In December 2017, in a huge win for songwriters and publishers (and perhaps a loss to licensees like bar and restaurant owners) across the country, the Second Circuit Court of Appeals held that “fractional licensing” continues to be the appropriate method of licensing the performance rights of songs controlled by more than one performing rights organization (PRO). This holding upholds the practice of licensees being required to obtain the fractional rights from all performance rights organizations controlling a song.
To better understand this holding’s importance, a bit of history is essential.
By the early 1940s, the American Society of Composers, Authors and Publishers (ASCAP), one of the US’s major PROs, became so powerful in enforcing public performance rights that the U.S. Department of Justice (DOJ) had begun an antitrust investigation of ASCAP. In 1941, ASCAP voluntarily entered into a “consent decree,” which permitted ASCAP to continue to exist, but limited many of their rights. For example, ASCAP could only accept non-exclusive rights, meaning song publishers could still license public performances themselves even when affiliated with ASCAP. Additionally, ASCAP could not refuse to issue a license to someone due to a disagreement over price; instead, the use had to be permitted while the rate was determined in a “rate court.”
Broadcast Music, Inc. (BMI), the other major PRO, also had to sign a similar consent decree with the DOJ.
Approximately 3 years ago, an issue arose regarding songs that had multiple writers or publishers who were affiliated with different PROs. In this scenario, no single PRO controls 100% of the song.
Traditionally, a licensee had to get a license from all of the PROs affiliated with the song (or the publishers directly). This is known as “fractional licensing.”
However, around 2015, the DOJ began to consider whether they should re-interpret the ASCAP and BMI consent decrees to mean that each PRO should be required to license 100% of a song, even if they only controlled a fraction. This practice would be known as “100% licensing.”
Music licensees, in favor of the change, argued that licensing should be simpler, and that copyright law allows for a joint author, even a minority one, to license an entire work, so long as he or she accounts to the others regarding payment.
However, others felt that this would cause major problems for the songwriter and publishing industries, which have already been struggling in the digital era. Despite copyright law, none of the PROs are authorized by songwriters or publishers to license more than their share. Additionally, if 100% licensing was permitted, licensees could “shop” for the lowest bidder amongst publishers and PROs. And SESAC and GMR, not subject to consent decrees, could potentially put ASCAP and BMI out of business with such a reinterpretation.
Ultimately, the court held in favor of industry practice, and upheld fractional licensing as permissible under the consent decrees.
For now, “fractional licensing” is here to stay.
|Samuel P. Madden