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US appeals court 100% certain fractional licensing is all fine

By Chris Cooke | Published on Wednesday 20 December 2017

Songwriters and music publishers in America have welcomed an appeal court ruling that confirms that the country’s performing rights organisations can continue to operate a so called fractional licensing system, rather than the 100% licensing system that the Department Of Justice decreed should be introduced.

Will this be the last time I ever have to explain 100% licensing? Let’s hope so. Songs are often co-written and therefore co-owned. In the US, there are multiple collecting societies representing the performing rights in songs, meaning songwriters must decide which one to join. Once the writer is joined up, that society represents their performing rights.

Collaborating writers may choose to join different societies, which means that any one song may be concurrently represented by BMI, ASCAP, GMR and SESAC, with each society representing a percentage of the work. Where that is the case – convention has generally held – anyone wishing to broadcast or perform that work must have a licence from all the societies, and pay royalties to each, pro-rata according to what percentage it controls.

That, ladies and gentlemen, is ‘fractional licensing’. You get every licence you need until you have 100% of the song covered. But when the US Department Of Justice reviewed the consent decrees that govern BMI and ASCAP last year, it announced that – by its reading of said decrees – the two big American collecting societies were obliged to operate a so called ‘100% licensing system’.

That would mean that, where BMI controlled part of a song, a licensee could make use of that song with just a BMI licence. BMI would then collect 100% of the royalties at whatever rates it had agreed with the licensee, but would then have to pass on a share of the money to ASCAP or whoever, who would then pay the writer who was not a BMI member.

The music industry, which had been hoping the Department Of Justice would streamline the aforementioned consent decrees – rather than infer an extra rule from them – were not impressed with the government department’s 100% licensing declaration. ASCAP decided to fight the DoJ’s decision in Congress, while BMI took the matter to court.

BMI’s legal action reached a conclusion much quicker than everyone expected. The judge who oversees the BMI consent decree – Louis L Stanton – almost immediately sided with the society and ruled that the DoJ had been wrong to infer a 100% licensing obligation. The DoJ then appealed that decision to the Court Of Appeals For The Second Circuit.

Yesterday that appeals court also sided with BMI, concluding that Stanton’s reading of the consent decree was correct, and that the society can continue to operate a fractional licensing system without being in breach of its regulatory document.

Needless to say, BMI is happy with the latest ruling. Its boss man Mike O’Neill declared yesterday: “This is a massive victory for songwriters, composers, music publishers and the entire industry. We have said from the very beginning that BMI’s consent decree allowed for fractional licensing, and we are incredibly gratified that Judge Stanton and the Second Circuit agreed with our position”.

He went on: “We thank all the songwriters, composers, publishers and organisations who supported us throughout this process, which unfortunately, has been a nearly two-year distraction from our original intent which was to update our outdated consent decree and modernise music licensing. We look forward to our continued efforts to protect and grow the value of music”.

While the ruling specifically related to the BMI consent decree, it is assumed a precedent is set that also covers ASCAP. So it too welcomed the ruling, with CEO Elizabeth Matthews remarking that: “The Second Circuit’s ruling today is an important victory for music creators across the country. The court affirms what we have known all along, that the right of public performance allows for the fractional licensing of musical works in our repertories, and the consent decrees do not limit that right”.

America’s National Music Publishers Association was also happy, with its CEO David Israelite announcing that the appeal court ruling was a “vindication for all songwriters and music publishers”. He added: “The DoJ’s disastrous interpretation was an attack on songwriters and we congratulate BMI and the industry effort on successfully fighting against this massive government overreach”.

Hoping that yesterday’s ruling meant the 100% licensing issue was now resolved, and perhaps the DoJ might want to return to thinking about streamlining the rules governing collective licensing, Israelite added: “We are encouraged it is a new day at the Justice Department with new leadership that we trust will respect the rights of songwriters and ultimately address the larger problems with the outdated World War Two-era consent decrees that continue to harm music creators”.

So, everyone is happy! Hurrah for that. Oh, what’s this, someone’s not happy? Who let them in? Yes, that’s right, not everyone is happy. The MIC Coalition – the lobbying group representing tech, broadcasting and hospitality companies who use music – is not happy.

“Today’s decision by the Court Of Appeals For The Second Circuit will have devastating consequences for the future of music licensing”, it said, building up the drama in a way that really needs a suitably dramatic soundtrack. Though you’d have to pay for that.

“If left unchallenged”, the MIC Coalition added, “this decision will fundamentally alter decades of business practices while destroying the value of collective licensing and threatening to throw the entire music marketplace into chaos. We urge the Department Of Justice to challenge today’s decision all the way to the Supreme Court, if necessary. We believe that the clear precedent on the scope of the consent decree will prevail”.

It remains to be seen if the Justice Department – under new management since its consent decree review – wants to continue to fight on this. Or whether Israelite is right to be optimistic that the US government’s competition regulators might actually be up for reducing the rules governing collective licensing Stateside. Either way, it’s not entirely certain that this is definitely the last time I’ll ever have to explain 100% licensing. So I’m not happy.