Court Opinion

ID: 802159
Source: CourtListenerOpinion
Date Created: 2012-06-13 14:48:07+00
Date Added: 2024-06-11T18:00:03.047749
License: Public Domain

10-3429-cv, 11-127-cv
BMI v. DMX, ASCAP v. THP Capstar

                       UNITED STATES COURT OF APPEALS
                           FOR THE SECOND CIRCUIT

                               August Term 2011

  (Argued:       June 16, 2011                     Decided:     June 13, 2012)

                   Docket Nos. 10-3429-cv, 11-127-cv

                            BROADCAST MUSIC, INC.,

                                                      Petitioner-Appellant,

                                         v.

                                     DMX INC.,

                                                      Respondent-Appellee.

                          UNITED STATES       OF   AMERICA,
                                                      Plaintiff,

        AMERICAN SOCIETY      OF   COMPOSERS, AUTHORS     AND   PUBLISHERS,

                                                      Defendant-Appellant,

                                         v.

         THP CAPSTAR ACQUISITION CORP.,        NOW KNOWN AS   DMX, INC.,

                                                      Applicant-Appellee.

Before:
               PARKER, CHIN, and LOHIER, Circuit Judges.
         Appeals from judgments of the United States

District Court for the Southern District of New York (Louis

L. Stanton and Denise Cote, JJ.) setting licensing fees,

pursuant to antitrust consent decrees, for the public

performance of copyrighted music.

         AFFIRMED.

                     SETH P. WAXMAN (Jonathan E. Nuechterlein,
                          Catherine M.A. Carroll, Eric F.
                          Citron, on the brief), Wilmer Cutler
                          Pickering Hale and Dorr LLP,
                          Washington, District of Columbia;
                          Marvin L. Berenson, Joseph J.
                          DiMona, Broadcast Music, Inc., New
                          York, New York, for Broadcast Music,
                          Inc.

                     THEODORE B. OLSON (Amir C. Tayrani, Dace C.
                           Martinez, Jennifer L. Conn, on the
                           brief), Gibson, Dunn & Crutcher LLP,
                           Washington, District of Columbia;
                           Joan M. McGivern, Richard H. Reimer,
                           Samuel Mosenkis, ASCAP, New York,
                           New York; Christopher J. Glancy, I.
                           Fred Koenigsberg, Stefan M. Mentzer,
                           White & Case LLP, New York, New
                           York, for American Society of
                           Composers, Authors and Publishers.

                     R. BRUCE RICH (Benjamin E. Marks, Todd D.
                          Larson, on the brief), Weil, Gotshal
                          & Manges LLP, New York, New York;
                          Christopher S. Harrison, Christopher

                               -2-
    Harrison, PLLC, Austin, Texas, for
    DMX, Inc.

Christine A. Varney, Assistant Attorney
     General; Robert B. Nicholson, Robert
     J. Wiggers, Daniel McCuaig, Matthew
     J. Bester, Attorneys, U.S.
     Department of Justice, Washington,
     District of Columbia, for Amicus
     Curiae United States in BMI v. DMX,
     Inc.

Christopher J. Glancy, I. Fred
     Koenigsberg, Stefan M. Mentzer,
     Scott E. Hershman, White & Case LLP,
     New York, New York; Joan M.
     McGivern, Richard H. Reimer, ASCAP,
     New York, New York; Catherine E.
     Stetson, Hogan Lovells US LLP,
     Washington, District of Columbia;
     Ira M. Feinberg, Hogan Lovells US
     LLP, New York, New York, for Amicus
     Curiae American Society of
     Composers, Authors and Publishers in
     BMI v. DMX, Inc.

Bruce G. Joseph, Wiley Rein LLP,
     Washington, District of Columbia,
     for Amici Curiae Television Music
     License Committee, LLC, et al. in
     ASCAP v. DMX, Inc.

Robert B. Nicholson, Robert J. Wiggers,
     Daniel McCuaig, Matthew J. Bester,
     Attorneys, U.S. Department of
     Justice, Washington, District of
     Columbia, for Amicus Curiae United
     States in ASCAP v. DMX, Inc.

          -3-
CHIN, Circuit Judge:

         In 1941, the United States brought an antitrust

action against the American Society of Composers, Authors

and Publishers ("ASCAP").    The suit resulted in a consent

decree that provided certain protections for prospective

music licensees.    Where, for example, ASCAP and a

prospective licensee have reached an impasse over fees,

under the consent decree, either may petition the United

States District Court for the Southern District of New York

to set a "reasonable" licensing fee.    In 1966, the United

States entered into a similar antitrust consent decree with

Broadcast Music, Inc. ("BMI").

