Pandora’s Box: Conflicting Rulings Muddle the New Media Licensing Picture

Pandora-TipsBy Jeffrey Echert

The war between the old guard of the music industry and the digital Young Turks continues. The combatants: performing rights organizations ASCAP and BMI, pitted against online radio service Pandora. The battlefield: the Southern District of New York. The result? An uneasy stalemate, at least for the time being.

On December 18th, 2013, Judge Louis Stanton denied a summary judgment motion brought by online music service Pandora, ruling that BMI is free to withdraw interim licenses from “new media” companies. Interim licenses stem from a consent decree entered into by ASCAP in 1941 to settle an antitrust lawsuit, after allegations that it was discriminating against certain applicants and charging unreasonable fees (BMI entered into a similar decree the same year). Pandora, for example, is able to obtain a compulsory license for musical works under Section 115 of the Copyright Act, subject to a “reasonable rate.” While the companies negotiate over this royalty rate, the interim license allows the applicant to use the music during the negotiation period without infringing. If Stanton’s ruling stands, Pandora may find its music library shrinking in the future as PROs tighten their grip on their respective catalogues.

Stanton reasoned that if rights holders don’t consent to the licensing—record companies Sony and EMI previously withheld new media licenses in 2011, but later settled with Pandora—then BMI should not be required to offer the interim licenses. But two months previously, Judge Denise Cote, also of the Southern District of New York, dismissed a similar summary judgment motion in a case between Pandora and ASCAP. She ruled that ASCAP was required by consent decree to provide Pandora with interim licenses. Until Judge Stanton further clarifies the situation, negotiations between Pandora and ASCAP/BMI will remain in a somewhat perplexing standstill.

Stanton subsequently explained his ruling twice. He first stated that the ruling does not affect licenses that are currently effective, which would mean that Pandora’s interim licenses would remain valid and convert to actual licenses in 2017. But in his second explanation, Stanton stated that an interim license is not valid until the appropriate interim fee is fixed. While Pandora and BMI seemingly agree that the interim license is valid, this leaves open the threat of other copyright holders withdrawing their new media licenses. Until Stanton clarifies his ruling further (Stanton was on holiday vacation until January 1st, so look for updates to the ruling soon), the threat of license withdrawal looms large in Pandora’s future—Universal Music Publishing Group, for one, is said to be considering withdrawing its licenses in the new year. And given Cote’s conflicting ruling, this is an issue likely to be taken up by the Second Circuit in the near future.

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