Since this past August, the Department of Justice has been locked in a battle with music licensors over the concept of fractional licensing.  As the DOJ recalibrates under Jeff Sessions, it is unclear whether it will continue the fight that the Obama administration picked with many established music industry interests.

In August 2016, the Department of Justice completed their review of the consent decrees that govern BMI and ASCAP, the two largest performing rights organizations (PROs) in the United States. Hundreds of thousands of songwriters and publishers are members of these PROs, allowing the PROs to license their works to bars, streaming services, and everything in-between.

PROs keep things simple for songwriters and publishers; for a fee, the PROs leverage their tracking and collection infrastructure to ensure that songwriters and publishers are paid when their works are publicly performed by licensees.  PROs also keep things simple for music licensees; rather than negotiating with hundreds of songwriters to secure the necessary public performance rights to play a playlist in a bar, licensees can just buy blanket licenses from the few big PROs.

Of course, many licensees would prefer not to pay anything for the public performance rights to the songs they play in their establishments; that is one of the reasons why the PROs are not particularly well-liked by licensees. The PROs are also, notably, monopolies.  By bundling hundreds of thousands of songs into a blanket license, they reduce otherwise astronomical transaction costs, but also reduce competition.  For this reason, the DOJ has been regulating ASCAP and BMI with antitrust consent decrees since the 1940s.

In its August 2016 statement, the Department of Justice finished its most recent review of these consent decrees and concluded, to the surprise of the music industry, that the consent decrees require the PROs to engage in 100% licensing.  A change to 100% licensing in accordance with the DOJ’s view would upend the current industry practice of fractional licensing.  Right now, when multiple songwriters collaborate on a song, they often divide their interest into fractions (hence “fractional” licensing).  With this current arrangement, no songwriter can license the whole song without the others’ permission. By extension, if these songwriters are members of different PROs, no PRO can license the whole song without the other PROs’ permission.

When the DOJ said that fractional licensing violated the consent decrees and had to be stopped within a year, PROs, songwriters, and publishers were unhappy, to say the least.  Some claimed that the DOJ was upending a widely accepted industry practice for the benefit of Google and other tech companies with interests in new streaming platforms.  After all, for the PROs to switch to a 100% licensing regime, thousands of cowriters would need to renegotiate their contracts to undo their fractional interest divisions. Others asserted collusion between the DOJ and tech industry licensees, citing ties between Google and DOJ attorneys who worked on the case. Many licensees, on the other hand, celebrated the DOJ’s statement as a victory for common-sense clarity over the deceptive tactics of the PROs.

With so much at stake, the fight did not end with the DOJ statement.  BMI took the case to a Federal District Court judge in New York, and that judge ruled in favor of BMI, rejecting the DOJ’s assertion that the consent decrees compel 100% licensing.  The DOJ appealed that ruling in November.

By all accounts, it looked like this 100% licensing battle would continue to the Court of Appeals. However, with the new Trump administration, this may no longer be the case.  In early February, the DOJ asked the Court of Appeals for an extra 90 days to file its opening brief.  According to the DOJ, the “requested extension is necessary to allow new leadership in the Department of Justice adequate time to familiarize themselves with the issues.”

When Attorney General Sessions familiarizes himself with the issues, will he continue the case or change course? This is an open question. Many on the licensor side think that the new Republican administration will have little appetite for additional regulation, particularly in the copyright context, which is already a quagmire of complicated statutory restrictions.  If deregulation of the music industry is indeed the popular position, then the DOJ may very well drop its demands for 100% licensing.

On the other hand, Republicans might see 100% licensing as a vital tool to keep the PROs from gaining too much monopoly power.

On thing is certain: in the midst of this uncertain political transition, the music industry— a volatile industry that is experiencing its own uncertain transitions —will be watching Trump’s DOJ very closely.

Daniel Paulson

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