How to Fix The Music Modernization Act’s Flawed “Audit” Clause

Доверяй, но проверяй

The famous old Russian proverb reminds us to trust but verify.  That’s been the story in the record business since the cylindrical disc.   All the “modernization” in the world will not soothe songwriter’s genetic suspicion of their accounting statements.

The collective to be established by the Music Modernization Act (“MMA”) undertakes the obligation to handle other people’s money.  It quickly follows that those whose money the collective handles need to be able to verify their royalty payments from time to time.  This has been an absolutely standard part of every royalty-based agreement in the music business for a good 50 years if not longer.

But like every aspect of the MMA, one has to always remember that while all songwriters may be equal, some songwriters are more equal than others.  The MMA creates a two tier system–those who opt out of the compulsory blanket license by the mutual agreement of a rights owner and a digital service in the form of a voluntary agreement and those who do not.  Those who do not have this opt-out right appear to receive payment directly from the collective instead of directly from the service–adding another set of hands and transaction costs.  (It must be said that this group receiving payment under the compulsory blanket license will presumably also include those who currently have a voluntary license with digital services that is not renewed it in future.)

The collective undertakes the responsibility of accounting should anticipate concerns of songwriters regarding verifying the accuracy of the statements and payments it renders.  However, the MMA provides no supervisory oversight and in my view has a rather punitive black box clause that allows “unmatched” royalties to be paid on a market share basis to publishers, and then on to their lucky songwriters pro rata.  This suggests that everyone who is in that lucky songwriter’s chain, like managers, business managers and lawyers working on a percentage basis may also get a share of these black box distributions in compensation.

So on the face of it, the MMA creates a relatively large category of people who have an economic interest in the black box.  You can be cynical and think that they have an interest in the black box being as large as possible (meaning the accounting controls are as weak as possible), or you can agree with five-time Grammy winner Maria Schneider that if the “lucky” songwriters actually knew that they were being paid with money that belonged to the “unlucky” songwriters, they would be angry about that unfairness.  Emphasis on the “actually knew”.

Or you could say, let’s not go either direction–let’s set up transparency and controls so that the incentives are properly aligned to create the smallest black box possible.  No publisher needs the writer-relations headache of suspicious minds, and the collective should do what it can to be above reproach.  Here are a couple solutions to increase the trust level:  Add oversight of the collective by the Office of the Inspector General (as a quasi-governmental organand at least  designated by the Copyright Office and operating under the control of the Copyright Office, and also tighten up the audit clauses in the MMA to treat songwriters auditing the collective the same as the collective is treated by the digital services.

The Inspector General

One way to make sure that the collective–a quasi governmental organization in my view–is run honestly is to make it subject to oversight review by one of the U.S. Government’s many Inspectors General.  Rick Carnes of the Songwriters Guild of America suggested this to Rep. Doug Collins at the University of Georgia Artist Rights Symposium in a question from the floor.

For example, the Library of Congress (currently where the Copyright Office is housed) has an Inspector General.  Since the Copyright Office has a lot to do with the creation and periodic review of the collective, they could save themselves a bunch of Freedom of Information Act requests from angry songwriters by having an Inspector General  review the collective annually (or better yet, in real time).

My understanding is that giving an IG jurisdiction over the collective will require some enabling legislation, but I think it’s something well worth looking into.  It would give the songwriters of the world a true-blue fiduciary to represent their interests as well as comfort that they had a line of appeal with some teeth short of expensive litigation.

Audits

The Inspector General is not in the current draft of the MMA, but audits are–both audits of the collective by songwriters and audits by the collective of digital music services.  We’ll focus on audits of the collective in this post.  It should be said that under the current compulsory license now in effect (i.e., pre-MMA), songwriters get no audit right, so the fact that there is an audit right at all is an incremental improvement.

Unfortunately, the MMA’s audit right still keeps songwriters away from auditing the right party–the digital services–and keeps that upstream data away from them.  Plus, all audits under MMA appear to be subject to confidential treatment.  I don’t think there’s a good reason to keep these secret.  If a smart auditor finds a flaw in the collective’s accounting systems, that flaw should be disclosed and there should be an automatic true up of everyone affected.

