Last week, federal Judge Louis Stanton delivered a smack-down on the Department of Justice (read the order here) but a suit brought by songwriters is waiting in the wings.
In a declaratory judgment, Judge Stanton sided with BMI and rejected DOJ’s proposed rule change forcing vast changes in the way copyright owners license and get paid for their work. The DOJ rule mandated a change from fractional licensing to 100% licensing. In case there was any doubt about Judge Stanton’s ruling, the opinion ends with an epic, unequivocal statement: “The Consent Decree neither bars fractional licensing nor requires full-work licensing.”
Fractional licensing works like this: Bars, stadiums and online streaming services, among other outlets, buy licenses from organizations like BMI and ASCAP (called in the industry PROs) to be able to play a list of songs licensed to the PRO. So if you’re in a smoky bar and hear “Smoke Gets in Your Eyes,” it’s because ASCAP or BMI represents someone who owns at least a part of the copyright to the song. BMI collects from the bar the fee for the portion of the song that their member owns and passes that along to the member. You get to feel melancholy on a Friday night, the bar makes another drink sale, the artist gets paid for his work, and everyone is happy.
The DOJ rule change would have altered this arrangement, which has been the industry practice for a long time, so that any one copyright owner can license the song at 100% of its value to one PRO and another owner could license at 100% to a different PRO. Then someone, maybe the copyright owners, have to get the percentages of fees to the other owners.
When songs have not just a few but dozens of copyright owners, you can imagine the mess. Copyright owners worry this would cause a confusion, an increase in overhead as all these payments are figured out, and decrease their negotiating power, resulting in lower revenue overall as the values of the licenses plummet.
The basic problem is more fundamental. Over decades of music creation, songwriters, performing artists, labels, and distributors like PROs have negotiated and signed contracts between themselves that govern these things. They contracted based on an understanding of how the system would work, and tightly negotiated those contracts with fractional licensing in mind. The DOJ rule would have overturned thousands, nay millions, of private contracts between parties who bargained for exactly what they wanted.
Government doesn’t get to do that.
Plus, when songwriters collaborate now, they don’t have to stop and think about PRO affiliation. They just pick the best collaborator to get the job done. If the DOJ’s rule is implemented, songwriters would have to consider with which PRO a collaborator has signed. If government action limits who artists can work with, not only is that a ridiculous intrusion into private contracting, but will end up creating a less vibrant music universe for listeners. Bad for artists, bad for society.
Freedom to contract is the premise behind another lawsuit on the matter, filed by the grass-roots organization Songwriters of North America (SONA). While the BMI lawsuit was based on asking the court to interpret the consent decree that governs BMI and ASCAP licensing agreements, the SONA lawsuit has a completely different legal theory. (You can read the SONA complaint here.)
Despite the assertions of Public Knowledge, neither count in SONA’s lawsuit is a copyright claim. Instead, the first puts forth a Fifth Amendment claim that DOJ’s proposed actions would take property from affected parties without due process. People have a property interest in both the contracts that the rule change would overturn and the underlying copyright interests. The Fifth Amendment protects against government taking these interests with the flick of pen.
The second count is an administrative law claim, that the DOJ rule change violated the APA (Administrative Procedure Act) by acting outside of the scope of the DOJ’s authority and was adopted without procedural safeguards, among other things. SONA is asking the court to declare the rule change unconstitutional under the Fifth Amendment and unlawful under the APA.
At this point, it’s not clear whether the DOJ will fight back against Judge Stanton’s appeal or let the matter stand. If the DOJ rule change is thrown out because of Judge Stanton’s reading of the consent decree, the SONA suit may well be moot. But if the case continues, SONA has a very good case against government overreach.
About the Author: Rebecca Cusey is a writer and law student. She writes about movies and other things as a Senior Contributor for The Federalist and as a Policy Fellow at the American Conservative Union. She studies law at Antonin Scalia Law School at George Mason as a third-year student focusing on Intellectual Property. She lives near Washington, DC with her adorable husband and dashing children.
Follow Rebecca on Twitter: @Rebecca_Cusey