Barely two years later, that same Antitrust Division has suggested it is now reconsidering recommending revisions to — or wholesale elimination of — the ASCAP and BMI decrees as part of a larger consent decree review initiative. Assistant Attorney General Makan Delrahim’s speech in March at Vanderbilt Law School revealed that he has begun yet another re-examination, on the grounds that although music distribution has transformed from bandstands to streaming since 1941, the licensing and ownership of music is still governed by those 77-year-old consent decrees. These changes, Delrahim rationalized, require the DOJ to “look and see if those consent decrees are still relevant in the marketplace.”
While the review of approximately 1,300 antitrust consent decrees is an exercise in good government, any suggestion that the music industry’s consent decrees are no longer valid is mistaken. The industry’s licensing structure has not changed materially and would not be served by removing protections. ASCAP and BMI are still joint ventures among directly competing music rights owners, meaning that because they control rights to publicly perform many separately owned and competing songs — a practice that clearly risks lessening competition — the organizations by definition raise serious antitrust risks. Each PRO has substantial market power. Yet, as the U.S. Supreme Court observed in its landmark Broadcast Music v. CBS decision, the licenses required by the antitrust decrees provide valuable benefits that no individual rightsholder can match, including the “immediate use of covered compositions, without the delay of prior individual negotiations.” Since, as the DOJ reported in 2016, the benefits that underlie ASCAP’s and BMI’s licenses are necessary in the absence of “a comprehensive legislative solution that obviates the need for continued oversight of the PROs,” the antitrust purpose of the decrees remains just as valid today as when they were entered by the federal courts.
Some of this is inside baseball for Beltway lobbyists. Indeed, despite the jarring evolution of the recording industry over the past decade — remember Tower Records? — it’s the same issues and mostly the same players, arguing over a system of arcane complexity. Billions of dollars in royalties are at stake, affecting everyone from bars, restaurants, online music services, songwriters and the middlemen in between.
But none of that is important to the question of lifting or revising the music licensing decrees. Modification of an antitrust decree faces an uphill challenge. As explained by Justice Benjamin Cardozo in the Supreme Court’s 1932 Swift case, “[n]othing] less than a clear showing of grievous wrong evoked by new and unforeseen conditions should lead us to change what was decreed.” In United Shoe Machinery, the Court later emphasized that modification should not be granted where the “purposes of the litigation as incorporated in the decree…have not been fully achieved.” That settled antitrust law has not changed significantly; neither unforeseen circumstances, grievous wrong nor full achievement of a competitive music licensing market exist.
Even under a somewhat more “flexible” formulation from the Court’s 1992 Inmates of Suffolk County Jail decision — not an antitrust case, obviously — the answer is the same. Modification of any judicial consent decree requires a predicate showing: (1) of a significant change either in factual conditions or in law, such as “when the statutory or decisional law has changed to make legal what the decree was designed to prevent,” (2) that those changes “make compliance with the decree substantially more onerous,” and (3) that the proposed modification is “suitably tailored” to the changed circumstances. The PROs argue that in the today’s music industry they face a more concentrated group of larger buyers, rather than a disparate collection of small radio stations. But that’s not really the point at all, as even if true it is not a changed circumstance of competitive or legal relevance.
Antitrust settlements often extend beyond illegal practices to restrict conduct that contributed to the violation. The music decree provisions allowing courts to determine a reasonable license rate in the event of a dispute is a perfect example; in price-fixing cases, antitrust law traditionally leaves setting the “right” price to the marketplace, not federal judges. Second, where a seller has monopoly power, the adverse effect on consumer welfare is not mitigated by countervailing market power on the “buy side.” Having two sets of participants with market power duke it out over prices can yield results that shift the costs of the battles onto third parties — in this case, end users.
Under AAG Delrahim’s leadership, the DOJ Antitrust Division has taken a principled stand in opposition to so-called “behavioral” remedies that require ongoing oversight by the government, favoring instead “structural” solutions which eliminate incentives and ability to engage in anti-competitive practices. A prime example is the current United States v. AT&T litigation over AT&T’s proposed acquisition of content provider Time Warner. There, the DOJ eschewed prior policies solicitous to behavioral antitrust remedies in favor of divestiture — which, when rejected by AT&T, resulted in a Clayton Act merger injunction trial now pending decision.
The policy implications of this shift in enforcement philosophy are clear. First, if an antitrust consent decree requires detailed, intrusive monitoring by the government, it is more onerous and less in the public interest than a so-called “fix it first” solution. Second, where an existing decree has become too regulatory, the alternative to decree revocation is to sue to block the practice or transaction from which the risks to competition arose. With respect to the music decrees, this indicates that the question facing the DOJ is whether to maintain the decrees or, as the Second Circuit put it in a recent case interpreting those decrees, to “sue under the Sherman Act in a separate proceeding.” The choice, then, is between a continued oversight role for the Antitrust Division or a repeat of the 1941 price fixing lawsuits against ASCAP and BMI arising from their inherently anti-competitive, industrywide structures.
Even if he is correct that the regulatory aspect of these antitrust decrees is a problem — true, but more for the courts than the Justice Department as plaintiff — Delrahim appears to misapprehend the reason the decrees were entered. As the DOJ described in 22-page detail two years ago, ASCAP and BMI are essential to any firm, large or small, wanting to broadcast, webcast, stream, sample or just play music publicly for profit. They collectively hold the rights to nearly every musical composition not in the public domain. Although smaller and newer PROs have emerged in recent decades, it remains true that whether for those or older songs, BMI and ASCAP control an overwhelming majority of music rights, so their licenses remain mandatory for anyone performing music in public.
Those same underlying market power and distribution problems exist in music licensing, just as they did in 1941. U.S. District Judge Denise Cote ruled in a high-profile 2014 case involving Pandora — affirmed by another Second Circuit decision — that there is no (and never has been) a fair, competitive market for music performance rights. Thus, the ASCAP and BMI decrees remain necessary precisely because of the “very considerable market power that each of them holds.” Twenty-three years ago a unanimous Supreme Court declared that a group boycott (i.e., concerted refusal to deal) is considered per se illegal for antitrust purposes only if the members hold market power or control “access to an essential facility.” As collections of competitors, the music PROs still meet both those conditions. The Justice Department should therefore not lift the licensing antitrust decrees constraining ASCAP and BMI because nothing of legal or competitive significance has changed.
Originally prepared for and reposted with permission of the Law 360.
