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Challenge for ASCAP & BMI: Persuading the DOJ Their Consent Decrees are Obsolete

As we noted last month, the DOJ invited public comment last June on whether to modify its consent decrees with the music licensing firms ASCAP and BMI to respond to changes in the digital music business.  The DOJ review comes on the heels of decisions issued last year in the Southern District of New York, by Judges Cote and Stanton, holding that the consent decrees did not permit music publishers to partially withhold digital performance rights – which the publishers sold separately, at a premium, to  the streaming music service Pandora.  The challenge now will likely be convincing the DOJ (and, if necessary, the district court) – that the decrees have already achieved their purposes – or are no longer suited to do so – despite recent finding of coordinated, anticompetitive conduct by some of the key players in the dispute.

ASCAP and BMI argue that the consent decrees are outdated and need to be restructured.  The decrees were issued in 1941 and have not been amended since 1994 (for BMI) and 2001 (for ASCAP), well before the advent of Pandora, Spotify, and other Internet music providers.  From ASCAP and BMI’s perspective, it makes little sense to allow such companies to enjoy low prices to purchase broad-ranging “blanket” licenses for music performance rights when those licenses were designed for narrower, more traditional uses, such as playing music on radio stations or in bars and restaurants.  ASCAP and BMI argue that the decrees should be changed to allow music publishers to sell partial licenses through ASCAP and BMI, so that the publishers can deal separately with digital music providers such as Pandora – achieving the same result Judges Cote and Stanton disallowed in their decisions last year.

ASCAP and BMI’s success in modifying the consent decrees will likely turn on whether they convince the DOJ of their position.  A petition for modification uncontested by the DOJ would likely be approved, “so long as the resulting array of rights and obligations is within the zone of settlements consonant with the public interest today.”  United States v. Western Elec. Co., 900 F.2d 283, 307 (D.C. Cir. 1990) (emphasis omitted).  When the DOJ contests an application for modification, the applicant bears a much heavier burden.  A court looks to “equitable considerations” in determining whether to modify a consent decree, and the applicant must show either (1) “that the basic purposes of the consent decree[] – the elimination of monopoly and unduly restrictive practices – have been achieved,” United States v. Eastman Kodak Co., 63 F.3d 95, 101 (2d Cir. 1995), or (2) that “time and experience demonstrate that the decree ‘is not properly adapted to accomplishing its purposes,’” id. at 102 (citation omitted).  (The Second Circuit has acknowledged in dicta an additional pathway, arguably relevant here, for “significant changes in the factual . . . climate,” id., but the court has shed little light on this alternative.)

It is far from clear whether ASCAP and BMI could meet the standards of Eastman Kodak, particularly in light of ASCAP’s recent dealings with Pandora.  In a decision last March, Judge Cote criticized ASCAP and two music publishers, Sony and Universal, for engaging in “troubling coordination” that “implicate[d] a core antitrust concern underlying” the ASCAP consent decree.   In re Pandora Media, Inc., No. 12 Civ. 8035 (DLC), 2014 U.S. Dist. LEXIS 36914 (S.D.N.Y. Mar. 14, 2014).  Judge Cote found that the publishers withdrew their digital licensing rights from ASCAP in 2013 as part of a coordinated effort to (1) interfere with Pandora’s contract with ASCAP, (2) force Pandora to pay higher prices by dealing directly with the publishers, and (3) use the higher prices as benchmarks in a subsequent rate-setting proceeding before the district court.  Judge Cote rejected those proposed benchmarks, noting that the Universal rate was an “extraordinarily steep increase above the prevailing market rate.”

In light of those findings, and assuming the DOJ looks to Eastman Kodak for guidance, there is significant reason to doubt that the DOJ would find ASCAP and BMI’s position compelling.  When a party to a consent decree is found to engage in “troubling coordination” with other players to put pressure on a new market entrant, it is hard to conclude that the consent decree has already achieved its goal of “eliminat[ing] . . . monopoly and unduly restrictive practices” or is no longer ““properly adapted” to serving those purposes – much less that the proposed modification would serve “equitable considerations.”

We will watch this case to see if the DOJ chooses to support ASCAP and BMI’s application – as well as to observe the strategy ASCAP and BMI pursue if the DOJ chooses to sit this one out.