But first, let’s realize what an “audit” actually is.  It is a term of art in the music business and really means a “royalty compliance examination” which is solely focused on making sure that statements and payments rendered conform to the contract concerned, or in this case, the statutory requirements of the compulsory blanket license.

(It also must be said that as Maria notes, the MMA specifically exempts the collective from any responsibility for incompetent royalty accounting other than “gross negligence”, which usually means blatant indifference to a legal duty or something along those lines–assuming the collective’s board or employees actually have a legal duty to account correctly which it may not.)

The person conducting a royalty audit is typically not a certified public accountant as there is nothing about conducting this examination that requires a knowledge of Generally Accepted Accounting Principles (“GAAP”), financial accounting, or Sarbannes Oxley compliance.  It is, in fact, quite rare for a royalty audit to be conducted by a CPA, and I’ve even had lawyers conduct an audit because the analysis involved is mostly that of contractual, or statutory, interpretation.  Analysis of music industry-specific contracts is typically not part of the training of CPAs.  So even if an auditor is a CPA, the skills needed to conduct the audit are typically learned through on the job training.

What is very common, however, is for someone on the receiving end of the audit to try to require the auditor be a CPA, arguably to increase the cost of the audit on the person owed money.  CPAs often bill at higher rates than do royalty auditors, which creates a disincentive for audits.  What is also common is for lawyers to think that every time they draft a clause about anyone conducting anything having to do with accounting, that they need to limit the person doing that examination to a CPA, because…well, because…  This is what I call stupid lawyer tricks, and the CPA requirement is something that is routinely negotiated away in record deals and publishing deals if you have an ounce of leverage.

Here’s the preamble of the MMA’s audit clause for audits of the collective:’

A copyright owner entitled to receive payments of royalties for covered activities from the mechanical licensing collective may, individually or with other copyright owners, conduct an audit of the mechanical licensing collective to verify the accuracy of royalty payments and distributions by the mechanical licensing collective to such copyright owner

Remember–copyright owners under the compulsory are not allowed to audit the service, although the collective may audit the service.  (And, of course, voluntary agreements are governed by their terms regarding audits and are not subject to the compulsory.)

Limiting the audit right to “copyright owners entitled to receive payments” means that if songwriters have an administration or co-publishing agreement, they will probably not be able to conduct an audit of the collective (even if their administrator or co-publisher is a board member of the collective).  Because the audit is limited to “verifying the accuracy” of prior payments, the audit of the collective will not be able to look “upstream” to the service making the payment and may not be able to look at payments made to the collective, just the payments by the collective.

The audit shall be conducted by a qualified auditor, who shall perform the audit during the ordinary course of business by examining the books, records and systems of the mechanical licensing collective, as well as underlying data, according to generally accepted auditing standards and subject to applicable confidentiality requirements prescribed by the Register of Copyrights…

Sounds good, right?  A “qualified auditor” is a defined term, however:

QUALIFIED AUDITOR.—The term ‘qualified auditor’ means an independent, certified public accountant with experience performing music royalty audits.

Again, I don’t think that the auditor needs to be both a CPA and have experience.  Experience is enough.  For example, if the auditor has performed audits for members of the collective’s board of directors, perhaps that would be enough.

The qualified auditor shall determine the accuracy of royalty payments, including whether an underpayment or overpayment of royalties was made by the mechanical licensing collective to the auditing copyright owner(s); provided, however, that before providing a final audit report to such copyright owner(s), the qualified auditor shall provide a tentative draft of the report to the mechanical licensing collective and allow the mechanical licensing collective a reasonable opportunity to respond to the findings, including by clarifying issues and correcting factual errors.

This clause is a problem.  First, the auditor is hired–and has a professional duty–to find underpayments of royalties.  That’s what they look for.  The auditor does not have a duty to do the collective’s work for it and find overpayments.  The auditor is not hired to find overpayments, they are hired to find underpayments.

The collective should hire its own accountants to review its royalty statements, and it surely will do so if it gets an audit notice.  Otherwise the US Government is placing a heavy burden on the auditor and the copyright owners to look for overpayments as though the auditor played the role of a public financial accounting firm looking for accuracy on behalf of stockholders.

Plus, the requirement to force that auditor to give the collective the audit report before giving it to the people who hired that auditor is a bit much.  Fair enough to meet and confer at the work paper stage to make sure there weren’t inaccuracies in the analysis, but that should not place any prohibition on whether the auditor’s own client can see the report first.

