In just a couple of days, we will found out just how serious Attorney General Jeff Sessions is about restoring “law and order” back to this country.
With a DOJ appeal deadline of this week to fight the music industry’s anti-consumer agenda, Sessions has a chance to protect American businesses by taking a stand for what has been the law of the land for over three quarters of a century.
Over the past several years, I’ve been watching the Department of Justice’s antitrust review of the music industry. The two largest collectives for the music industry – the American Society of Composers, Authors & Publishers (ASCAP) and Broadcast Music Inc (BMI) – control about 90% of all the music we listen to. ASCAP and BMI license music rights to millions of businesses across the country – restaurants, retailers, bars, radio stations, and even hotels. As a result of antitrust litigation against ASCAP and BMI, both organizations operate under antitrust consent decrees with the Justice Department.
These consent decrees allow ASCAP and BMI to maintain their monopolies in exchange for protections against anti competitive practices, such as prohibiting ASCAP and BMI from discriminating between similar businesses and providing an appointed rate court in the absence of agreement over licensing terms.
Generally, I’m opposed to any sort of government involvement in the marketplace, but ASCAP and BMI present a unique set of circumstances. However, these consent decrees did nothing to break up the monopolies or create competition in the marketplace. In fact, ASCAP and BMI maintain the same market power today that they did when the consent decrees went into effect – about 75 years ago. If the consent decrees went away tomorrow, no free market would flourish. Instead, the marketplace would again be dominated by two unconstrained monopolies.
Several years ago, after being rebuffed by the courts, ASCAP and BMI asked the Department of Justice to relax the consent decrees to allow greater use of their market power. The Antitrust Division at Justice conducted a thorough review with multiple rounds of input from various stakeholders. Late last summer, Justice determined that no changes should be made to the ASCAP & BMI consent decrees.
ASCAP and BMI immediately appealed to the courts and well placed allies on Capitol Hill. In a surprise turn of events, a friendly judge in New York sidestepped all legal precedent and sided with BMI, thereby reversing part of the Department of Justice’s decision.
The lower court ruled that Justice was incorrect in its prohibition of a practice known as “fractional licensing.” ASCAP and BMI asked Justice to give them the ability to license their works on a fractional basis – meaning a restaurant or bar would need to negotiate a license with every owner of a song in order to perform the song publicly. However, a business such as a restaurant might have to license millions of songs to avoid copyright infringement, and many if not most of these songs have more than one owner (many of them have multiple owners).
Fractional licensing would represent a dramatic overhaul of the entire music licensing system. At a minimum, it would grind the system to a halt, meaning fewer and fewer businesses would incorporate music, or play only from stripped down playlists. Fractional licensing would also expose businesses up and down Main Street to increased exposure to infringement liability. And at its worst, fractional licensing would lead to higher costs and troll-like behavior of those leveraging higher fees against the threat of infringement litigation.
Knowing the negative impact fractional licensing would have on consumers, Justice announced its intent to appeal the lower court’s decision. However, the clock is ticking for Jeff Session’s Justice Department. The appellate court has set a deadline of this week to move forward with its appeal. The holdup for Justice remains getting the President’s appointees through the Senate.
It is critical that the decision makers within Justice move forward with this appeal. Fractional licensing would only serve those that want to exploit uncertainty in the marketplace. It would reduce the amount of music available to consumers. Worse yet, it would expose businesses of all shapes and sizes to added infringement litigation. Fractional licensing might prove lucrative for the trial lawyers, but it would not be good for consumers or the economy.