Opinion ID: 802159
Heading Depth: 4
Heading Rank: 2

Heading: The Rates Set By the District Court

Text: The ASCAP and BMI rate courts essentially set rates comparable to DMX's direct license rates while providing an additional floor fee that guaranteed some compensation to ASCAP and BMI regardless of the extent to -41- which DMX used their repertory. The rates set by the ASCAP and BMI rate courts and the use of DMX's direct licenses as benchmarks were reasonable for the following reasons. First, the rates set by the district court reasonably compensated ASCAP and BMI for their services. As the ASCAP rate court found: [DMX's] proposal acknowledges that [PROs] provide[] important services to both its members and to music users. ASCAP, 756 F. Supp. 2d at 549. Indeed, the floor fee established by both the ASCAP and BMI rate courts compensated ASCAP and BMI for their licensing and overhead costs; the floor fee established by the ASCAP rate court was based on ASCAP's own records. Inclusion of the floor fee into the fee structure also ensured that ASCAP and BMI would be compensated for the value of their services regardless of the extent to which DMX played ASCAP or BMI works that were also directly licensed. 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. -42- Second, the annual $25 per-location royalty pool was not an unreasonable benchmark for DMX's per-location licensing fees with ASCAP and BMI. It reflected the competitive market, was an appropriate valuation of the right to publicly perform the licensed musical works, and was consistent with the four factors that guide the selection of a benchmark (a comparable right, similar parties, similar economic circumstances, and whether the rate would be set in a sufficiently competitive market). See Music Choice, 426 F.3d at 95. The right in question -- the right to public performance -- was comparable. The parties were also similarly situated. Hundreds of music publishers and administrators agreed to the annual $25 perlocation royalty pool, and thus, the ASCAP rate court did not err in finding that the collective decisions [of hundreds of publishers and administrators] to execute direct licenses [were] comparable to the decision [a PRO] makes in entering a license. ASCAP, 756 F. Supp. 2d at 550. While the economic circumstances of direct licensors differ from those of ASCAP and BMI, these differences were balanced by -43- the additional compensation that PROs received under the district court's rate formulas and the degree of competition that the direct licenses inject into th[e] marketplace. Id. Accordingly, in both cases, the district court did not err in finding that, for rights to publicly perform licensed musical works, direct licenses were more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs on BG/FG music providers. Third, based on the evidence presented at trial, it was not clearly erroneous for the ASCAP and BMI rate courts to find that DMX's advance to Sony was a cost of entry into the market that DMX paid to sign at least one major music publisher into its new direct licensing program. See id. at 551-52; BMI, 726 F. Supp. 2d at 361. To support this finding, the ASCAP rate court explained that the Sony agreement with DMX was confidential and there was no evidence that any other direct licensor found the advance to be surprising, demanded a similar advance, or contended that -44- the annual $25 per-location royalty pool should be increased to account for the advance. ASCAP, 756 F. Supp. 2d at 552. Fourth, in light of the evolving commercial music market, the rate courts reasonably incorporated direct licenses to the extent they are relied upon by licensees like DMX. Direct licenses, and their incorporation into licensing fee structures, foster fair pricing and competition within the music licensing market, thereby advancing the very purpose of the AFJ2 and the BMI Decree. The rates set by the district court, as the ASCAP court found, allow[] the appropriate incentives for DMX to continue and to expand its direct licensing program. Id. at 549. We have already noted that if the ASCAP and BMI rate courts had not taken DMX's direct licenses into account, DMX would have had to pay twice to use the same musical works, and, more substantially, direct licensing within the commercial music industry would be discouraged. The AFJ2 and the BMI Decree were established as a result of the government's antitrust challenges to ASCAP and BMI's licensing practices. Their purpose was to, in part, -45- promote free competition in the music licensing industry and minimize the danger of unreasonable activity resulting from ASCAP and BMI's market power and potential restraints on trade. See K-91, 372 F.2d at 4; accord Showtime, 912 F.2d at 570. The rate court mechanism must be considered within this context. See Showtime, 912 F.2d at 570. The ability of 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. Id. The disinfectant [of the rate courts] need not be a placebo. Id. Accordingly, we hold that the district court did not err in setting DMX's licensing rates with ASCAP and BMI and that the rates set by the district court were reasonable. -46-