The music industry is furious with the Department of Justice these days thanks to major legal changes that significantly impact how songs are licensed and how royalties are paid. The Department of Justice recently introduced the 100 percent licensing rule, banning the current industry standard of fractionalized licensing. Fractionized licensing has long been the industry standard because it allows each of the rightsholder of any particular song (e.g., composer, songwriter, etc.) control to license their particular contribution to the song. This way, in order to license an entire song that has been the result of collaboration between songwriters represented by different performing rights organizations, parties must often negotiate amongst themselves in order to license that song to a third party.
This all changes with the Department of Justice’s new ruling. Under the new 100 percent licensing rule, the rightsholder of any song has the right to license the entire song, as long as they account to and pay the other rightsholders. This raises numerous issues for music publishers and performing rights organizations alike. Under the new 100 percent licensing rule, music streaming services such as Pandora and Spotify can now effectively rate-shop among the different licensors in order to procure lower rates. A clear-cut example of this occurred in 2014 when Pandora Media announced that it had negotiated a direct deal with BMG. At that time, BMG had withdrawn its digital rights from BMI, allowing BMG to bypass BMI to obtain a higher royalty rate than what was normally allowed by U.S. copyright law.
Under this new rule, rightsholders may end up earning royalties that vastly differ from one another for the same song simply because they were not part of the negotiation process. They may also find themselves subject to numerous licensing agreements with unfavorable terms because they were not the specific party to negotiate that particular licensing agreement.
As a result of this ruling, the Songwriters of North America (“SONA”), an advocacy group for music songwriters, has filed suit against the Department of Justice alongside three named songwriters. SONA argues that the new licensing rules negatively impacts songwriters in that they are not able to effectively leverage their ownership rights in song in due to these new licensing rules. The suit argues, among other things, that the Department of Justice’s new rules deprive song writers of critical income streams; diminish the value of copyrighted works; eliminate the songwriters’ ability to choose which performing rights organization to belong to; subject songwriters to unlawful arbitrary, and capricious government action; and interfere with their existing and future contractual business relationships.
The music industry also argues that the Department of Justice’s new rules may have a chilling effect on musical creativity and collaborations because some songwriters may choose to collaborate solely with songwriters or artists within their own performing rights organization for monetary and logistical reasons.
As it stands, multiple parties with different interests have a dog in the fight. Both BMI and ASCAP have announced their intentions to fight the Department of Justice’s ruling, and likewise, even the U.S. Copyright Office has chimed in on the subject. As such, it behooves the intellectual property legal community to continue to following this fight as it so significantly impacts how licensing and copyright law operates.