Intellectual Property and Antitrust - Music Performing Rights in Broadcasting

Blanket Licensing and Consent Decrees

By Michael Einhorn,

MusicDish Network Sponsor

An unincorporated collective owned and governed by its songwriters and publisher members, ASCAP instituted a system of blanket licenses that enabled music halls, movie theaters, and other licensees to perform, without infringement, any registered composition in its entire catalog for a specified contract period. ASCAP distributed blanket revenues to its members based on a monitored count of public performances.

ASCAP's license revenues grew substantially in the 1920s as music made its way to broadcast radio. A second PRO in the U.S., SESAC, was formed in 1930. Relatively small, privately owned, and for-profit, SESAC has always operated without Justice Department and court involvement. To license alternative content to enable a radio boycott of ASCAP in 1940, the radio industry established a third organization, BMI, which picked up many country, blues, and early rock writers that ASCAP did not admit. Owned by private broadcast stations, BMI is a nonprofit corporation that counts songwriters and publishers as affiliates.

Licensing 80 percent of all music performed on the radio, ASCAP attracted its first antitrust suit from the Antitrust Division in 1934. The Department contended that ASCAP dominated the radio industry and should be dissolved. The case became dormant after the government received a continuance after a two-week trial. In 1941, the Department sued both ASCAP and BMI on the principal ground that their blanket licenses, which were their sole offerings, were in restraint of trade. Consent Decrees quickly followed that specified, among other things, that licensing practices must be non-exclusive and that licenses and individual members/affiliates should be allowed to directly contract with one another.

ASCAP's Consent Decree specified that ASCAP could not discriminate in prices or terms charged to similar users, stipulated that ASCAP must offer a per program alternative to the blanket license, required that radio network licenses cover the downstream broadcast by local radio stations, and imposed a number of membership obligations. A related criminal action against ASCAP was settled immediately afterward when ASCAP, its president, and its entire board of directors were convicted of criminal acts on pleas of nolo contendere. After signing the Decree, ASCAP immediately moved to require that all direct license revenues be pooled, thereby negating any writer incentive to pursue the alternative licenses that the Department had envisioned.

Despite the fact that accompanying music on movies had moved after 1929 from live theater instruments to pre-recorded soundtrack, ASCAP continued to license soundtrack music in movie theaters in the subsequent years. In 1948, 164 cinema owners sued ASCAP for violations of Sections 1 and 2 of the Sherman Act regarding its requirement that movie producers contract only with theaters that purchased ASCAP licenses. In a key District Court decision, ASCAP was found to be a combination in restraint of trade because all members were required to license works at pooled rates and could not therefore compete against one another in marketing their performance rights. The District Court issued an injunction against the practice.

With the advent of television, the Justice Department negotiated a new Consent Decree with ASCAP in 1950. Under Sections VII and VIII, ASCAP agreed to extend to television broadcasters the program license and to avoid any "discrimination among the respective fees fixed for the various types of licenses which would deprive the licensees Š of a genuine choice from among such various types of license." The Consent Decree also reaffirmed the need for license non-exclusivity (IV(A-B), VI), banned price discrimination to "similarly situated" licensees (IV(C)), and restricted the length of each license to five years or less (IV(D)).

The Decree foreclosed ASCAP from movie soundtracks by requiring that synchronization and performance rights be licensed at the same time (i.e., by the composer). (IV(E), V(C)). A fee-setting Rate Court was established in the District Court in Southern New York for hearing license disputes, with the burden of proof upon ASCAP to show reasonableness. (IX). The Justice Department and BMI modified their respective Decree in a similar fashion in 1966 and instituted a Rate Court provision in 1994. BMI is now about to litigate its first major license matter before its respective Rate Court.

The modified Consent Decree served ASCAP well in 1967, when the organization brought suit against a radio station in Washington that contended that ASCAP's blanket license was an unlawful combination in violation of the Sherman Act. The Ninth Circuit Court affirmed a District Court decision that upheld ASCAP because its blanket licenses were non-exclusive and its license fees were under the surveillance of the District Court. The U.S. Solicitor General supported the decision and the Supreme Court denied certiorari.

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission