Second round in dispute between DOJ and BMI over 100% or fractional licensing

The United States Department of Justice Antitrust Division (“DOJ”) appealed the judgment interpreting the consent decree between it and Broadcast Music, Inc. (“BMI”). The court ruled that the consent decree neither requires full-work licensing nor prohibits fractional licensing of BMI’s affiliates’ compositions. The dispute in this case is whether, under the consent decree, “fractional” interests BMI has acquired through its affiliates to a co-owned work are included in BMI’s repertory and may be included in the blanket license.

The Copyright Act vests the creators of copyrighted musical compositions with exclusive rights to public performance, and provides that copyrights may be co-owned. BMI offers a “full-work license” when its affiliates own the full set of rights to a work such that a licensee may immediately perform it without risk of infringement. For some works, however, the co-owners have allocated between themselves fractional interests of exclusive ownership, and then elected to affiliate with different PROs. In these instances, BMI may hold the right to public performance of fewer than all collaborators; if BMI holds only a fractional interest in a composition, it offers a license to only that share. The decree does not address the issue of fractional versus full work licensing, and the parties agree that the issue did not arise at the time of the 1966 and 1994 amendments.

On August 4, 2016, the DOJ closed a review of the ASCAP and BMI Consent Decrees. It concluded that “the consent decrees, which describe PROs’ licenses as providing the ability to perform ‘works’ or ‘compositions,’ require ASCAP and BMI to offer full-work licenses” to the exclusion of fractional licenses. It further observed that “only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses.” DOJ conceded that if a PRO holds fewer than all rights to a composition, a policy limited to fullwork licenses may “make it impossible for ASCAP or BMI … to include that song in their blanket licenses.”

Immediately afterward, BMI asked Judge Stanton for a pre-motion conference. BMI argued that because the decree did not prohibit fractional licensing, it was permitted. Judge Stanton observed that “nothing in the Consent Decree gives support to the Antitrust Division’s views,” and held that the “Consent Decree neither bars fractional licensing nor requires full-work licensing.”

“Courts must abide by the express terms of a consent decree and may not impose additional requirements or supplementary obligations on the parties even to fulfill the purposes of the decree more effectively.” The district court may not “impose obligations on a party that are not unambiguously mandated by the decree itself.” Accordingly, since the decree is silent on fractional licensing, BMI may (and perhaps must) offer them unless a clear and unambiguous command of the decree would thereby be violated.

The “right of public performance” is a term of art in copyright law. The Copyright Act contemplates that the right of public performance “may be transferred in whole or in part” and “owned separately,” including as a “subdivision” of the right. Each individual co-owner has a right to public performance, and such a right is not associated specifically with “full-work” licensing or with an indivisibility principle. As Judge Stanton observed, the blanket license itself does not necessarily confer a right of immediate public performance: the license covers all the rights held by the PRO regardless of whether those rights are valid or invalid, exclusive or shared, complete or incomplete. The decree was amended in 1994 at a time when fractional licensing was apparently common practice.

DOJ also relied on BMI v. CBS, which identified one procompetitive benefit of the blanket licensing arrangement as allowing “the licensee immediate use of the covered compositions, without the delay of prior individual negotiations and great flexibility in the choice of musical material.” Use of the phrase “immediate use” does not imply a rule that BMI may license music rights only if they are complete, or fullwork. The Court explained one procompetitive feature of the blanket license that reduces transaction costs of individual bargaining among rights-holders; it did not offer an interpretation of the terms of the decree or set forth a standard that must be satisfied. In any event, the blanket license reduces transaction costs even if it obviates individual bargaining only as to the fractional rights it includes. Neither the language of the opinion nor the consent decree itself guarantees immediate performance with respect to every composition.

If the DOJ decides that the consent decree, as interpreted by the district court, raises unresolved competitive concerns, it is free to move to amend the decree or sue under the Sherman Act in a separate proceeding. For the foregoing reasons, and finding no merit in the DOJ’s other arguments, the court affirmed the judgment of the district court.