Attorney General Jeff Sessions has been lobbied furiously by music industry behemoths to refrain from appealing a wayward decision of the U.S. District Court for the Southern District of New York in United States of America v. BMI (September 16, 2016). It threatens ready public access to popular copyrighted music at competitive prices. Mr. Sessions has only days to decide. He should rebuff the lobbyists and appeal.
It is worth pondering the sad fate of Attorney General Richard Kleindienst, who served under President Richard M. Nixon. Mr. Kleindienst resigned and ultimately pleaded guilty to a misdemeanor for refusing to testify accurately to Congress about succumbing to the directives of President Richard Nixon and White House adviser John Ehrlichman to settle an antitrust merger suit against ITT. The settlement terms were favorable to the conglomerate, which had concurrently pledged $400,000 to finance the 1972 Republican National Convention. The lesson: Keep politics out of antitrust enforcement.
BMI and ASCAP—performing rights organizations—epitomize monopoly power, the bete noire of time-honored antitrust laws. Together, the PROs control the licensing rights to 90 percent of our music. To prevent them from charging monopoly prices, the United States negotiated consent judgments over 75 years ago to require them to license songs in their catalogues at fixed rates and without discrimination.
The antitrust judgments are reviewed periodically to ensure that neither time nor technology has rendered them obsolete or counterproductive. On August 4, 2016, the Antitrust Division of the U.S. Department of Justice issued a “Statement of the Department of Justice on the Closing of the Antitrust Division’s Review of the ASCAP and BMI Consent Decrees.” Among other things, the Statement declared that the consent judgments required the PROs to issue “full-work” licensing for any song listed in their catalogues. Such licenses give radio stations, digital providers, restaurants or other users the right to perform the work without risk of infringement liability. In contrast, “fractional licenses” championed by BMI and ASCAP would offer licensees only the partial interests they own in songs, and require users to obtain additional licenses from the PROs representing other co-owners of the copyrighted music.
The Antitrust Division elaborated on why full-work licensing was required to achieve the pro-competitive benefits of the consent judgments:
“If the licenses were fractional, they would not provide immediate use of covered compositions; users would need to obtain additional licenses before using many of the covered compositions. And such licenses would not avoid the delay of additional negotiations, because users would need to clear rights from additional owners of fractional interests before performing the works in the ASCAP and BMI repertories.”
The Division explained that full-work licensing would not disturb the rights of copyright owners:
“To the extent allowed by copyright law, co-owners of a song remain free to impose limitations on one another’s ability to license the song. Such an action may, however, make it impossible for ASCAP or BMI…to include that song in their blanket licenses.”
United States District Judge Louis L. Stanton reversed the Division’s interpretation of the consent judgments that required the PROs to offer “full-work” licenses and prohibited fractional licensing. The District Judge gave no deference to the Antitrust Division’s expertise. And it was unable to articulate any pro-competitive effects that would ensue from giving ASCAP and BMI carte blanche to choose between full-work and fractional licensing.
Attorney General Sessions should appeal not only because the District Judge erred in its razor-thin antitrust analysis, but also because it sets a precedent that will hamstring the Department of Justice in the interpretation and administration of non-antitrust consent judgments, for example, the many negotiated by the Obama administration requiring extensive overhauls of local police department practices.
The United States Supreme Court taught in United States v. Topco Associates, Inc. (1972) that the antitrust laws are the Magna Carta of free enterprise. Mr. Sessions should defend them accordingly.