Tuesday, January 19, 2021

US Department of Justice closes the review of ASCAP and BMI's consent decrees without taking any action

 By Emmanuel Legrand



Songwriters, music publishers and the two main US performance rights societies ASCAP and BMI reacted with disappointment to the disclosure that the US Department of Justice (DoJ)'s Antitrust Division has decided to end the review of the consent decrees ruling ASCAP and BMI since 1941 without proposing any changes or terminating them, putting an end to a two-year process.

  "The Antitrust Division has considered carefully stakeholders’ views on all of these issues and recognises that continuing disagreements exist among artists and within the music community regarding the benefits, drawbacks, and continued need for the ASCAP and BMI consent decrees. Continued review of, and stakeholder input concerning, the decrees remains necessary to ensure the decrees continue to satisfy their purpose to protect competition and do not act as an impediment to innovation," said Makan Delrahim, the Assistant Attorney General in charge of the US Justice Department’s Antitrust Division.

  Speaking at a webinar on organised by the Vanderbilt University Law School, added that lack of consensus between stakeholders, and even within the music sector itself on the future of the consent decrees, made it difficult for the DoJ to make a decision. [A consent decree is a judicial decree that sanctions a voluntary agreement between parties in dispute, without having either party admitting guilt. Once approved by a judge it becomes legally binding.]

Encourage competition

  Delrahim said the United States entered 80 years ago into the consent decrees with ASCAP and BMI "to remedy the competitive concerns that arise from the exclusive, collective, and blanket licensing of individual copyrights." According to the decrees, both ASCAP and BMI have to offer the same license terms to similarly situated users in the same industry to license music for public performance.

  He explained: "ASCAP and BMI provide licenses to these users so that they do not have to enter into individual licensing agreements with every songwriter or publisher whose music they wish to play. In this sense, collective licensing provides significant efficiencies to many businesses across the country that benefit from immediate access to music, as well as to songwriters, composers, and publishers who would otherwise have to individually license or enforce against multiple music users."

  He continued: "The crux of the decrees is to encourage competition between ASCAP, BMI, and other PROs for members and music users, and between ASCAP, BMI, and their respective members to license copyrighted works to music users. The decrees prohibit exclusive licensing and protect the ability of ASCAP and BMI members to license works directly if they wish." 

Review the decrees every five years

  Delrahim said the Division will continue to monitor the decrees. “[T]he Division recognises that changes in the music marketplace, as well as in the ways Americans consume music, continue to require the Division to monitor the decrees and, where market realities require, seek to modify them to promote competition," he said. 

  Delrahim went on to outline three points that will inform the views of the Division moving forward:
  > creating an environment where "the ultimate goal should be a market-based solution that ensures songwriters, publishers, and other artists are compensated fully for their creative efforts at market rates."
  > ensuring that songwriters and other intellectual property rights holders "are not shortchanged by the non-market effects of the ASCAP and BMI consent decrees, or by other efforts to regulate the music marketplace."
  > recognising that compulsory licensing "is not the answer" as it "runs counter to the principles that form the very foundation of the free market and rights in intellectual property."

Ensure a free, fair and efficient marketplace

  "It is incumbent upon the Division, the Congress, and the courts to keep these principles in mind as they strive to ensure a free, fair, and competitive music licensing marketplace," said Delrahim.

  He concluded: "The ASCAP and BMI consent decrees should be reviewed every five years, to assess whether the decrees continue to achieve their objective to protect competition and whether modifications to the decrees are appropriate in light of changes in technology and the music industry. Factors that could weigh in favor of modification might include increased competition in the licensing marketplace, including increased direct licensing or technological developments that may affect the market. In all of these efforts, competition must be the watchword. Competition for the benefit of consumers, competition for the benefit of innovation, and most importantly, competition for the benefit of the artists and songwriters without whom the American music industry would not exist."

  During the review process, stakeholders outlined conflicting visions. Groups from the licensees sector, such as the National Association of Broadcasters, organisations representing hotels and bars, as well as the Motion Picture Association, were opposed to changes in the decrees, explaining that they worked for them by ensuring access to repertoire with the stability of not having to face legal challenges. 

Lack of consensus among stakeholders

  Others such as the National Mus
ic Publishers Association (NMPA) were in favour of relaxing some of the decrees' provision to allow partial withdrawal of rights from the PROs. And songwriters were also conflicted between the different options. 

  Delrahim also said that there was disagreements within stakeholders on issues such as fractional licensing versus full-song licensing, for which a court ruled against the DoJ that ASCAP and BMI cannot license 100% of the rights to songs for which they only represent a fraction of the rights, as well as on partial withdrawal, for which he said "action on this front would likely require modification of the decrees, or an act of Congress."

  Delrahim said during the discussion at the Vanderbilt University that while there was "a lot of efficiencies" in the blanket licenses that collective rights organisations provide, including to artists, the artists community "was split." He named Jon Bon Jovi, who testified during the two-day hearing organised by the DoJ last year, as one of those who did not think there should be changes "because many artists relied on these types of licensing rights and the consent decree to make their living." He also mentioned LeAnn Rhimes who made a "very impassioned and cogent argument for why they should be terminated." Said Delrahim: "So you have artists and you have the licensee community also were all split.” 

Broadcasters 'pleased' with the decision

  NAB, whose President and CEO Gordon Smith testified during the review process, said in a statement, that NAB was "very pleased that the Department of Justice will not move to make changes to the ASCAP and BMI consent decrees." Smith continued: "We appreciate the willingness of DoJ to have an open mind and to conduct a comprehensive review of all of the possible issues raised by stakeholders concerning modifying or eliminating the decrees. DoJ's decision not to take action will ensure that ASCAP and BMI continue to fairly and efficiently license musical works in a manner that is pro-competitive. Broadcasters look forward to continuing to work with the performance rights organisations for the mutual benefit of songwriters, music licensees and listeners.”

  David Israelite, president and CEO of the NMPA, said he was "disappointed that DoJ chose not to update the regulations to allow for freedoms that would have greatly helped songwriters and music publishers realise the true value of their work." He continued: "We understand that the [performing rights organisations] and the Department could not come to an agreement on broad changes and therefore allowing selective withdrawal of digital rights could not be fully considered, however we see this as a massive missed opportunity for music creators."

  He added, “We agree as Assistant Attorney General Delrahim stated, that ‘the ultimate goal should be a market-based solution that ensures songwriters, publishers, and other artists are compensated fully for their creative efforts at market rates,’ and we are relieved to hear his denunciation of compulsory licensing.” He said that he hoped that the Biden administration would take up the issue.

Disappointment of rights societies

  ASCAP CEO Elizabeth Matthews and BMI President and CEO Mike O’Neill issued a joint letter in which they wrote: "Today, the DoJ has formally closed its review and will take no action to modify or terminate the decrees but left open the possibility of changes in the future. While we were disappointed that no action was taken, we are encouraged to see how the DoJ’s approach to these issues has evolved."

  ASCAP and BMI added that were encouraged by the fact that Delrahim "recognised several important truths that we have long understood: Songwriters are the backbone of the music marketplace and must be paid fairly; blanket licensing is incredibly efficient; ASCAP and BMI are innovating to serve the needs of the industry; greater competition and not compulsory licensing is the answer; and the value of music is best decided in a free market."

  There also admitted that while BMI and ASCAP have long advocated for updating and modernising their respective consent decrees, "it has become clear over the course of two different reviews by two different DoJ administrations in the past eight years that modifying or terminating our decrees would be extremely challenging."

Revisit the decrees

  The respond to the DoJ's request for a new approach, the two societies offered a joint solution "that would help facilitate a thoughtful transition to a free market while avoiding potential chaos in the marketplace." However, it "soon became clear that key industry participants could not agree on how best to move forward."

