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2nd Cir. Affirms: Music Companies Defied Consent Decree

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By Mark Wilson, Esq. on May 07, 2015 3:56 PM

Content providers are still struggling to figure out how to make money in the digital age. Music publishers, in particular, were much more comfortable with selling CDs from physical stores than they were selling digital copies, and even those, it seems, are giving way to streaming services.

This case from the Second Circuit pits stream music powerhouse Pandora against an association of music publishers. The publishers resisted allowing "new media" companies to license their works, but both a federal district court and the Second Circuit said the language of their agreements was clear: You can't choose to license to one group, but not to others.

A Consent Decree That Works Sometimes

ASCAP is an organization that represents about half the composers and music publishers in the United States. Because of monopoly concerns, it operates under a consent decree requiring ASCAP to grant a non-exclusive license to perform works of its members if someone asks.

Pandora was one of the companies that asked, but by 2010, some ASCAP members were concerned that ASCAP was getting below-market rates from "new media" companies like Pandora. EMI threatened to leave ASCAP altogether if ASCAP didn't allow individual publishers to choose not to license recordings to new media companies. ASCAP relented, and EMI promptly withdrew its new media licenses, followed by Sony and Universal.

Don't Discriminate

The Second Circuit said that wasn't permitted by "the plain language of the consent decree," which "unambiguously precludes ASCAP from accepting such partial withdrawals." The licenses, the court said, aren't open to negotiation: "[P]ublishers may not license works to ASCAP for licensing to some eligible users but not to others."

ASCAP also challenged the rate Pandora was charged -- 1.85% for all five years of its license agreement, a rate set by the district court. Pandora asked for 1.70%, while ASCAP wanted an escalating rate that would start at 1.85% and top out at 3.00%.

The burden lay with ASCAP at the trial level to show that its proposed rate was reasonable -- a burden the Second Circuit said ASCAP failed to meet. The Second Circuit also said the trial court didn't act unreasonably in denying additional discovery to ASCAP so that it could conduct further investigation into the reasonableness of the rate.

Even though EMI, Sony, and Universal ultimately entered into their own direct licenses with Pandora, the suit challenged the rate scheme from the period 2013-2015 and the original decision by those three organizations to disallow new media companies from licensing their works under the auspices of ASCAP.

Now it only remains to be seen what will take the place of streaming music once that's gone the way of the record, the CD, and even the iTunes download.

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