OCTOBER 2013 SOUTHERN DISTRICT OF NEW YORK HOLDS MUSIC PUBLISHERS CANNOT SELECTIVELY WITHDRAW NEW MEDIA RIGHTS FROM ASCAP S REPERTORY

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1 WSGR ALERT OCTOBER 2013 SOUTHERN DISTRICT OF NEW YORK HOLDS MUSIC PUBLISHERS CANNOT SELECTIVELY WITHDRAW NEW MEDIA RIGHTS FROM ASCAP S REPERTORY On September 17, 2013, the United States District Court for the Southern District of New York held that the consent decree entered into by and between the American Society of Composers, Authors and Publishers (ASCAP) and the United States Department of Justice (DOJ) required ASCAP to license its entire catalog of musical works to all licensees, rendering the purported withdrawal of certain new media rights from ASCAP by certain music publishers moot. 1 This ruling, if upheld on appeal, has significant implications for online service providers. Absent a requirement for ASCAP to license all works in its repertory, certain types of online service providers would likely have to consider obtaining licenses for the public performance of musical works not only from the three well-established performing rights organizations (PROs) in the United States ASCAP, Broadcast Music, Inc. (BMI) and SESAC, Inc. (SESAC) but also from potentially scores, hundreds, or even thousands of individual music publishers. Background ASCAP administers and licenses the public performance copyright in musical works for its composer and publisher members. All major music publishers, including EMI Music Publishing (EMI) (whose catalog is now administered by Sony/ATV Music Publishing) and Universal Music Publishing Group, have performance rights administered by ASCAP, along with its competitors BMI and SESAC. These three PROs collect nearly 100% of public performance royalties. 2 Beginning in 1941, ASCAP has been subject to a consent decree entered into with DOJ, which addresses the anti-competitive concerns stemming from a licensing organization comprised of competitors. 3 ASCAP currently operates under the Second Amended Final Judgment (AFJ2). 4 The AFJ2 requires ASCAP to, among other things, provide its entire repertory to licensees on a non-discriminatory basis (as between similarly situated licensees). Pursuant to AFJ2, ASCAP is required to grant to any music user making a written request therefor a non-exclusive license to perform all of the works in the ASCAP repertory. 5 If ASCAP and a licensee cannot agree on a rate, the parties may petition to a rate court in the Southern District of New York (ASCAP Rate Court) for a determination of a reasonable rate. 6 In re Pandora Media, Inc. Pandora Media, Inc. (Pandora) is the largest non-interactive Internet streaming service in the United States. In July 2005, Pandora obtained a license from ASCAP to publicly perform all of the works in the ASCAP repertory. 7 On October 28, 2010, Pandora terminated its license with ASCAP, effective December 31, 2010, and applied for a new license from ASCAP for the period January 1, 2011, through December 31, Beginning in late 2010, EMI notified ASCAP of its intent to withdraw from ASCAP in the entirety the first major publisher to do so. 9 In response to the threatened withdrawal by EMI but before the withdrawal was to go into effect, ASCAP s board of directors in April 2011 amended ASCAP s Compendium Rules (i.e., its membership rules) to permit music publishers to withdraw certain, limited rights for the public performance of New Media Transmissions. 10 This unprecedented rule change allowed a music publisher to remain a member of ASCAP for all purposes but denied ASCAP the right to license online music services such as Pandora for the right to make public performances of musical works owned by such withdrawing publisher. 1 In re Petition of Pandora Media, Inc., No. 1:12-cv08035-DLC (S.D.N.Y. Sept. 17, 2013) (Pandora). 2 See Frederic Choquette, The Returned Value of PROs, Music Business Journal, May 2011, available at 3 United States v. Am. Soc y of Composers, Authors & Publishers, Civ. No. 41-cv-1395, 2001 WL (S..D.N.Y. June 11, 2011). BMI is subject to a related consent decree. 4 Second Amended Final Judgment (AFJ2). See United States v. Am. Soc y of Composers, Authors & Publishers, Civ. No. 41-CV-1395, 2001 WL (S.D.N.Y. June 11, 2001). 5 AFJ2 VI. 6 IX(A). 7 Pandora, at * at *6. Continued on page 2...

