Chris Castle’s Comment to Justice Department on 100% Licensing: Part 1

We are reprinting comments on 100% licensing made to the Justice Department by Chris Castle, Keith Bernstein of Crunch Digital and David Lowery, starting with Chris.  Some will be in multiple parts.

November 20, 2015

By email

David C. Kully
Chief, Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street NW, Suite 4000
Washington, DC 20001

Re:  PRO Licensing of Jointly Owned Works

Dear Mr. Kully:

I appreciate this opportunity to participate in your review of the ASCAP and BMI consent decrees and commend you for undertaking your review.

The 100% licensing issue reminds me of reactions to the Fairness in Music Licensing Act in 1998.  That wrong turn resulted in a WTO arbitration that the U.S. lost—with U.S. taxpayers subsidizing royalty payments to foreign writers.

Songwriters have traditionally been free to associate with co-writers without regard to PRO affiliation.  100% licensing would necessarily limit co-writing partners out of concern that any revenue earned by the co-write could be lost in what will almost surely be a licensing and collection morass.  It is out of step with the long-standing practices in the music industry.

A recent post on a popular artist rights blog sums it up:

The Department of Justice is attempting to change the rules of the road to something manufactured out of thin air and then pretending those new rules were there all along.  Songwriters must ask why?

I respectfully suggest that it is a point of view that the Department should take into account.

1.  The Default Position

The reason the questions presented by the Department of Justice for public comment are concerning to so many songwriters is better understood in the context of the what I call the “default position” for co-writers:

(1) Absent an agreement to the contrary, (2) each co-writer (3) administers their contributory share of copyright in a song (4) including the right to have their respective share administered by their PRO to the extent of that share.  For more sophisticated songwriters, I would add (5) no co-writer can bind them to license terms the writer does not accept.

This “default position” is the deal songwriters assume will be in place unless they agree otherwise.  The Department’s position is controversial—so controversial, in fact that a recent proposed resolution supporting 100% licensing in a bar association intellectual property group failed to pass and was withdrawn.

While the rates for particular revenue streams may be affected by promises that an artist co-writer made to their record company, the collection and payment of those revenue streams is nevertheless determined by fractional ownership.

Having said that, as a matter of business practice performance royalties and collection rights are never subject to such third party agreements.  Performance royalties are uniquely protected from reductions or redirection in the music industry. This includes both the writer’s share of performance royalties (paid through to the songwriters directly) and the publisher’s share of performance royalties (paid to a writer’s “music publishing designee,” often a publisher and often subject to recoupment of a pre-payment of royalties (i.e., “advances”) paid to the songwriter by the publisher).

Even when a composer is hired to compose a score and gives up copyright ownership to the commissioning film studio, the writer’s share of performance royalties is still paid through to the composer directly by the composer’s PRO.  The composer may retain the publisher’s share on songs derived from the score (e.g., the Bryan Adams hit “Everything I Do, I Do It For You” was from a melody in the score of Robin Hood, Prince of Thieves).  Depending on negotiations, the composer could expect that she would be paid the publisher’s share as well as her writer’s share for performances of that song to the extent of her contributory share.  In any event, the composer would be paid performance income by her PRO.

2.  100% Accounting for Independent Songwriters 

We have many independent songwriters in Austin.  Independent songwriters, i.e., songwriters not signed to a music publisher or administrator, lack the infrastructure to bear the newly created burdens that would be placed on them in a 100% licensing environment.  The Department of Justice would do well not to fall into the common perception of the “Big Tech” companies who seem to think that every songwriter is signed to a publisher if not a major publisher.

If the Consent Decrees suddenly imposed a 100% licensing burden on ASCAP and BMI songwriters, independent songwriters (a sizeable number of the voting members of each government-regulated PRO) could suddenly bear the accounting obligation.  As I understand it, the entire 100% licensing theory is based on the government being able to create a new burden on co-owners of copyright, not on the PROs themselves that own nothing.  This burden will include tax reporting, payments and accountings for unrelated third parties.

But first it will require educating the independent songwriters of the contours of this new burden.  It is highly unlikely that songwriters would have a reason to know of tenants in common doctrines, much less that these doctrines apply to songwriters or to copyright.

As someone who talks to independent songwriters and their managers frequently, I assign a 95% probability that no one will have any idea what they are supposed to do, or will even notice that it happened unless their income drops even further than it already has.

The regulated PROs could no doubt offer handling this newly created administrative burden, but will do so for a fee.  I would assume that fee will be paid on a cash and carry basis and not on an administrative fee structure—that is, songwriters will have to come out of pocket to pay for services either by their PRO, accountant or lawyer, and perhaps all three.

Of course, this all assumes that the songwriter has not signed a song split agreement (discussed further below) of one type or another that would actually prohibit them from licensing 100% of performance income and collecting all the money for the song themselves.

Of course, the government could decide to treat major publishers differently than independent songwriters to avoid the grassroots political backlash, but such an action could likely be challenged as violating equal protection of the law.  So equal protection could be then added to the litany of potential Constitutional violations that government mandated 100% licensing would fall afoul of.

[Continued in Part 2]