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Antitrust and the Shifting Music Streaming Landscape

May 11, 2015

The American Society of Composers, Authors and Publishers (ASCAP) represents almost half of all composers and music publishers in the United States, who grant to ASCAP the non-exclusive right to license public performances of their music. In recognition of its market power, since 1941, ASCAP has been subject to a consent decree with the Department of Justice restraining its membership and licensing practices. Last week, in a closely-watched appeal with multiple amicus briefs, the Second Circuit confirmed the applicability of the ASCAP consent decree to digital media, and affirmed the District Court's rejection of ASCAP's request for annually escalating royalty rates from Pandora, an internet streaming service. See Pandora Media, Inc. v. ASCAP, No. 14‐1158‐cv(L) (2d Cir. May 6, 2015) (affirming In re Pandora Media, Inc., No. 12-8035-cv (DLC), 2013 U.S. Dist. LEXIS 133133 (S.D.N.Y. Sept. 17, 2013).

The Second Circuit interpreted the consent decree to forbid ASCAP from allowing its members to exclude Internet streaming rights from its blanket licenses, which cover all of the music in the ASCAP collection. ASCAP's "partial withdrawal" policy had been implemented in response to complaints from its members that Internet streaming companies, such as Pandora, were paying below-market rates under the blanket licenses. After ASCAP allowed publishers to license "new media music users" directly, while continuing to license other media through ASCAP, Pandora brought suit, alleging that the policy change violated the ASCAP-DOJ consent decree.

Pandora prevailed at the district court and the Second Circuit, based on the broad language of the consent decree, which covers "works the right of performance of which ASCAP has the right to license." ASCAP had argued that its license offerings would be limited to the particular rights in musical works that ASCAP had been granted at a particular moment in time. ASCAP claimed that once publishers withdraw certain rights to license for particular types of public performances, such rights could no longer be offered to companies like Pandora. The Second Circuit disagreed, finding for Pandora based on the consent decree's terms, which require the blanket licensing of public performances of all works in ASCAP's repertoire.

The Second Circuit's ruling reaffirms a fundamental theme in the application of antitrust to intellectual property rights. An antitrust regime (especially a binding consent decree) drafted under one set of market and technology assumptions may be applied in a very different market with radically different technologies. As such, antitrust rules must be applied carefully to tailor their impact to potential anticompetitive conduct, even when disruptive technologies alter market conditions. This is not just a hypothetical concern in the billion-dollar digital music licensing market. The introduction of new distribution technologies was a key consideration in agency approval of the XM-Sirius merger. And recent news reports suggest Apple is under agency scrutiny for attempting to leverage its leading role in the digital music download market (via iTunes) to disadvantage lower-cost competitors in the Internet streaming market. According to these reports, DOJ has interviewed music industry executives about rumors that Apple—poised to offer a new paid subscription online music streaming service—has suggested record labels stop licensing to free, ad-supported streaming services. Whether the agencies will bring an enforcement action against Apple is unclear. In any case, antitrust analysis in this area must account for both existing market conditions and licensing regimes, and the rapid development of new and disruptive digital music technologies.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

John I. Stewart Jr.
Retired Partner – Washington, D.C.
Mark A. Klapow
Partner – Washington, D.C.
Phone: +1.202.624.2975