Appeals Court Rejects Labels' Collusion Scheme To Try To Force Pandora To Pay Higher Rates

Last year, we wrote about a somewhat crazy lawsuit involving ASCAP, Pandora, and various record labels that was officially about trying to force Pandora into paying higher rates. There were a lot of moving parts in the case, but a key point was that various publishers (owned by the major record labels) pulled a neat little trick in which ASCAP allowed the publishers to "partially remove" their catalog, such that ASCAP could still license the catalog to traditional organizations, but not to "new media" companies (i.e., Pandora). Then, the publishers tried to "negotiate" independently with Pandora, and by "negotiate" I mean "refuse to tell Pandora what songs were no longer covered by ASCAP and then threaten a massive lawsuit if Pandora accidentally streamed any of those songs." Under such pressure, Pandora caved and agreed to pay much higher rates to those publishers, and ASCAP then spun around and tried to argue that those new rates were much more representative of "market rates" leaving out how the whole thing was planned together as a group as a form of collusion. Thankfully, the district court recognized what was going on, and mostly sided with Pandora, raising the rates slightly, but nowhere near as much as ASCAP and the publishers sought.

ASCAP and the publishers appealed, but the appeals court has now easily sided with Pandora, seeing no problems with the lower court's rulings. The ruling [pdf] doesn't get into the whole collusion bit, but does note that allowing publishers to do this "partial removal" trick quite clearly violated the letter and spirit of the ongoing "consent decree" that ASCAP has with the Justice Department, to guarantee that it's not violating antitrust law. The consent decree says that if someone wants to license music that ASCAP has the right to license, ASCAP has to provide that license. Since it makes no distinction among different kinds of services, ASCAP can't just make up that part:

Appellants contend that publishers may withdraw from ASCAP its right to license their works to certain new media music users (including Pandora) while continuing to license the same works to ASCAP for licensing to other users. We agree with the district court’s determination that the plain language of the consent decree unambiguously precludes ASCAP from accepting such partial withdrawals. The decree’s definition of “ASCAP repertory” and other provisions of the decree establish that ASCAP has essentially equivalent rights across all of the works licensed to it. The licensing of works through ASCAP is offered to publishers on a take‐it‐or‐leave‐it basis. As ASCAP is required to license its entire repertory to all eligible users, publishers may not license works to ASCAP for licensing to some eligible users but not others.

Basically, the consent decree is quite clear: if you have the right to license the music, you have to license it to all-comers, and you can't make up artificial classifications that you won't license it to. As the ruling notes, it seems what ASCAP and the publishers are really trying to do is to rewrite the consent decree on the fly and have the court system sign off on it. The court will not do that:

Appellants would have us rewrite the decree so that it speaks in terms of the right to license the particular subset of public performance rights being sought by a specific music user. This reading is foreclosed by the plain language of the decree, rendering Appellants’ interpretation unreasonable as a matter of law

Of course, ASCAP, the publishers and the labels have been lobbying quite hard to get the DOJ and/or Congress to throw out the consent decree altogether, so that they can go back to colluding in this matter to try to jack up rates. Expect those efforts to expand even more given this ruling.

Finally, the court also says that the new rates set by the lower court are perfectly fine and it sees no reason to change those rates, no matter how much whining ASCAP might do about the new rates.

Having reviewed 1 the record and the district court’s detailed examination thereof, we conclude that the district court did not commit clear error in its evaluation of the evidence or in its ultimate determination that a 1.85% rate was reasonable for the duration of the Pandora‐ASCAP license. We likewise conclude that the district court’s legal determinations underlying that ultimate conclusion— including its rejection of various alternative benchmarks proffered by ASCAP—were sound.

Basically: just because you say the rates are unfair doesn't make them unfair. Either way, given the way ASCAP and the publishers have whined and complained about this entire process, expect that to reach a new level of ridiculousness in the near future, with a bunch of bogus talk about how absolutely unfair life is for them, even as they rake in tons of money.

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