DOJ v. BMI: DOJ Argues BMI’s Fractional Licensing Practice Violates Consent Decree

Antitrust Copyright Patent

Brief of Appellant, United States v. Broadcast Music, Inc., No. 16-3830-cv (2d. Cir. May 18, 2017) brief hosted by DJ Counsel.

On May 18, 2017, the U.S. Department of Justice (“DOJ”) filed a brief in its appeal to the United States Court of Appeals for the Second Circuit, asking the court to overturn an order from the Southern District of New York. The lower court ruled against the government, finding that the consent decree between the DOJ Antitrust Division and Broadcast Music, Inc. (“BMI”) permits BMI to grant fractional licenses, or partial rights to perform music. In its brief, the DOJ claims that the consent decree governing BMI’s collection and licensing of public performance rights allows only full–work licenses, or full rights to perform music.

This case stems from an investigation of the DOJ’s Antitrust Division into modifying the existing consent decrees with BMI and the American Society of Composers, Authors, and Publishers (“ASCAP”). BMI and ASCAP are the largest U.S. performance rights organizations (“PROs”), which provide people with the necessary rights to publicly perform music compositions. Composers grant PROs the authority to license the original work to third parties, enabling PROs to be clearinghouses for musical licenses. In exchange for this monopoly, the PRO agrees to terms contained in the consent decree.

During its investigation, the DOJ Antitrust Division sought comments regarding fractional and full licensing and determined that the consent decrees do not permit fractional licensing. Furthermore, the Antitrust Division decided against amending the consent decrees to permit such practices because doing so would undermine the utility gained from PRO licenses, such as enabling music users to use compositions after negotiating with only one party. Following the Antitrust Division’s decision, BMI sought a judicial declaration that its consent decree did not require full–work licenses, or, alternatively, for the court to amend the decree to allow fractional licensing. The court ruled in favor of BMI as it found that the consent decree did not address the issue of full or fractional licensing, and thus, it did not bar those practices.

In its appellant brief, the DOJ argues that the plain meaning of the consent decree requires full–work licensing. The DOJ points to the language in in Article XIV(A), which outline the steps BMI must take to license compositions in its repertory, and Article II(C), which defines repertory. Article XIV(A) states that upon “receipt of a written application from an applicant for a license for the right of public performance of any, some or all of the compositions in defendant’s repertory,” BMI must “advise the applicant in writing of the fee which it deems reasonable for the license requested.” Article II(C) defines the term repertory as “those compositions, the right of public performance of which defendant has or hereafter shall have the right to license or sublicense.” According to the DOJ, these articles taken together unambiguously require BMI to issue full–work licenses, since a fractional license alone would not give users a right to publicly perform the work. Additionally, the DOJ points out that BMI and the United States have both approached the consent decree as requiring a full–work license in the past. Finally, the DOJ states that the United States sees the blanket licenses that BMI provides as a social good that balances the antitrust concerns that PROs create, as such licenses allow music users to immediately use all compositions in the PRO’s repertory. Fractional licenses would prevent BMI from giving a blanket license because the user would need to negotiate with other owners to the fractional work; the DOJ says fraction licensing undermines the consent decree deal between the United States and BMI.

Mike O’Neill, the chief executive office of BMI, claims that prohibiting fractional licensing will lead to chaos in the music market and will give music users an unfair advantage over music creators. Several digital media and technology companies, such as Google, Netflix, Viacom, and Spotify, wrote an amicus brief in support of the DOJ’s position, expressing concern that fractional licensing would permit co-owners to hold out during fee negotiations to increase prices and would complicate negotiations generally. Coe W. Ramsey on Lexology provides further analysis of potential difficulties that could be created for music users if fractional licensing is permitted.

Phillip Takhar is a rising 2L at Harvard Law School and a visiting researcher at the Nexa Center for Internet and Society.