If this is really the role that the Government wants the auditor to play, then by all means let’s make any miscalculations by the collective available to the public and publish them in the Federal Register.  Let’s not have the auditor’s findings subject to any confidential treatment.  If that brings down a host of other audits or a need to restate millions of royalty payments, then so be it.  Because we are not just looking for underpayments we are searching for the truth, right?

I don’t think so.  And the next part of the audit clause shows why:

The auditing copyright owner(s) shall bear the cost of the audit. In case of an underpayment to the copyright owner(s), the mechanical licensing collective shall pay the amounts of any such underpayment to the auditing copyright owner(s), as appropriate. In case of an overpayment by the mechanical licensing collective, the mechanical licensing collective may debit the accounts of the auditing copyright owner(s) for such overpaid amounts, or such owner(s) shall refund overpaid amounts to the mechanical licensing collective, as appropriate.

Like so many other parts of the MMA, this is essentially an “ad terrorem” clause, or a right coupled with a penalty if it is exercised.  What I think this means is that regardless of how much the underpayment might be–including both a material and nonmaterial amount–the songwriter bears 100% of the cost of the audit.  The songwriter’s auditor has to look for overpayments (and bill their client for that extra review), and if the auditor finds any, the auditor has to report the overpayment.  The songwriter then not only has to repay that amount (whatever “as appropriate” means), but also pay for the expense of finding it.

Compare this to the rights of the collective when auditing a digital music service:

The mechanical licensing collective shall pay the cost of the audit, unless the qualified auditor determines that there was an underpayment by the digital music provider of 10 percent or more, in which case the digital music provider shall bear the reasonable costs of the audit, in addition to paying the amount of any underpayment to the mechanical licensing collective. In case of an overpayment by the digital music provider, the mechanical licensing collective shall provide a credit to the digital music provider.

So what’s good for the goose is not good for the gander.  When the collective is auditing upstream, the collective gets the benefit of that standard underpayment penalty.  That means that the service has to pay for the cost of the audit if the underpayment exceeds a fixed percentage, in this case 10%.  If there is an overpayment, the collective never has to repay the overpayment, just credit the account with an offsetting amount.

There should be no obligation on the part of the songwriter to have to find overpayments and if an overpayment is found in the normal course, it should simply be credited (which is the effect of the collective’s audit clause on songwriters downstream).

Songwriters should get the same underpayment protection on audit costs that the collective enjoys.

Appointing an Inspector General and cleaning up the audit clause would certainly make the MMA more fair for songwriters than it currently is.

 

Let’s Not Miss An Opportunity to Include Startups in the Music Modernization Act

If you’re one of the small group that has actually read the Music Modernization Act, I think you’d have to come away with the idea that this is legislation by the big boys for the big boys.  Nowhere is this unfortunate flaw more apparent than in the way that digital media companies are treated.  No wonder Digital Media Association (Amazon, Apple, Google, Spotify) and the Internet Association (Amazon, Facebook, Google, Spotify) love it so much.

The Music Modernization Act creates two main bodies around the new government-mandated blanket license:  The “collective” which is to represent those with songs to be licensed and the “digital licensee coordinator”.  Both these bodies are supposedly designated by the Register of Copyrights (the head of the U.S. Copyright Office), but the Register is constrained by statute to appoint certain types of entities or people.

One of those criteria is very majoritarian–and I would suggest that in both cases the math alone limits the choice to one entity.  Here’s the relevant language for the collective:

“is endorsed by and enjoys substantial support from copyright owners of musical works that together represent the greatest share of the licensor market for uses of such works in covered activities, as measured over the preceding 3 full calendar years;”

And here’s the relevant language for the “digital licensee coordinator”:

“is endorsed by and enjoys substantial support from digital music providers and significant nonblanket licensees that together represent the greatest share of the licensee market for uses of musical works in covered activities, as measured over the preceding 3 full calendar years”

So one thing seems true for both the collective and the coordinator:  they can only be entities designated by at least a plurality if not a majority of their respective markets on either side of the same coin.  I’m not quite sure how that definition presents a choice to the Register–more like it dictates the choice to the Register.  (How can there be two pluralities much less two or more?)

