Public comment by SAG-AFTRA on collective rights managements rules review

The Consent Decrees are outdated and in relation to the current digital landscape, diminishing the artists’ ability to exploit their works. First, the Consent Decrees mandate that both PROs unequivocally grant a license to any user who submits an application, granting immediate access to the PRO’s entire repertoire upon application without first having to negotiate economic terms of the license or make any payment.

As the user has already obtained access to the PRO’s full repertoire of songs, either without payment or with payment of only interim fees, there is little to compel their good-faith participation in negotiations with the PRO. If the parties cannot reach agreement on license terms, either party may commence a rate court proceeding, but is not mandated to do so and the PRO must weigh the costs of doing so with the anticipated increase in revenue over any interim license under which the parties have been operating.

In addition, even after a party initiates a rate court proceeding, the proceedings are governed by the Federal Rules of Civil Procedure, including all motion practice and discovery allowed thereunder, which may considerably extend the process. Consequently, without any time constraints on the negotiations or the subsequent judicial proceeding, prospective licensees can drag their feet for years, even indefinitely, exploiting the licensing system to avoid payment. As the success-rate of companies in the digital space is limited, potential licensees can use loopholes in the Consent Decrees to shift their business risks to the PROs and, through them, to the artists and publishers.

Secondly, the resulting rates, whether the PRO settles for lower negotiated rates or pursues rate proceedings, often do not reflect market realities and are significantly lower than the fair market value of the licensed songs. This is due largely to the lack of clarity in the Consent Decrees as to the standard applied in rate determinations. Pursuant to the Consent Decrees, the PRO’s have the burden to show that its proposed license fees are “reasonable”.

However, the Consent Decrees provide no guidance to the rate courts to aid in their determinations. If a court does not agree with the rates submitted by the PRO, it can establish on its own “a reasonable fee based on all the evidence”. However, in recent years, the rate courts have refused to consider evidence of actual fair market value of licenses negotiated directly between publishers and licensees. Without a clear standard of review, courts tend to favor hypothetical benchmarks over the actual fair market value of these licenses. This process creates irreparable harm to the artists and to the economic value of their works.

Artists should benefit fairly from the continued exploitation of their musical works. To that end, license fees should be set at a willing buyer -willing seller standard, whether through negotiation or when set by a rate court. When determining a reasonable fee, the rate court must consider evidence of privately negotiated rates which are a better indicator of the license’s value in the market than are hypothetical benchmarks. In reality, the rate court’s interpretation of “reasonable” fees has resulted in the scales tipping in favor of licensees in a manner highly prejudicial to creators and owners of musical works, rather than leveling the playing field for all stakeholders involved.

Any new standard must create clarity and certainty for the parties, as well as the courts, and must shift the way the parties currently negotiate in the digital realm, preventing the prolonged negotiation process that has been costly and unproductive.