  They elaborated: "We were concerned that the lack of consensus in the market could lead to a legislative push resulting in unwarranted government regulation of our industry in the form of compulsory licensing. In addition, our victory in confirming the industry-wide practice of fractional licensing would have been revisited. These factors would absolutely not be in the best interest of our songwriters, composers and publishers, and indeed, would represent a major step backward. Although it would have been wonderful to see our decrees modernised, we would rather they remain as they are, than see an outcome that could adversely affect music creators for generations to come."

  In their conclusion, the two PROs said they would continue to innovated and offer new solutions to licensees, such as the recent joint database of songs Songwview. They write: "While we are both looking forward to the day when ASCAP and BMI are no longer under consent decrees, we were buoyed by the DoJ’s comments that it will pay to revisit these decrees as a result of new market developments. When the appropriate time comes, BMI or ASCAP may wish to seek a future review. For now, we’ll turn our attention to the opportunities that lie ahead in 2021 and, of course, all of the incredible new music the year will bring."

  Meanwhile, Delrahim will be leaving the government on January 19. During his tenure, the Division embarked in a lengthy review of the 1,200 consent decrees that the department was overseeing, resulting in the termination of 850 of them. The film sector saw the end of the Paramountconsent decrees, which forbid studios to own movie theaters. The DoJ also started launching probes into internet companies such as Google.

  “During my tenure as Assistant Attorney General, the Division successfully enforced the competition laws and implemented transformative policy and organisational initiatives that will bear fruit for both American consumers and entrepreneurs for years to come,” said Delrahim in his resignation letter to President Trump.

  President-elect Joe Biden has picked Merrick Garland as the next Attorney General but has not yet appointed a new person in charge of the Antitrust Division. According to Reuters, two former Barak Obama administration officials are under consideration for the job: Renata Hesse, currently a partner at law firm Sullivan & Cromwell, where she advised companies such as Amazonand Google parent Alphabet; and Juan Arteaga, who has also worked for the Justice Department under President Obama between 2013 to 2017 and served as the Deputy Assistant Attorney General for Civil Enforcement.

  Reuters noted that Hesse's involvement with Alphabet could pose conflict of interest issues as the DoJ sued Google on Oct. 20, and suggested that Ortega was the front runner.


[Commentary: A wasted opportunity
So this is the end of the current episode of the consent decrees' saga, until the next one! When the DoJ announced the review of the decrees two years ago, there was optimism within the songwriting, publishing and PRO community in the US and abroad that something would come out of the process, based on the pro-active desire by Makan Delrahim, the Assistant Attorney General in charge of the US Justice Department’s Antitrust Division,to take a deep look at rules that have been in place for almost 80 years.
  But it became very clear after a while that there were so many conflicting views around the table that finding a consensus among stakeholders would be almost impossible. The DoJ could have taken the bull by the horns and decide on new terms for the decrees but the architecture of licensing in the US is so convoluted that moving one piece would have had an impact on so many others pieces on the chess board that the DoJ took the "brave" decision to do nothing (probably also for fear of legal challenges from all sides).
  So now we have that wonderful paradox of an administration that was intent to let market forces determine the best course of action, and regulate as little as possible, having to accept that deregulating the music licensing market for performance rights was too complicated to be let into the hands of the market. 
  It's a great win for the NAB because they got what they wanted, a status quo which fully serves their interests. If you add that to the fact the NAB is totally opposed to performance rights for recordings, the music sector has one hell of a battle ahead to get US broadcasters acquiesce to norms that are pretty much in place around the world.
  On the positive, the review has pushed ASCAP and BMI to increase their cooperation on the data front, and also come up with a joint proposal, while remaining competitors and keep each other in check.
  For the NMPA, it's a bitter loss, because David Israelite put a lot of time and efforts to get the ball moving on this front, using his connections with Delrahim, but to no avail.
  One of the unintended risks of the lack of decision on the decrees could well be the decision from key players on the publishing side to go their own way and establish their own PROs, like Irving Azoff did a few years ago with Global Music Rights. These PROs would not be constrained by the decrees and could use their leverage with licensees. In the end, licensees would face an even more fragmented licensing market, and total confusion on rates. Certainly not the best outcome. 
Emmanuel Legrand]

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