Others have and are writing about the conflict ridden aspects of the collective, so I will focus here on the digital licensee coordinator which is equally, if not more, conflict ridden than the collective.

This is one of the many, many examples of why the Music Modernization Act is really not about modernizing anything, particularly for the digital media companies.  By definition, startups–who are potential licensees most in need of flexible licensing–are excluded from any possibility of becoming the coordinator.  Startups need to be front and center in this process and new legislation is an excellent opportunity to level the playing field for these companies that are no doubt afraid to challenge the incumbents like Google (known for being specially vindictive to any startup that challenges them–see Foundem and the European Union’s antitrust litigation against Google).

The Music Modernization Act is a great opportunity to do something positive for the market rather than continue to reenforce the dominance of the very, very dominant incumbents on the technology side of the house.  Here’s some free advice to Congress:

Go wild.  Require appointing a startup or two or three to the coordinator role.  And if you really want to go truly off the reservation, require one of those startups to be from some place like Austin, Athens, Northern Virginia or Salt Lake.

I know, I know.  Scary things happen when you open the floodgates to new ideas.  But wouldn’t that be real modernization rather than further entrenching encumbents?

As a wise old Member of the Texas Congressional delegation once told me, they get to climb the ladder to the American Dream like everyone else.  What they don’t get to do is pull the ladder up behind them once they get to the top.

EU Songwriters Say Show Me the Plan on Music Modernization Act

The European Composer & Songwriter Alliance has raised an interesting question to Congressman Doug Collins in a recent letter regarding the Music Modernization Act:

A few other questions that are of concern to songwriters: Where is the business plan for the collective? A century of practice is to be changed without even a business plan that the governed have a chance to review?

This is, of course, an excellent point.  The controversial Music Modernization Act creates a new mechanical royalty collective in the U.S. that follows the curious approach of essentially codifying a chunk of what would normally be found in a combination of organizational formation documents, by-laws or a voting agreement.   The bill mandates a fixed number of governing boards and even designates the category of person who can fill board seats, both voting and nonvoting.  (And any change in those boards would literally require an Act of Congress.)

There is considerable detail in the bill about the new collective with two major exceptions:  No one is tasked with creating a business plan for the collective’s operation as the ECSA officers note in their letter to Rep. Collins.  Neither is there any hint at what the initial operating budget would be or what it would cover.

Good news–this is an easy fix.  I would worry that given that it’s government work, a business plan for the collective will come from one of the big consulting firms at a high cost–guaranteeing that no one who is both unconflicted and who has actually done work in the area will come within a county mile of the project.  I am not the right person to ask about the big consulting firms as I’ve found their work product to be consistently worthless over the years.  That brings the joy of consistency, but the disappointment of overpaying for useless work.

The budget should also be established for the first few years, if for no other reason than the digital services are supposed to pay for the collective under the MMA.  If the cost is $100,000,000, you don’t want to find out that the services will only pay $500,000 once the bill is passed and it’s too late.  If there is a meeting of the minds on the operating costs, it’s being kept pretty quiet inside the smoke filled rooms.  If there isn’t a meeting of the minds, DiMA could shut down the collective as fast as a stop payment.

But still, it’s better to have a plan than to have no plan at all which seems to be the current state of affairs–abandoning a “century of practice” as our European friends remind us.

The Core Flaw of Blockchain

The truth about blockchain is that at its core, it requires its regime to be enforced on rights owners in order to scale–and that is its essential flaw.

Call me a blockchain skeptic.  I agree with many of the conclusions reached by Alan Graham in his MusicTechPolicy interview, but I also think that at its core, blockchain as currently contemplated fails as an industry-wide rights registry.  Since I understand that its essential purpose is to be a reliable rights registry, it seems obvious to me that blockchain has limited application at best.

I spent a good deal of time helping some very smart people build an independent rights registry around 2005 and have thought about these issues for a long time.  (All the major labels and many indies participated in that registry.)

Based on that experience, I believe that the core value proposition of a rights registry is that it be easy to use; that the information in it be objectively verified and only changed with a proper showing of authority; that it be capable of making or directing the making of royalty payments (which means holding necessary tax information); and that it can be easily and timely updated with information for new releases.  I believe all these elements are essential and that blockchain accomplishes none of them well and some of them not at all.

