Intellectual Property and Antitrust - Music Performing Rights in Broadcasting

Performance Rights and Antitrust

By Michael Einhorn,

MusicDish Network Sponsor

However, this cost-saving exercise is pointless unless savings are made possible in the licensing fees that ASCAP and BMI charge to television stations. A soundtrack prerecording became more prevalent in the 1950s, television networks and stations came to challenge blanket licenses more aggressively than had their radio predecessors. In 1961, local station plaintiffs sued in the ASCAP Rate Court to compel a modified blanket license that would have allowed stations to carve out syndicated programs with pre-recorded soundtracks. When the District Court narrowly interpreted its rulemaking authority under the Consent Decree and denied the request, the Second Circuit affirmed the denial. In denying this application, the District Court suggested that applicants initiate a private antitrust suit or urge the Justice Department to attempt to modify the Decree. This threw down the gauntlet for the antitrust action that would follow.

Following a fee dispute with BMI, CBS brought an action against both PROs in 1969. The plaintiff argued that blanket licensing embodied illegal price-fixing, unlawful tying, a refusal to deal, and a misuse of copyright. It was therefore per se illegal under both Sections 1 and 2 of the Sherman Act and the Declaratory Judgment Act. The complainants sought a ruling to require ASCAP and BMI to offer a system of direct licenses where licensees and members/affiliates would individually contract with one another.

A 1972 District Court vacated the tie-in and block-booking charges since PRO licenses were non-exclusive. In 1977, the Second Circuit Court upheld the price-fixing charge as per se illegal and remanded the matter. Supported by an amicus brief from the Justice Department, ASCAP and BMI appealed the decision to the U.S. Supreme Court in 1979.

In an oft-cited decision, Justice White ruled that blanket licenses were properly examined under a rule of reason that generally applied to Sherman Act cases. The proper inquiry must focus on whether the effect is designed to "increase economic efficiency and render markets more, rather than less, competitive." In this context, the blanket license is not a "naked restraint of trade with no purpose except stifling of competition."

Rather, it is greater than the sum of its parts [and] to some extent, a different producer [with] certain unique characteristics. It allows the licensee immediate use of covered compositions, without the delay of prior individual negotiations, and great flexibility in the choice of musical material." Continuing, the blanket is a distinct good "of which the individual compositions are raw material" and enables a market "in which individual composers are inherently unable to compete fully effectively." On remand, the Circuit Court affirmed the District Court decision, finding that the blanket licenses were non-exclusive.

Antitrust issues reemerged in 1981 when five owners of local television stations, representing a class of 450 owners of 750 stations, sought to preclude ASCAP and BMI from issuing blanket licenses. The complainants argued that the program license was uneconomically priced. Blanket licensing was allegedly a violation of Section 1 of the Sherman Act and a misuse of copyright.

The District Court concurred, noting that the percentage-of-revenue in the ASCAP program license exceeded sevenfold its blanket counterpart and that no station consequently had chosen an ASCAP program license. With this comparison, the Court concluded "that the per program license was too costly and burdensome to be a realistic alternative to the blanket license." The Court then issued an injunction that prohibited the practice of blanket licensing.

Influenced by a seminal law review article, the Second Circuit in 1984 reversed the District Court, finding that blanket arrangements do not restrain trade if alternative means of acquiring performance rights are "realistically available". Judge Newman ruled (sic) that the "the only valid test of whether the program license is 'too costly' to be a realistic alternative is whether the price for such a license... is higher than the value of the rights obtained." The sevenfold markup of program licenses was held to be reasonable because the respective program and blanket percentages were based on different revenue bases.

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