Mintz Levin Legal Team Achieves Important Victory in Music Licensing Case
10/12/2005
WASHINGTON, D.C. -- In a significant victory for fairness and competition in the use of music, a unanimous panel of the United States Court of Appeals for the Second Circuit on October 6 determined that royalties for music performing rights cannot be set perfunctorily with no regard to the "inherently anti-competitive conditions" of the market in which BMI and ASCAP operate. United States v. Broadcast Music, Inc. (Application of Music Choice), 04-3444-CV, 2d Cir., Oct. 6, 2005. Mintz Levin represented Music Choice, a provider of music programming to listeners over a number of platforms including cable and satellite television. The Mintz Levin team included Bruce Sokler, Fernando Laguarda, Betsy Gomperz and Michael Haas.
Like every cable and satellite programmer, Music Choice pays royalties to copyright owners of the musical compositions (the "songs") that it plays. The vast majority of composers are members of either ASCAP or BMI. These two performing rights organizations ("PROs") represent composers for purposes of negotiating royalty payments. Because they control the market for music performing rights, they are subject to court oversight under antitrust consent decrees obtained by the Department of Justice and entered in Federal district court. The district court acts as a final arbiter in the event music users cannot reach agreement on a license with the PROs.
Music Choice and BMI were unable to reach agreement for a license covering 1994-2004 and they ended up in court in 2001. Acting as a rate court under the BMI consent decree, the court rejected BMI?s proffered benchmark for a license, an agreement for 3.75% of the licensee?s revenues reached with a former Music Choice competitor, DMX. The district court held that DMX was under strained financial circumstances and was more concerned with most-favored-nations protection against its competitors than the fee itself. The district court also decided that DMX had inappropriately paid BMI on the retail price of the music to consumers (so-called "retail" value). As a result, it threw out BMI?s benchmark and then subtracted an amount BMI claimed constituted the ?retail value? from the benchmark to set a rate of 1.75% of Music Choice's revenues. The 2d Circuit vacated that decision in 2003 for ignoring potential "retail" value, but left the district court's other findings untouched.
On remand in 2004, the district court added BMI?s claimed "retail value" back into the rate without requiring BMI to prove exactly what that value was or addressing its previous concerns with the benchmark. The 2d Circuit vacated, indicating that the district court must "take seriously the fact that [it] exist[s] as a result of monopolists exercising disproportionate power over the market for music rights" and as such has broad discretion under the consent decree to set royalties without being restricted to any particular formulation, such as "retail value." The panel noted that the rate court had previously rejected BMI's benchmark for important reasons that were not disturbed on remand. Importantly, the 2d Circuit noted that the district court was not fettered on remand but should perform its ratesetting role in light of a fully developed record and its obligation to safeguard against monopoly abuse. For example, the 2d Circuit suggested the district court should consider how BMI's obligation to offer credits for direct licensing by music users (so-called "carve outs") might affect the reasonableness of any benchmark proffered by BMI.
"We are very pleased by the Court of Appeals' decision," said Laguarda, the Mintz Levin partner who argued the appeal. "It affirms the important role of the rate court in protecting against unchecked market power and ensures it can do a thorough job under the consent decrees that regulate BMI and ASCAP."
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