On May 6, 2015, in Pandora Media, Inc. v. American Society of Composers, Authors, and Publishers, the Second Circuit held that composers and music publishers cannot partially withdraw from the American Society of Composers, Authors and Publishers (“ASCAP”) licensing scheme to attempt to negotiate or coerce direct deals with new media companies and also affirmed the royalty rate found by the district court. ASCAP is a performing rights organization that represents almost half of all composers and music publishers in the United States.  Those composers grant ASCAP the non-exclusive right to license public performances of their music. Because of concerns that ASCAP’s size grants it monopoly power in the performance rights market, it is subject to a judicially administered consent decree, the latest version of which was entered into on June 11, 2001.

The consent decree provides that ASCAP must grant any music user making a written request a non-exclusive license to perform all of the works in the ASCAP repertory. The consent decree defines “ASCAP repertory” as “those works the right of public performance of which ASCAP has or hereafter shall have the right to license at the relevant point of time.” The “right of public performance” is defined as “the right to perform a work publicly in a nondramatic manner.” When a music user requests “a license for the right of public performance of any, some or all of the works in the ASCAP repertory,” ASCAP is required to notify the user of what it deems to be a reasonable fee for the license requested. If certain prescribed periods of time elapse without the parties reaching an agreement, each party is granted the right to petition the Southern District of New York to set a reasonable fee. While the rate determination is pending, the license applicant has the right to perform any, some, or all of the works in the ASCAP repertory to which its application pertains.  However, ASCAP is permitted when directed by a member, to restrict performances of a work in order to reasonably protect the work against indiscriminate performances, or to protect the value of the public performance rights.

Beginning in 2010, ASCAP members became concerned that ASCAP was receiving below-market rates for public performance licenses to new media companies such as Pandora. Those members sought to withdraw from ASCAP the right to license their works to new media music users, preferring to negotiate with new media music users outside of the ASCAP framework. In particular, EMI, threatened to withdraw from ASCAP completely if ASCAP did not change its practices to allow publishers to withdraw from ASCAP the right to license new media music users, while continuing to allow ASCAP to license other media.  In response, ASCAP amended its internal rules to permit this practice. EMI withdrew its new media licensing rights shortly thereafter, effective May 1, 2011. Sony withdrew its new media licensing rights, effective January 1, 2013; and Universal Music withdrew its new media licensing rights effective July 1, 2013.  In 2010, Pandora terminated its existing ASCAP license and requested a new license for the period running from January 1, 2011 to December 31, 2015. EMI, Sony and Universal ultimately entered into a direct license with Pandora.

In November 2010, Pandora filed its rate court petition, prior to the execution of its direct licenses with Sony and Universal. In June 2013, Pandora moved for summary judgment on the issue that partial withdrawal from the ASCAP licensing scheme was not permitted by the consent decree. The district court granted Pandora’s motion and subsequently gave Sony, Universal and EMI leave to intervene.  Following a bench trial, the district court issued an opinion setting the licensing rate at 1.85% for all five years of Pandora’s license. Pandora had sought a 1.70% rate for all five years of the license, while ASCAP had proposed an escalating rate: 1.85% for 2011-2012, 2.50% for 2013, and 3% for 2014-2015. ASCAP and the three music companies appealed. ASCAP’s appeal of the rate determination was limited to the years 2013-2015.

The Second Circuit affirmed the district court’s holding that the plain language of the consent decree precluded ASCAP from accepting partial withdrawals from the licensing scheme. The decree’s definition of “ASCAP repertory” and other provisions establish that ASCAP has essentially equivalent rights across all of the works licensed to it. As ASCAP is required to license its entire repertory to all eligible users, publishers cannot license works to ASCAP for licensing to some eligible users but not others. Individual copyright holders remain free to choose whether to license their works through ASCAP, but ASCAP is required to operate within the confines of the consent decree.  Thus, the partially withdrawn works remain in the ASCAP repertory and the partial withdrawals did not affect the scope of Pandora’s license.  The Second Circuit also affirmed the district court’s determination that the proper rate for Pandora’s license was 1.85%. ASCAP failed to carry its burden of proving that its proposed rates were reasonable.

The decision marks a victory for music aficionados and new media.