A quote from Benji Rogers in MusicAlly lays out the core problem very effectively.  (Benji Rogers is a promoter of the blockchain technology and his own company Dot Blockchain–I think I have all the capitalizations in the right place, but forgive me if it’s actually dOt bLK.ch..n or something like that.)  Here’s his quotation (which I doubt that he viewed as a criticism of his product):

“Blockchains force action… If I were to make a statement about a work that I own in a blockchain, and I were to send it to you…you have three choices: yes it’s correct and I agree, no it’s not correct, or ignore it, which means it’s correct.”

What blockchain may bring to the table is something you cannot ignore, because ignoring it is the same as accepting what’s there in the table is truth… A blockchain-based system at scale could force people to work with it, in a way that exposes them to decentralisation and transparency, arguably whether they like it or not.” (emphasis in original)

In other words, organizing the world’s information whether the world likes it or not.  Sound familiar?

It is one thing if blockchain is a voluntary regime that artists and users can decide to participate in–and submit themselves to forced “decentralization and transparency” as Mr. Rogers articulates so well.  But it is entirely another thing altogether if blockchain is enforced by law.

I would not rule out that it is ultimately the goal of the blockchain investors to force songwriters and artists to submit to the blockchain as a matter of law.  This is certainly a familiar refrain if you have followed the various meltdowns over the desire of online retailers and search companies to force songwriters and artists to submit to their exploitation.  We have heard these ideas frequently over the years whether it is even safer harbors, orphan works or massive numbers of unauditable address unknown NOIs under the US compulsory mechanical license.

If you doubt that could happen, realize that two unmovable government agencies are currently allowing millions of songs to be exploited with unverified and dubious authority–the U.S. Copyright Office with mass NOIs and the Department of Justice with 100% licensing.  What’s to stop them taking the next step?

One person’s forced “decentralization and transparency” is another’s eminent domain.  So when you hear about blockchain, imagine if the blockchain bubble had the awesome power of the sovereign forcing someone else’s interpretation of truth on creators.

Especially when the time it takes to correct someone else’s interpretation of the truth as Mr. Rogers suggests their job would become will be even more uncompensated time for another free ride that will probably end the same way that DMCA notices do for the vast majority of independent artists.

They just give up because resistance really is futile.

Blackstone Acquires SESAC: Is it all about one-stop shopping or is it the data?

“[P]rivate equity funds affiliated with Blackstone” yesterday announced the purchase of SESAC from another private equity group, Rizvi Traverse Management.

We hold our breath to see what the monopolists in the MIC Coalition will do about the sale.  In light of the new administration, it will be an interesting test of both to see if the monopolists in the MIC Coalition run to the nanny state again to try to stop the sale on some grotesquely hypocritical antitrust theory and equally interesting to see if the new administration entertains that idea.  It is almost a certainty that there will be a new head of the antitrust division of the Justice Department, so we’ll see.

But assuming that the sale goes through, it’s worth noting the story that Blackstone is telling in its press release.  We probably think of SESAC as being all about songwriters and publishers.  Songwriters did not get mentioned until the last couple sentences of the third paragraph of Blackstone’s press release.

It seems pretty clear from the press release that what Blackstone is valuing is the licensing infrastructure and data in SESAC followed closely by SESAC’s ability to do one-stop shopping on music licenses after its acquisition of HFA.  (The MIC Coalition has already complained to the DOJ about that.)  Remember–one-stop shopping was one of the improvements in the job killing ASCAP and BMI consent decrees that songwriters were interested in seeing implemented to empower ASCAP and BMI.

It is also worth noting that part of this value is that SESAC is not under the job-crushing regulations from the Department of Justice that have set wage and price controls on songwriters for 75 years.  That means that SESAC can actually engage in free market negotiations–real ones, not the ASCAP and BMI rate court version where judges in a faraway Eastern city pretend to set free market rates in a performance rights market that has effectively never been entirely free.  No wonder MIC Coalition likes other people’s consent decrees.

So while we know that it’s really all about the songwriters and relationships, investors seem at least as interested if not more interested in organizations that can offer licenses that contribute to solutions for the complexities of music licensing–preferably outside of the government mandated compulsory or near compulsory legacy licensing structure that seems to lumber on.

