Opinion ID: 802159
Heading Depth: 4
Heading Rank: 1

Heading: ASCAP and BMI's Proposed Benchmarks

Text: The district court reasonably rejected ASCAP and BMI's benchmarks in both cases. Although Muzak and DMX are both commercial music service providers and the Muzak -36- Agreements involved rights comparable to those at issue in this case (the right to public performance), Muzak and DMX's respective market positions and the economic circumstances surrounding their negotiations with ASCAP and BMI differ markedly. The rate courts did not err, much less clearly err, in holding that the Muzak Agreements did not involve similar parties in similar economic circumstances and did not reflect rates that would arise in a sufficiently competitive market. See id. at 95. In both cases, the district court, after making detailed findings of fact and carefully considering the issues, properly rejected ASCAP and BMI's overall proposals as unreasonable because they did not reflect rates that would be set in a competitive market. See id. First, ASCAP and BMI's proposed benchmarks did not account for DMX's substantial and growing direct licensing program -- an economic circumstance that distinguishes DMX's position from that of Muzak. Indeed, ASCAP's first proposal would have charged a flat fee for the first four years and seven months of the license and an annual per-location fee -37- for the remaining two years of the license period. ASCAP's second proposal of a blanket license with a static carveout used the same per-location annual fee as the first proposal, reduced by a credit equal to a fraction of the amount that DMX paid for directly-licensed music, plus an annual blanket administrative fee of $25,000. Finally, BMI proposed an annual per-location blanket fee of $41.81 based upon its five-year, $30 million license fee with Muzak. If DMX's licensing rates with ASCAP and BMI did not meaningfully account for its direct licenses, DMX would effectively pay twice for musical works covered by a PRO and its direct licensing program. These facts, however, were not factored into ASCAP's first proposal or BMI's only proposal, and their inclusion into ASCAP's second proposal was effectively negligible. Second, as the district court found in both cases, ASCAP and BMI failed to show that the rates in their respective agreements with Muzak excluded additional costs -- such as, for example, the resolution of audit and backpay disputes, and the incorporation of growth allowances -- -38- independent of the value of ASCAP and BMI's grants to perform their members' copyrighted music. Indeed, ASCAP and BMI's proposals were extrapolated from agreements with Muzak for nearly $35 and $30 million that spanned the course of five years. ASCAP and BMI's proposals then winnowed down these lump sums by Muzak's average number of locations to arrive at annual per-location rates of $41.21 and $36.36 -- rates that were respectively proposed to increase to $49 to account for time and inflation and to $41.81 to account for the option value of an AFBL over a traditional blanket license. Additionally, the Muzak Agreements contained growth terms that had the potential to reduce Muzak's projected costs over the period of the license term, and both agreements resolved claims that either party could have had against the other prior to the agreement date, unless, in BMI's case, rate court proceedings were initiated. Thus, based on the evidence presented at trial, the district court, in both instances, reasonably found that ASCAP and BMI's respective rates with Muzak accounted for more than per-location licensing fees. -39- Finally, the district court also found that ASCAP and BMI's benchmarks did not reflect a sufficiently competitive market and their proposals therefore did not reflect rates that would be set in a competitive market. See id. In both instances, the district court was entitled to find that the Muzak Agreements, upon which ASCAP and BMI's proposals were based, were less competitively set than they would have been if Muzak regularly used direct licensing or if music rights were more scattered among numerous performing rights societies. Showtime, 912 F.2d at 570. With respect to ASCAP's second proposal, based on the testimony of ASCAP's Chief Economist, it was not clearly erroneous for the district court to find that a static carve-out structure was anti-competitive and inequitable because it would effectively require DMX to pay more in total licensing fees and create incentives for DMX to abandon its direct licensing campaign. See ASCAP, 756 F. Supp. 2d at 544-45. With respect to BMI, based on the evidence presented at trial, it was not clearly erroneous for the district court to conclude that DMX's competitors -40- had no realistic opportunity freely to negotiate the future fees for their licenses. BMI, 726 F. Supp. 2d at 359. As the BMI rate court found, commercial music service providers who refused BMI's $36.36 rate and form license and proceeded to rate court faced the risk of retroactive payment claims from BMI because BMI had expressly reserved its right to seek such payments in any rate court proceeding. Id. Accordingly, the district court in both cases reasonably found that ASCAP and BMI did not sustain their burdens of proving that their proposals were reasonable. No legal error contributed to these findings, and the findings, supported by the record, were not clearly erroneous. See Showtime, 912 F.2d at 571. In both instances, the district court thus had the authority to set a reasonable rate for DMX's licenses.