In re Pandora is the most recent battle between Performing Rights Organizations (“PROs”) and an internet radio service to set rates for public performance rights.

Pandora is one of the most popular internet radio streaming services in the U.S. Like any radio station, Pandora needs copyright licenses in order to publically perform music.

Typically, songswriters assign their rights to music publishers, who further provide their catalogue to PROs and authorize them to license performance rights to different categories of users.

The PROs provide “one stop” blanket licensing of public performance rights in their catalogue to any user interested. The benefits of these blanket licenses have been explained in Buffalo Broadcasting Co. v. ASCAP

They reduce the costs of licensing copyrighted musical compositions. They eliminate costly, multiple negotiations of the various  rights and provide an efficient means of monitoring the use of musical compositions. They also allow users of copyrighted music to avoid exposure to liability for copyright infringement.

In 1941, the Department of Justice brought separate antitrust suits against two dominant American PROs: Broadcast Music, Inc. (“BMI”) and the American Society of Composers, Authors and Publishers (“ASCAP”), for unlawfully monopolizing the licensing of performing rights. Both lawsuits were settled by consent decrees. These settlements, still in place, require the PROs to license all of the works in their repertories to any user in non-discriminatory conditions.

In 1950, the ASCAP consent decree was amended to establish a “rate court” mechanism, which enabled the court to set fees for licenses when license applicants and ASCAP could not come to agreement.

On July 11, 2005, Pandora and ASCAP first entered into a license agreement to allow Pandora to stream music from ASCAP’s repertory. Five years later, on October 28, 2010, Pandora sent a letter to ASCAP terminating its 2005 license agreement and applying for a new blanket license to run from January 1, 2011 through December 31, 2015. Unable to agree with ASCAP on the proper price for the license, on November 5, 2012, Pandora filed a petition for determination of reasonable licensing fees.

Pending these negotiations with Pandora, in April 2011, ASCAP’s board amended its Compendium Rules to allow members to withdraw from ASCAP its rights to license their music to “new media” as Pandora, but still leaving to ASCAP the licensing authority for other traditional uses.

After ASCAP changed their rules, several publishers withdrew their new media licensing rights from ASCAP. The first one was EMI, which announced withdrawal of its new media licensing rights from ASCAP in May 2011.

Pandora started to negotiate with EMI (now acquired by Sony), in parallel to its negotiation with ASCAP. Pandora completed an agreement with EMI/Sony to license its catalog in June 2012. But, other major publishers, including Warner Brothers Group, Universal Music Publishing Group, and BMG, announced their intentions to withdraw their new media licensing rights from ASCAP as well. Pandora then also engaged those publishers in licensing negotiations.

On July 1, 2013, Pandora filed a motion for summary judgment to seek determination that “ASCAP publisher ‘withdrawals’ [of New Media rights] during the term of Pandora’s consent decree license do not affect the scope of the ASCAP repertory subject to that license.”

On 17, September 2013, the court entered summary judgment for Pandora concluding that the 1941 consent decree gave Pandora the legal right to a blanket license. The court reasoning looked into the terms of the consent decree to conclude “it is clear that the ‘ASCAP repertory’ is defined in terms of ‘works’ and not ‘individual rights’ in works with respect to classes of potential licensees.” For that reason, the court held that the partial withdrawal was inoperative

whether ASCAP had negotiated this preservation of rights or not, under the terms of [the consent decree] ASCAP did not have the right to permit the partial withdrawals of rights at issue and thereby acquiesce to a regime in which some music users could not obtain full public performance rights to works in the ASCAP repertory.

This case illustrates the intersection between copyright and antitrust issues. Although the initial existence of the PRO’s and its ability to provide blanket license in a exclusive base was matter of antitrust concern in the past, this case shows the opposite scenario where the withdrawing of right from a PRO was attempted as a form of collective boycott to block the access of a new type of service to the traditional licensing practices.

In recent years publishers have been consolidated in a few actors that control the whole catalogue of contemporary music. This structure provides these few actors with greater marketshare. Without the restrictions imposed on the PROs through the consent decrees, there could be harm to competition by discouraging new media business models of distribution.

In re Pandora, publishers artificially strengthened their ability to set higher license rates by forcing Pandora to individually negotiate with each of them in a contemporary application of the principle “to divide to rule”. The anticompetitive effect of the partial withdrawing attempted by main music publishers would end in an increase of the transactional costs imposed to Pandora.

This anticompetitive effect is even clearer if we take into consideration the absence of a comprehensive authoritative database of copyright ownership information that makes it easier for Pandora or any other service in its position to determine which works to exclude from use in the case of failing to get an agreement with some publisher or PRO’s. This last issue was part of In re Pandora litigation, where EMI/Sony resisted providing a list of its works to Pandora and threatened it with massive copyright infringement liability. Christopher S. Harrison, on behalf of Pandora, also brought this point recently before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights

There is no authoritative database of copyright ownership information to which a service such as Pandora could turn if it had to license directly these millions of copyrights owned by tens of thousands of copyright owners. Those databases that are available (e.g., ASCAP, BMI and some music publishers maintain online databases) can only be searched on a song-by-song basis and often contain conflicting information. In order to foster greater competition, we recommend the creation of a single, publicly available, database of record that would house all relevant music copyright ownership information. By enabling services to quickly ascertain who owns which rights to a work, a single database of record would also enable services to identify, on a catalog-by-catalog basis, the owners of the songs they perform, which would encourage true competition among copyright owners for distribution on digital platforms.

In re Pandora shows the longing of the music industry to preserve a high control over innovative business models of music distribution. Publishers seem to feel uncomfortable with the antitrust oversight that strictly regulates how PRO’s operate, because this system deprives them of the ability to get higher rates from digital streaming services like Pandora. Throughout this litigation, there is a sense of the music industry’s desire to get a slice of Pandora’s business model’s success. Looking to this phenomenon, Judge Cote asserted,

A rights holder is, of course, entitled to a fee that reflects the fair value of its contribution to a commercial enterprise. It is not entitled, however, to an increased fee simply because an enterprise has found success through its adoption of an innovative business model, its investment in technology, or its creative use of other resources. It appears that Sony, UMPG, and ASCAP (largely because of the pressure exerted on ASCAP by Sony and UMPG) have targeted Pandora at least in part because its commercial success has made it an appealing target.

The challenge of the industry in this matter is to find a fair benchmarking procedure to set future license rates for new media services, such as Pandora, without using negotiation strategies that conflict with antitrust laws.

In the meantime, the Department of Justice has an ongoing investigation into PROs and the music publishers who conduct deals with new media services could end up with a review of the consent decrees to update them on the new structure of the music licensing market.

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