Christian L. Castle, Attorneys -- Austin, Texas

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The Obama Administration Is Lame Ducking An Unworkable Burden on Songwriters: 4 Reasons Why It’s Bad Law

(From the Huffington Post, July 12, 2016)

Starting in 2014, the Obama Administration conducted a prolonged and expensive process of soliciting public suggestions to update the archaic antitrust consent decrees that regulate songwriters represented by the ASCAP and BMI performing rights organizations.  Most of these suggestions came from songwriters themselves, but a handful came from digital music services.

Spoiler alert: The ones from digital services and—apparently—front groups for digital services—were the ones that mattered.  Especially front groups funded by former clients of Obama Administration officials who were pretty clearly violating a revolving door ban in Executive Branch ethics rules while working on amending the ancient consent decrees. A unilateral amendment that has transmogrified into legislation by any other name.

It has recently come to light as reported out of closed door meetings with at least one conflicted official at the Department of Justice that the Obama Administration has decided to ignore all of the ideas presented by songwriters, publishers and performing rights organizations and focus on the one thing that is almost guaranteed to destroy the PRO system in the U.S. 

The Obama White House intends to adopt the punitive policy of “100% licensing” to the great benefit of Google once again. That would be Google, the former client of the conflicted Justice Department official.

What Does “100% Licensing” Have in Common with a DeLorean?

Simply put, 100% licensing derives from the English common law—even older than the consent decrees. It refers to the ability of a co-owner of an undivided interest in real property to grant a nonexclusive license to allow a third party to use the whole parcel without the consent of her other co-owners. A co-owner relying on this rule also assumes the obligation of accounting to her other co-owners and may not license at a rate that constitutes economic waste of the property. So yes—the Obama Administration wants to lead songwriters back to the future.

The Obama Administration seeks to apply this theory to song copyrights through the consent decrees. After all the hopeful aspirations that the legacy consent decrees were going to be fixed by the Obama Administration based on the public comments solicited by the Justice Department, it now appears that at this late stage of the Administration’s term, the can will just get kicked down the road even further.

Still confused about 100% licensing? If you’re confused, it’s partly because the concept applied to songwriters subject to the consent decrees is inapt and illogical. Take these examples:

Example 1: Two ASCAP and BMI Co-Writers: If I am an ASCAP songwriter and you are a BMI songwriter and we co-write a song, we have to decided on our shares. Let’s say we decide to share the song 50/50. That means 50% of the song that you write is subject to the BMI blanket license because you have an agreement with BMI that BMI represents your share of all songs you write. My 50% is likewise represented by ASCAP for the same reasons. We may have a simple song split agreement between us, typically a one-page form where we acknowledge each other’s shares and that we will each administer our respective shares. We have to agree on any licenses, such as synchronization licenses, and our PROs collect all the performances.

Under the current regime, because ASCAP and BMI are the only two PROs that are subject to the consent decrees out of the handful of PROs that exist in the U.S., the government determines all aspects of how songwriters can license their songs. The government controls songwriters through the consent decrees that are the longest in U.S. history (in place since 1941) and also through the rate courts, an expensive and cumbersome process of a single federal judge deciding what the ASCAP rates should be and a second federal judge deciding what the BMI rates should be.

Services have for decades obtained licenses from both ASCAP and BMI and usually one or more of the competitors to ASCAP and BMI (who are themselves very much competitors) such as SESAC and more recently a new PRO called Global Music Rights.

Under 100% licensing, a digital music service can go to either ASCAP or BMI to license 100% of our song, even though we agreed between us that our shares would be licensed through our respective PRO blanket licenses. If the digital service went to ASCAP first, then ASCAP would have to license the BMI share and vice versa.

Doesn’t seem legal? But wait, there’s more.

Example 2: One ASCAP, One BMI and One GMR Songwriter Same example, except add a third writer who is represented by GMR. Global Music Rights is not subject to the ASCAP or BMI consent decrees.

In this case, because the GMR writer made the creative choice to write with you and me, she is now subject to either the ASCAP or the BMI consent decree, just as if she had signed to ASCAP or BMI. But she can’t tell which one, because the digital service can decide which one she will be forced to license through—even though she never signed to ASCAP or BMI, and may have made that decision because she did not want to be subject to the government’s regulation of songwriters through the already unpopular—and about to get a whole new level of unpopular—government regulation of songwriters.

If this seems complex, it’s really exponentially more complex in practice for the billions and billions of streams every month, not to mention a “regulatory surprise” that imposes a cost not included in the judge-made rates set under the consent decrees.

And that’s right—the Obama Administration is about to rule that the consent decrees now extend to all songwriters who write with an ASCAP or BMI co-writer regardless of what their private contract says with their PRO or with their co-writers. This all is for the benefit of digital services, especially Google. That would be Google who is locked in a fight with GMR over YouTube. 