2 Southern District of New York Holds Music Publishers Cannot... Continued from page 1... If publishers were permitted to withdraw their New Media Transmission rights from ASCAP, online music service providers subject to the withdrawals would have to negotiate licenses directly with such withdrawing music publishers, run the risk of infringement liability for continued use of such publisher s musical works, or remove the musical works (and the sound recordings in which the works are embodied) from the provider s online streaming service. Effective May 2011, EMI became the first major music publisher to claim that it had withdrawn its New Media Transmission rights from ASCAP. Other publishers, including Sony/ATV, BMG/Chrysalis Music, and Universal Music Publishing Group, subsequently claimed that they had availed themselves of the right to partial withdrawal of New Media Transmission rights from ASCAP pursuant to the change in the Compendium Rules, withdrawing New Media Transmission rights and requiring licensees to negotiate with each publisher individually and the PROs (for any New Media Transmission rights they continued to administer for nonwithdrawing publishers). In November 2012, Pandora petitioned the ASCAP rate court to establish a royalty rate for Pandora s right to publicly perform all of the works in the ASCAP repertory during the period January 1, 2011, through December 31, In response to the purported withdrawal or purported pending withdrawal of certain New Media Transmission rights by multiple publishers, Pandora also negotiated direct license agreements with those entities that had purportedly withdrawn rights from the PROs. Music publishers maintained that these agreements were evidence of their right to withdraw from ASCAP, while Pandora maintained that the agreements were entered into defensively in order to avoid the risk of infringement liability but without admission as to the permissibility of such alleged withdrawals. On July 1, 2013, Pandora filed a motion for summary judgment with the ASCAP Rate Court seeking a determination that the publishers purported withdrawal of New Media Transmission rights from ASCAP did not affect the scope of the ASCAP repertory subject to Pandora s consent decree license request under the AFJ2. The principal dispute between Pandora and ASCAP was whether the repertory for which Pandora sought a license could be something less than the entirety of the ASCAP repertory. Pandora maintained that ASCAP was required to license all of the works in the ASCAP repertory to Pandora for the entirety of the period for which Pandora sought a license. ASCAP, on the other hand, maintained that the ASCAP repertory licensable to Pandora was the entirety of the ASCAP repertory, less any musical works for which the right to license New Media Transmissions had been withdrawn by an ASCAP member publisher. The ASCAP Rate Court, following a review of multiple provisions in the AFJ2, concluded that ASCAP was required to grant to any music user making a written request a nonexclusive license to perform all of the works in the ASCAP repertory. 11 The court determined that works in the ASCAP repertory meant individual musical works, not the copyrights embodied in such works. The court held that if ASCAP had a right to license a work for one class of licensees (e.g., radio stations, television stations, or even small online music services referred to as Standard Services ), then it had that right to license that work for all purposes. The court concluded that music publishers cannot withdraw musical works from ASCAP only with respect to a limited class of licensees while keeping those works in the ASCAP repertory for some or all other purposes. Under the ASCAP Rate Court ruling, if a music publisher wishes to be a member of ASCAP for any purpose, then it must be a member of ASCAP for all purposes. Conversely, if a music publisher wishes to license services such as Pandora directly, then the music publisher must withdraw from ASCAP entirely and presumably not enjoy any of the benefits of collective licensing and administration. The court also rejected ASCAP s argument that Pandora s conduct in negotiating direct agreements with music publishers evidenced the right of publishers to withdraw in part from ASCAP, stating Pandora s actions were not unreasonable as a result of commercial necessity. 12 Furthermore, the court noted that Pandora s response to the publishers withdrawal had no bearing on the interpretation of the AFJ2, as Pandora was not a party to that contract. 13 Under principles of contract law, a non-party s conduct cannot influence the interpretation of an agreement. Implications For new media licensees seeking blanket licenses from ASCAP, the uncertainty of whether publisher withdrawals subject a licensee to securing public performance licenses from individual music publishers directly is over, absent a higher court overturning the ASCAP Rate Court decision. From this point on, an ASCAP licensee will be entitled to perform all of the works in the ASCAP repertory and partial publisher withdrawals will be void. All music services will be on an equal playing field, including terrestrial radio stations that simulcast their over-the-air broadcasts on the Internet or operate Internet-only side channels and Internet-only streaming services. What the ASCAP Rate Court decision did not do is establish the rate to be paid by Pandora for publicly performing works in the ASCAP repertory. It also did not determine whether publishers may exercise partial withdrawals from BMI. The rate to be paid by Pandora to ASCAP will be established in a trial 11 at * at * Continued on page 3...

3 Southern District of New York Holds Music Publishers Cannot... Continued from page 2... scheduled to commence in December 2013 before the ASCAP Rate Court, absent a negotiated settlement between ASCAP and Pandora. The issue of whether publishers may withdraw rights in part from BMI may require a separate ruling from the BMI Rate Court, which is overseen by a different federal judge in the United States District Court for the Southern District of New York than the judge sitting in the ASCAP Rate Court. To Learn More Wilson Sonsini Goodrich & Rosati routinely advises clients on licensing copyrighted works for online services. For more information, please contact Gary Greenstein at ggreenstein@wsgr.com or This WSGR Alert was sent to our clients and interested parties via on October 2, To receive future WSGR Alerts and newsletters via , please contact Marketing at wsgr_resource@wsgr.com and ask to be added to our mailing list. This communication is provided for your information only and is not intended to constitute professional advice as to any particular situation. We would be pleased to provide you with specific advice about particular situations, if desired. Do not hesitate to contact us. 650 Page Mill Road Palo Alto, CA Tel: (650) Fax: (650) wsgr_resource@wsgr.com Wilson Sonsini Goodrich & Rosati, Professional Corporation All rights reserved.

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