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BMI Battles Department of Justice Over Song Licensing

BMI fired back today in its ongoing battle to prevent the U.S. Department of Justice from foisting 100% licensing on the songwriting industry. In a brief filed in the 2nd Circuit Court of Appeals in Manhattan, BMI drew on contract law to argue “if it’s not prohibited, it’s permitted.”

“BMI’s appeal argument is extremely simple in that it comes down to the language of our decree,” BMI President and CEO Mike O’Neill said in a statement accompanying the public release of its brief.

The ultimate outcome of the three-year-long fight will have significant ramifications for all songwriters and the music industry as a whole, as the DOJ seeks to replace the fractional licensing that has been the industry norm for more than 75 years with a methodology favored by radio stations, streaming services and other third-party licensees: that anyone with an interest in a song can license it on behalf of the other owners – so-called 100 percent licensing.

The two large songwriting performing rights organizations (PROs), BMI and ASCAP, operate under consent decrees implemented in 1941, and last updated in 1994. In 2014, BMI requested a DOJ review in light of  technological changes. While considering the points raised by BMI, the DOJ saw fit to raise a novel issue, one it was not specifically asked to review – fractional licensing. On Aug. 4, 2016 the DOJ released a “closing statement” that put forth its controversial interpretation of the consent decree prohibiting fractional licensing.

The same day the opinion was issued, BMI filed a lawsuit in U.S. Federal District Court for the Southern District of New York, where Judge Louis Stanton is on permanent assignment overseeing the BMI consent decree. On Sept. 15, Judge Stanton ruled in BMI’s favor, indicating the contract language does not prohibit fractional licensing. The DOJ is appealing that ruling to the 2nd Circuit, and the brief filed today is part of the ongoing appeals process and a response to the DOJ’s own brief, filed May 18.

“As Judge Stanton clearly stated, there is nothing in the BMI decree that prevents us from engaging in the industry-wide practice of fractional licensing,” O’Neill further stated. “What is not simple, however, is the impact the DOJ’s interpretation of our decree would have on the marketplace. It would stifle competition, hinder collaboration and unfairly benefit music users at the expense of the American songwriter.  As always, we hope for the opportunity to sit down with the new leadership of the DOJ to educate it about the negative ripple effect its 100% licensing interpretation would have on the entire music industry.”

Following BMI’s filing (against a deadline of midnight), there will now be a one-week response period for amicus curiae, or third-party “friend of the court” briefs, and then an additional week for the DOJ to file a reply to BMI’s response. Oral arguments  are expected to take place between mid-October and sometime in January, with a trial to follow, most likely in 2018.

The National Music Publishers’ Association plans to file an amicus brief in support of BMI, but NMPA president and CEO David Israelite preempted that by issuing the following statement: “NMPA and the entire music publishing and songwriting community stands behind BMI in this unwarranted attack by the Justice Department of the previous administration. There is a reason the Copyright Office and federal judge overseeing the BMI consent decree have agreed with us — forced 100% licensing has no basis in copyright law or accepted industry practice.”

The legal battle is complicated by the fact that the DOJ leadership changed when the Trump administration took charge of government, and the DOJ antitrust chief spot is still vacant. Makan Delrahim (who emigrated here with his family at age 10 from Iran and worked as an assistant U.S. Attorney General under president George W. Bush) has been selected to be the U.S. assistant attorney general in charge of anti-trust and is expected to undergo senate confirmation after Labor Day.

While the general feeling among songwriters is that the Republican administration is stronger on copyright protections than the democrats, it is unclear whether that goodwill will spill over to this battle.

In today’s market it is not uncommon for songs to be written by anywhere from two to four or more writers, and oftentimes they are represented by different PROs – which license the songs and collect and distribute the royalty payments.

The songwriters argue that 100 percent licensing will impact everything from who writes songs with whom, to how songwriters are paid, and will cause a huge mess with regard to remuneration. For one thing, there is a first-sale aspect that means whoever moves first with a sales contract will bind any song co-owners in a deal they cannot subsequently undo. There are also complications with regards to songs that are already licensed fractionally and how that would transition over.

If the 2nd Circuit rules in BMI’s favor, it will would have implications to ASCAP’s consent decree and possibly the overall implementation of copyright law as pertains to song. Ironically, the ongoing litigation has no impact on the overall improvements that BMI has originally requested the DOJ review in 2014. The organization will have to pursue those separately, likely after this lawsuit is concluded.

On Sept. 13, the Songwriters of North American (SONA) also sued the DOJ over the 100 percent licensing issue, citing the Fifth Amendment “Takings Clause,” and arguing that forcing songwriting partners to relinquish their claim on a song was an illegal taking of property. That suit is ongoing.

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