North Carolina Law Review

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The Earth Belongs to the Living, or at Least It Should: The Troubling Difficulty of Modifying Antitrust Consent Decrees

March 25, 2019

97 N.C. L. Rev. 734 (2019)

 

Throughout history, the public performance of music has been a powerful force in culture and entertainment. Those providing services to the public, such as bars and restaurants, began to play music for customers. However, unauthorized performance of compositions in public places became a considerable problem for composers, as they would not receive compensation in exchange for the public use of their work. Eventually, it became evident that it was impractical for composers to negotiate licenses with individual music users on an ad hoc basis. 

 

In the early twentieth century, a group of composers and musicians responded to this problem by creating performance rights organizations (“PROs”), including the American Society of Composers, Authors, and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”). These PROs would handle the administrative rigors of licensing and, in the process, ensure composers received the royalties owed to them. 

 

In essence, PROs are performance rights licensing collectives that license public performance rights for songs on behalf of the owners of those songs. PROs license songs to music users, such as bars, restaurants, and coffee shops, that play those songs for their patrons. Further, PROs license public performance rights on behalf of their members or affiliates, which include songwriters, producers, performers, or anyone else who has an ownership interest in the rights to a given song and permits a PRO to license it. Thus, PROs act as important middlemen between artists and music—it would be logistically untenable for artists and songwriters to license their songs to thousands of bars and restaurants on an individual basis and collect and distribute royalties on those songs. Today, PROs account for over $2 billion in annual U.S. revenue.

 

Since 1940, BMI and ASCAP have controlled the performance rights licensing market by a wide margin as the two largest PROs in terms of repertoire. Today, there are only four prominent PROs in the United States: BMI, ASCAP, the Society of European Stage Authors and Composers (“SESAC”), and Global Music Rights (“GMR”). ASCAP and BMI, however, remain the preeminent players in the industry, controlling about ninety percent of the performance rights licensing market. This near-complete domination of the market by two PROs has led to concerns of anticompetitive behavior over the past seventy-five years, and, as a result, BMI and ASCAP have defended themselves in antitrust litigation.

 

Antitrust concerns in the public performance licensing space focus on market domination by only two PROs because of the fear that this could lead to a monopoly. In addition, the U.S. Department of Justice (“DOJ”) has attacked some specific ways that PROs issue licenses, arguing that the practices are an illegal restraint on trade and that “the pooling of compositions . . . [has] permitted the performing rights organizations to charge arbitrary prices.” Since only two PROs are dominant in the industry, the government has been concerned for years about the potential for parallel pricing and tacit collusion to remove meaningful competition from the marketplace. 

 

In response to these antitrust concerns, the DOJ has sought to regulate PROs over the years through consent decrees that “prevent 'the aggregation of public performance rights in violation of Section 1 of the Sherman Act.’” The government is able to exercise a measure of control over PROs by including ground rules and restrictions for PROs in the terms of each consent decree. The terms of these consent decrees are legally binding against PROs and, in essence, serve as governmental regulations on the performance rights licensing industry.

 

In recent years, there has been controversy surrounding the antitrust consent decree between the DOJ and BMI, which the two first entered into in 1966 and most recently amended in 1994.19 During the lifetime of this decree, the circumstances surrounding the performance rights licensing industry have changed drastically due to advances in technology—most notably, the streaming technology surrounding digital music.  

 

Digital streaming technology has completely changed the way that performance rights licensing operates. In fact, the disruption has been so significant with respect to the ability of songwriters and artists to collect royalties that there has been a bipartisan effort in Congress over the past few years to address their concerns. Those years of advocacy culminated on October 11, 2018, when President Trump signed the Music Modernization Act (“MMA”) into law. The MMA “is designed to streamline the music licensing process to make it easier for rights holders to get paid when their music is streamed online.” The most significant change made by the MMA was the creation of a new governing agency that “would issue blanket mechanical licenses to digital services, and collect and distribute royalties to rights holders.” The effect of this measure would be to ensure that artists, songwriters, and other rights holders are paid on time and what they are owed. Assuming it functions as intended, the MMA represents a huge victory for rights holders like artists and songwriters.

 

In regard to consent decrees between the DOJ and PROs like BMI, the MMA changed the way judges are assigned to hear performance-royalty rate proceedings by making the assignments random. The MMA, however, did not override most aspects of the consent decree between the DOJ and BMI. In changing the way judges are selected to oversee proceedings relating to a consent decree, the MMA seems to be adjusting the way disputes will be adjudicated between the parties to the consent decree but not addressing many of the underlying causes of controversy. The MMA will hopefully make the process of royalty collection smoother for rights holders, but many of the disputes that exist between the PROs and the DOJ relating to their consent decrees are still in play. Therefore, the discussion of consent decree modification in this area remains relevant.

 

At the time of the consent decree’s creation in 1966, or even at the time of its amendment in 1994, the DOJ could not have envisioned the development of digital technologies, such as Spotify, Pandora, and Apple Music. Such significant changes in technology have raised questions over the propriety of allowing an industry to be regulated by an antitrust consent decree that was created at a time when the industry it regulates was almost unrecognizable. 

 

Based on these concerns, BMI sought to modify the consent decree in 2014 but was blocked by the DOJ. Instead, the DOJ sought to reinterpret the consent decree in 2016 to change the way performance rights licensing operates by requiring the adoption of “full-work” licensing in place of the traditional practice of “fractional” licensing. If such a change were to be implemented, it would represent a seismic shift in the performance rights licensing industry that would lead to severe administrative, financial, and creative impacts for PROs and songwriters. After the DOJ announced its reinterpretation, BMI sought a declaratory judgment in federal district court that the consent decree does not require full-work licensing. The district court held in United States v. Broadcast Music, Inc., and the Second Circuit later affirmed, that the consent decree requires neither fractional nor full-work licensing, so either form of licensing would be permissible. As a result, there was no clear resolution to the dispute over licensing practices. Although the DOJ “lost” in Broadcast Music, Inc. and BMI “won,” the practical consequence of the ordeal is that the outdated terms of the consent decree still remain the same almost five years after BMI requested a modification. From a normative standpoint, it seems problematic that major players in a rapidly changing industry have been requesting modification for almost five years without any success.

 

When viewed through that prism, everyone loses. When external forces demand changes in terms that cannot be effectuated, the industry as a whole becomes less efficient. If the performance rights licensing industry is not operating at an optimal level because it is governed by outdated consent decrees, then there are harmful consequences to PROs, songwriters, publishers, bar and restaurant owners, the DOJ, other music consumers, and the economy as a whole due to persistent inefficiencies that could be avoided by modifying the terms of the consent decree. As Thomas Jefferson once wrote in a letter to James Madison, “[T]he earth belongs in usufruct to the living,” and that sentiment still rings true several hundred years later. Intuitively, it does not make sense for the performance rights licensing industry—or any other industry for that matter—to be governed by terms that were created in a previous generation. In some ways, Jefferson’s statement rings even more true today in a world in which technologies like music streaming are advancing at a pace that has never been seen before. This Recent Development argues that the current precedent governing modification of consent decrees, which is characterized by inflexibility, is suboptimal for society because it hinders the timely adoption of important changes to consent decrees that are necessary for industries to keep pace with emerging technologies like music streaming. In response, the legal process of consent decree modification should be relaxed through the adoption of a new totality-of-the-circumstances test.

 

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