if a song in the ASCAP catalogue is directly licensed, it is no longer and ASCAP song.  That argument does not seem credible.  The consent decrees governing ASCAP and BMI, and the rate-seting proceedings at issue, are the product of antitrust litigation against ASCAP and BMI, and the driving purpose of both decrees is to minimize the anticompetitive effects inherent in blanket licensing by a single entity aggregating the rights to a large percentage of the existing, commercially relevant songs.  One of the features of both the ASCAP and BMI consent decrees is that the PROs are only allowed to take non-exclusive performance rights to the songs in their catalogues, meaning that the song owners always retain the ability to enter into direct performance licenses for those songs.  If an ASCAP member does direct license one of the songs that it has included in the ASCAP catalogue, that song is not suddenly removed from the ASCAP catalogue.

In conclusion, these were excellent oral arguments by three masters of appellate advocacy.  The arguments did confirm by (admittedly biased) belief that copyright law is one of those areas where skilled specialists will usually prevail over skilled generalists, all other things being equal.