This is good news both for SESAC and for its competitors, and in the end we hope it’s also good for songwriters, too.  DOJ please take note.

 

Original Sin and Obama’s Missed Opportunity: What’s Next for the ASCAP and BMI Consent Decrees?

Original sin–In Christian theology, the condition of sin that marks all humans as a result of Adam’s first act of disobedience to God.

It’s kind of an Old Testament thing.  The ASCAP and BMI consent decrees punish songwriters for a kind of original sin that most of them don’t know about and that happened some time before 1941–before most of them were born.  And yet all of them are held guilty in advance.

Sound familiar?

The Obama Justice Department just had a spectacular loss on its misguided and probably unconstitutional 100% licensing position in front of Judge Louis Stanton, the BMI rate court judge who has primary responsibility for interpreting the BMI consent decrees.  BMI asked for declaratory relief from Judge Stanton which was granted in a decisive opinion rejecting the government’s position.  So now what?

Not only did the Obama Justice Department go down the wrong rabbit hole with the consent decrees, they also managed to get themselves sued–by songwriters.  How in the world could that have happened?  Not just one, but two separate and distinct lawsuits.

The songwriters lawsuit is against the Justice Department, the Attorney General of the United States and the head of the Antitrust Division, Principal Deputy Assistant Attorney General Renata B. Hesse.  (It appears that Principal Deputy Assistant Attorney General Hesse is the prime mover in pushing the DOJ’s position on 100% licensing through the Justice Department, although it is hard to imagine that the Attorney General did not personally approve the position given the magnitude of the change in position.)

The songwriters’ lawsuit is not brought under the consent decrees.  The complaint alleges that the DOJ attorneys, starting with Principal Deputy Assistant Attorney General Hesse, engaged in unconstitutional behavior by denying songwriters their due process rights as well as taking the economic value of private property without compensation (see Professor Richard Epstein).

The lawsuit also alleges that the process that Principal Deputy Assistant Attorney General Hesse engaged in–secret phone calls, no public comment on proposed amendments to the consent decree, deceptive practices designed to encourage songwriters to leave their PROs–violated laws governing the behavior of federal administrative agencies.  The implication is that the DOJ intentionally engaged in deceptive practices lead by Hesse but also the recently departed Litigation III Section Chief David C. Kully.  (Mr. Kully was probably “just following orders”, but we all know where that can lead.)

What are the possible steps forward from here?

No Change for Music Users

Some of the less knowledgeable reporting on fractional licensing suggests that somehow music users are burdened by the decision.  Not true–most music users already have licenses from ASCAP, BMI, SESAC and increasingly from Global Music Rights.  SESAC and GMR are not subject to consent decrees because more PROs means more competition which means good things happen, right?  That was, after all, reason for the consent decrees in the first place–to encourage more competition, not less, in the public interest.

The choices afforded songwriters among competing licensing associations are no more burdensome for music users than having to deal with any other vendors in their business.  On the contrary, if the Justice Department had been successful in their stated goals of encouraging songwriters to leave ASCAP and BMI, the Justice Department would have mandated mind numbing complexity in the market place.

The Missed Opportunity

The real policy failure is that the Department of Justice failed to adopt any of the hundreds of policy proposals made by the public to amend the consent decrees–the longest running consent decrees in the history of the United States–after years of review, negotiation and discussion.

Not one.

Instead, the DOJ fixed on 100% licensing, which is something that nobody had asked for publicly as the Copyright Office noted (at p. 2, text accompanying note 8):

Despite the wide-ranging nature of the study and invitation to raise additional issues, none of the participants identified fractional licensing of musical works by the PROs as a practice that needed to be changed.

The Justice Department missed an historic opportunity to do something good for everyone.

This is tragic.

Possible Futures

DOJ Changes Position on 100% Licensing

The easiest thing would be for Principal Deputy Assistant Attorney General Hesse to issue a statement acknowledging she got it wrong on 100% licensing and that the DOJ is abandoning the position.  I doubt this will happen.

DOJ Appeals Judge Stanton’s Ruling 

Given the general bull-headedness that produced the flawed 100% licensing statement in the first place, I think it is more likely than not that the DOJ appeals Judge Stanton’s ruling.  If you were able to suspend reality to the point that you would come up with the idea in the first place, then you are probably possessed of the kind of denial that would make you believe you will prevail on appeal.