And that’s also right—the most valuable company in the world that is being sued by countries for violating antitrust law needs to be protected from the anticompetitive urges of songwriters. At least according to Google’s former lawyer now driving the attack on songwriters in the Obama Justice Department.

Legislation by Any Other Name

If the consent decrees are starting to look like legislation, you’re not the only one who thinks so. Initial reaction from Congress is negative, such as this from Congressman Doug Collins:

“The Department of Justice’s position is arrogance at its worst. The decision fails to address the vitally important issue of terminating or reforming outdated consent decrees, and instead broadly expands its interpretation of existing consent decrees. Under this expanded interpretation, the PROs must adopt “100 percent licensing” even if the PRO does not represent all joint owners of a musical work. This is a departure from common practice in the music industry and one that could have drastic consequences. The decision won’t fix anything, but it will create new problems for the music industry. I fear these problems could undermine creative collaborations, harm songwriters, and tip music industry contracts and negotiations on their head.”

The Obama Administration’s relatively new position appears to have been based on extraordinarily bad advice—advice that is so bad it looks punitive. This in part because in order to get to the punchline, the Administration has to ignore the implications to international trade, replace a voluntary licensing doctrine with a government mandate, ignore written agreements between generations of songwriters, and impose untold transaction costs on songwriters without requiring an increase in royalty rates to permit cost recovery.

The Four Preconditions

It is true that the ancient common law rule rule has been applied to copyright in the U.S. from time to time, but it is actually quite rare because of four preconditions.

Limitation to U.S. Law

First, to the extent the rule obtains at all, it is a U.S. creature. Applying this rule to copyrights originating in countries other than the U.S. when the rule is not recognized in those other nations raises the real possibility that the proposed application by the Department of Justice is unlawful. In fact, it may actually be a treaty violation that could cause the United States to be hailed into a WTO arbitration. (See Fairness in Music Licensing Act where that exact thing happened, the U.S. lost, and U.S. taxpayers are subsidizing foreign songwriters.)

Limited to Voluntary Licensing

The ancient 100% licensing rule also involves voluntary licensing by the co-owner. To my knowledge, it has never been applied to a government mandated license in copyright, real property or otherwise. 

Interferes with Private Contracts

The rights of the co-owner typically will originate with some agreement or purchase agreement that grants to the co-owner the right to the use of the whole of the property even though they only own a partial interest. In order to be effective, the co-owner license must not violate an agreement to the contrary between or among the co-owners.

At a minimum, songwriters often avail themselves of “song split agreements” to document their percentage ownership. Since song split agreements typically provide for each writer to administer their respective shares of copyright, it is likely that there are hundreds of thousands, if not millions, of song split agreements covering songs available under ASCAP and BMI blanket licenses.

Not only are there likely to be written agreements covering these songs, the fact that each songwriter has registered their works with their respective PROs of which they are writer members is pretty easily interpreted as an “implied in fact” contract from the mere uncontested registration of song shares with multiple PROs. As the U.S. Supreme Court noted in Baltimore & Ohio R. Co. v. United States, 261 U.S. 592 (1923):

[A]n agreement “implied in fact” founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.

What could be clearer than the uncontested act of PRO registration?

Negotiation for All Costs of the License

Perhaps most importantly and most relevantly for this post, the co-owner’s license is presumed to be negotiated at a rate that will take into account the cost of the license to the granting co-owner. This is another place that the Obama Administration’s proposed rule disintegrates or even becomes punitive.

Under the DOJ’s proposed 100% licensing rule, the applicable rate payable to PROs under the consent decrees is a rate for the use of the music licensed. No rate court took into account the “surprise” cost of administering songs in a 100% licensing world now being created by the DOJ from whole cloth.

Cost Recovery

Since the cost of administering these licenses was never included in the rate, any fee charged for 100% licensing by PROs would simply offset the costs for the convenience of the licensee music user and not be a rate for the benefit of songwriters, it seems proper that any music user seeking to trade on this theory should pay the freight.

In other words, ASCAP and BMI songwriters should be able to charge a fee for the convenience of 100% licensing that should be outside of the consent decrees and rate courts altogether. If not, the new transaction cost of administering 100% licensing when deducted from the already minuscule rate court license fees may well cause the music user to be in a better position than she would be in if the PRO had fully performed under the consent decree’s terms.

This is particularly true regarding the rates that were mandated by the two rate court judges without an opportunity for songwriters to be heard regarding these additional “surprise”regulatory costs now contemplated by the Administration.

If the Obama Administration wants to lame duck their way out of amending (or terminating) these ancient consent decrees, they could at least do songwriters the courtesy of requiring their revolving door appointees to tell songwriters to their faces at a public hearing before the Senate Judiciary Committee. 

Instead, the Administration encouraged songwriters to wrack their brains on ways to improve the ancient rules, then pulled the rug out in favor of what Rep. Collins called “arrogance at its worst.”

 
 

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