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Getting the Government Out of Songwriting: Voluntary Licenses Should Replace Consent Decrees or Compulsory Licenses

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Chairman Bob Goodlatte (R-VA) is holding a useful series of thought provoking hearings before the House Subcommittee on Courts, Intellectual Property and the Internet reviewing the current state of the U.S. Copyright Act. The next in this series is on September 18, entitled "The Role of Voluntary Agreements in the U.S. Intellectual Property System".

This is a very important subject to songwriters. It is not widely known that songwriters are highly regulated by the government through two primary mechanisms -- the ASCAP and BMI consent decrees dating from the middle of the last century and the compulsory mechanical license dating from 1909. The Congress should consider abandoning both in favor of voluntary licenses.

Terminate the ASCAP and BMI Consent Decrees

ASCAP and BMI each grant blanket licenses for the exclusive right to publicly perform the millions of songs each represents. The licensee is often a large commercial entity such as a broadcaster network or a media company like Google. Hence, ASCAP and BMI are called "performing rights organizations" or PROs. U.S. songwriters contract with either ASCAP or BMI (or a third non-regulated organization called SESAC). Songwriters authorize their PRO to bargain collectively to license their songs.

The biggest problem for songwriters with the consent decrees is setting the royalty rate. Rates are privately negotiated by the PROs and licensees in the first instance. But if a PRO cannot make a deal with a well-funded licensee, that licensee (such as Pandora, most recently) can go to a "rate court", a U.S. District Court sitting in New York that conducts an expensive hearing to approximate a market rate. At that point, things start to get very expensive for songwriters, compounded by the fact that the licensee can continue to use the songs under essentially a rateless license pending the court's decision.

An example of the tortured morass of rate courts is the current Pandora case: The rate court judge has stated that she may ask the U.S. Department of Justice for advice in determining whether Pandora has the right to force a songwriter to license her songs in a particular medium under ASCAP's otherwise voluntary collective licensing. It's comforting to know that the DOJ has the resources to devote to this pressing issue!

Rate courts are extraordinarily antiquated and increase both moral hazard and unfair bargaining position. Given the high cost of rate courts, their rates are arguably more a product of who can afford to sustain the litigation rather than fairness for songwriters.

Songwriters find themselves in a rate court proceeding with public companies that are willing to outspend them following a negotiation of dubious bona fides -- all to determine a market rate that the government prohibits the market from determining.

Terminating consent decrees would be a big step toward reintroducing market forces while preserving the songwriter's right to negotiate directly or collectively.

Let Songwriters Opt Out of the 1909 Compulsory Mechanical License

The 1909 mechanical license covers the exclusive reproduction right of songwriters, or the "mechanical reproduction". Mechanical licenses were first for piano rolls, but now cover both physical and digital records, including on-demand streaming in some cases.

The mechanical license is compulsory in the U.S. After a song is used once (essentially one commercial use), songwriters cannot never stop its subsequent use.

In addition to requiring the mechanical license, the government also sets the "minimum" rate through another extraordinarily expensive rate setting proceeding where the government tries to approximate a market rate. Sound familiar?

To be clear, there are a variety of voluntary mechanical licenses with negotiated terms -- other than the rate. In practice, mechanical royalties never exceed the government's "minimum" royalty rate. Any "voluntary" rate negotiation is usually to drive rates below the government's "minimum" -- more accurately the "maximum".

Why can't a market rate be established by the market?

By allowing songwriters to opt out of the compulsory license and negotiate voluntary licenses, Congress could preserve the current regime for those who prefer it, but allow those who do not to enjoy market freedom. It is relatively simple to notify the world that a songwriter opted out of the regime. Songwriters can record a notice with the Copyright Office, or the databases of the PROs as is the longstanding commercial practice for copyright ownership transfers.

Songwriters watch huge public companies essentially given a pass on mergers and other anticompetitive activities that have a profound effect on the U.S. consumers. It's hard to understand why the government feels the need to continue to protect dominant companies like Google and Pandora from the monopolistic lusting of songwriters.