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Major Appellate Victory for DMX in Music Licensing Cases

Second Circuit Affirms Judgment in Disputes with Broadcast Music, Inc. & ASCAP

June 13, 2012

In a unanimous decision, the Second Circuit today affirmed a pair of trial victories that Weil secured on behalf of DMX, Inc. in copyright rate court proceedings against the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) that sharply reduced the performing rights fees paid by DMX and established a new fee structure to promote competitive-market alternatives to licensing through performing rights organizations (PROs) such as ASCAP and BMI.

In 2006, frustrated with the high rates charged by ASCAP and BMI, DMX began a campaign to license music performance rights directly from the copyright owners affiliated with those organizations at much lower prices. At the same time, DMX requested blanket licenses from ASCAP and BMI with a fee structure that would reflect a credit for their directly licensed performances. Because the parties could not agree on rates or license structure, rate cases were brought in 2010 in which each PRO asserted that its agreements with DMX’s competitors provided the appropriate benchmark for determining a reasonable rate for DMX.  DMX contended that fees should be determined on the basis of the hundreds of direct licenses it had secured.  ASCAP and BMI each sought performance royalties of more than $41 per location.  The district court judges rejected these proposals and instead adopted the dramatically lower fees proposed by DMX:  $18.91 per location for BMI and $13.74 per location for BMI.  Both judges awarded the adjustable-fee structure requested by DMX, and so actual payments to the PROs are only a fraction of those already lower rates. (See news items on DMX’s trial wins against BMI and ASCAP.)

The appeals were argued in tandem in 2011 and the Second Circuit affirmed the trial court decisions in today’s single opinion. The appellate court rejected the rates paid by DMX’s competitors as the appropriate benchmark, noting, “That the rates set by the ASCAP and BMI rate courts were comparatively lower than those historically obtained by ASCAP and BMI is of no moment given ASCAP and BMI’s longstanding market power and the industry’s changing economic landscape. …The ability of the users of music rights to avail themselves of a reasonable rate through the rate court mechanism when ASCAP and BMI’s market power might otherwise subject them to unreasonably high fees would have little meaning if that court were obliged to set a ‘reasonable’ fee solely or even primarily on the basis of the fees a PRO had successfully obtained from other users” (internal quotes omitted).  The appellate court also affirmed the district courts’ reliance on the direct license transactions as an appropriate benchmark for setting PRO license fees and the adjustments made to that benchmark. 

This landmark decision has the potential to change the way music performance rights are licensed by a broad array of users as other user groups, such as local broadcast television stations, are seeking similarly structured adjustable-fee blanket licenses that will credit their own emerging direct licensing activity.

The appeal was argued by R. Bruce Rich, head of Weil’s IP & Media practice group, and the appellate team included IP partner Benjamin Marks, counsel Gregory Silbert, and associates Todd Larson, and Vanessa Chandis.

R. Bruce Rich was selected on the week ending June 15, 2012 as Litigator of the Week by The Am Law Litigation Daily for his role as lead counsel in this case. He told The American Lawyer that the ruling was especially sweet because it advanced the group’s agenda to level the market for music licensing. “Our transcendent objective has been to inject as much competition as possible via a variety of tools,” Rich said. “We've brought antitrust cases and rate cases. We've attempted to develop licensing tools and mechanisms to encourage users like DMX to go outside the traditional licensing arrangements in order to reap the benefit of the marketplace."

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