As Judge Stanton is a U.S. District Judge sitting in the Southern District of New York, the appeal in this case would go to the Second Circuit Court of Appeals.  It seems unlikely that the Second Circuit is going to rule against the subject matter expertise of the BMI Rate Court judge–expertise is the point of having rate court judges in the first place.  This is particularly true in a case requiring an interpretation of the consent decree.

Nevertheless, I will not be surprised to see an appeal, particularly one filed before the ASCAP rate court judge (Judge Cote) follows Judge Stanton’s which is likely.  An appeal of the BMI case would allow the DOJ to drag out the uncertainty which seems to be the plan for reasons no one outside the Justice Department can understand.

ASCAP Asks for Declaratory Relief

Given the many rulings against songwriters handed down by Judge Cote, caution may be the watchword for any request for declaratory relief by ASCAP.  However much I appreciate Judge Stanton’s ruling, it must be said that the conclusion is rather obvious.  Even so, I thought that the ASCAP members’  partial withdrawal from collective licensing of the bundle of rights was so obviously the law that it was axiomatic, and Judge Cote ruled against that rather obvious policy.

It may be better for ASCAP to simply wait it out until the issue arises before Judge Cote in a future proceeding.  Since the MIC Coalition seems to have its hand in the Justice Department’s positioning anyway, it would not surprise if the MIC Coalition went to Judge Cote for their own declaratory relief.

MIC Coalition
MIC Coalition Members

SONA Pursues Its Lawsuit

The most interesting part of the puzzle is the lawsuit brought by Songwriters of North America, Michelle Lewis, Thomas Kelly and Pamela Sheyne.  As a threshold matter, it reinforces the idea that ASCAP and BMI are comprised of songwriters bargaining collectively.  While it may be convenient for the broadcasters, Google and their MIC Coalition to heap condemnation on the PROs, when doing so they are actually shaming the individual songwriters who are members of ASCAP and BMI.  Those songwriters don’t feel they’ve done anything wrong.

The SONA lawsuit confirms this for all to see.  While it takes considerable courage to sue a defendant who comes with badges and guns and prints money to pay their legal bills, the DOJ is now faced with a process that reeks to high heaven, looks at least potentially fraught with corruption and which SONA will now put under a microscope–if they survive summary judgement.

Of course, it should not be lost on anyone that the DOJ’s position will be some version of “We lost, so no harm, no foul” as absurd as that may seem.  I’m not sure that “just kidding” is a good look for them.

Until the ASCAP judge rules on the issue and follows Judge Stanton’s reasoning and the DOJ agrees not to file an appeal, there’s no reason for SONA to change course.  If SONA survives summary judgement on one or both of its claims, then things may get interesting.

Governors Take Action

Texas Governor Greg Abbott was the first state governor to call on the Attorney General to back off of the 100% licensing rule, acting in defense of Texas songwriters.  It would not be surprising to see other governors write their own letters to the AG, particularly now that Judge Stanton has ruled.

Terminating the Consent Decrees

What this episode should teach everyone is that the consent decrees have run their course.  They are now being manipulated by crony capitalists for private commercial advantage.  Hesse’s connections to Google and the MIC Coalition are well known and only further undermine the public’s trust in government’s ability to operate fairly.

Abandoning the consent decrees does not mean that songwriters would get a free pass on antitrust prosecution, it just means that the true free market would operate outside of a little intellectual elite in a far away Eastern city that thinks it can plan the lives of songwriters better than songwriters can themselves.  Music users and the government would still be free to bring antitrust actions if the facts warranted it as has already happened to SESAC (which is not subject to a consent decree).

So for the moment, songwriters are in a holding pattern but with the wind at their backs.

I’m still looking forward to an explanation of why Google, Pandora, Clear Channel and a host of other giant multinational corporations with hundreds if not thousands of lobbyists need the awesome power of the U.S. Government to protect them from…songwriters.

Getting closure on this regrettable episode will be better for songwriters and for music users.  It’s hard enough without the Nanny State intervening.  Collective licensing is one of the few areas of the business that is working pretty well in the digital age.

Songwriters deserve the chance to live their commercial lives without paying for long-forgotten sins committed before most of them were born.