         In these parallel cases, separate petitions were

filed in the Southern District of New York requesting the

court to set a "reasonable" rate after ASCAP and BMI were

unable to agree on licensing fees with DMX, Inc. ("DMX"), a

provider of background/foreground music ("BG/FG music").      In

both cases, the district court (Louis L. Stanton, J., in BMI

and Denise Cote, J., in ASCAP) adopted DMX's proposals.    BMI

and ASCAP appeal.   We affirm.

                              -4-
                             BACKGROUND

1.    The Facts1

      a.    ASCAP and BMI

            ASCAP and BMI are "performing-rights

organizations" ("PROs").      See generally BMI v. CBS, 441 U.S.

1, 4-5 (1979) ("CBS").      ASCAP was created in 1914 by music

creators and publishers as an unincorporated membership

association.    BMI was founded by broadcasters in 1939.      Each

represents hundreds of thousands of songwriters, composers,

and publishers who hold copyrights in millions of musical

works.     They negotiate, implement, and enforce agreements

with licensees that grant the right to perform their

members' copyrighted songs.     They collect license fees and

remit royalties to the copyright holders.     Together, ASCAP

and BMI license the music performance rights to most

domestic copyrighted music in the United States.      See id. at

5.2   ASCAP and BMI have traditionally offered "blanket

      1
          The facts are largely undisputed and drawn primarily
from the trial record and district court opinions.
      2
          SESAC, Inc. ("SESAC") is a third, substantially
smaller, PRO. See In re Application of MobiTV, Inc., 712 F.

                                -5-
licenses," or licenses that grant access to a PRO's entire

repertory in exchange for a flat annual fee unaffected by

the extent to which its music is performed.

          In 1941 and 1964, the United States filed separate

antitrust complaints against ASCAP and BMI for unlawfully

monopolizing the licensing of performing rights.     See United

States v. BMI, 275 F.3d 168, 171-72 (2d Cir. 2001) ("AEI").

The government alleged, inter alia, that ASCAP and BMI's

blanket licenses, the only type of license offered when the

suits were brought, constituted "an illegal restraint of

trade[,] and that arbitrary prices were being charged as the

result of an illegal copyright pool."     CBS, 441 U.S. at 10.

The government sought to enjoin ASCAP and BMI's exclusive

licensing powers and require them to offer different forms

of licensing.   Id. at 10-11.    Settlement of these complaints

led to the entry of two separate, but largely similar,

consent decrees that continue to "substantially control[]"

ASCAP and BMI's licensing practices, id. at 11, and minimize

the "danger of unreasonable activity" caused by ASCAP and

Supp. 2d 206, 211-12 (S.D.N.Y. 2010).

                                -6-
BMI's market power, K-91, Inc. v. Gershwin Pub. Corp., 372

F.2d 1, 4 (9th Cir. 1967).     See United States v. ASCAP,

1940-43 Trade Cas. (CCH) ¶ 56,104 (S.D.N.Y. 1941), amended,

No. Civ.A. 42-245, 1950 WL 42273, 1950-51 Trade Cas. (CCH) ¶

62,595 (S.D.N.Y. July 17, 1950) ("ASCAP Decree"); United

States v. BMI, 1966 Trade Cas. (CCH) ¶ 71,941 (S.D.N.Y.

1966), amended, No. 64-CV-3787, 1994 WL 901652, 1996-1 Trade

Cas. (CCH) ¶ 71,378 (S.D.N.Y. Nov. 18, 1994) ("BMI Decree").

           In 2001, ASCAP and the government agreed to a new

consent decree, the Second Amended Final Judgment (the

"AFJ2").     See United States v. ASCAP, No. 41-1395, 2001 WL

1589999, 2001-02 Trade Cas. (CCH) ¶ 73,474 (S.D.N.Y. June

11, 2001).    The AFJ2 defines four types of licenses:

blanket licenses, per-program licenses, per-segment

licenses, and through-to-the-audience licenses.      See AFJ2,

§§ II(E), (J), (K), (S).3

     3
          Section II of the AFJ2 ("Definitions") defines the
following licenses:

     (E) "Blanket License" means a non-exclusive license
     that authorizes a music user to perform ASCAP music,
     the fee for which does not vary depending on the extent
     to which the music user in fact performs ASCAP music.

                               -7-
          Both the AFJ2 and the BMI Decree include a "rate

court" mechanism under which the United States District

Court for the Southern District of New York has jurisdiction

to determine reasonable license fees when the parties to a

licensing transaction are unable to reach agreement.      See

AFJ2, § IX(A); BMI Decree, § XIV(A); see also infra note 13.

     b.   DMX

          DMX, formerly known as THP Capstar Acquisition

Corp., is a leading commercial music service provider.         It

     (J) "Per-program license" means a non-exclusive license
     that authorizes a broadcaster to perform ASCAP music in
     all of the broadcaster's programs, the fee for which
     varies depending upon which programs contain ASCAP
     music not otherwise licensed for public performance;

     (K) "Per-segment license" means a non-exclusive license
     that authorizes a music user to perform any or all
     works in the ASCAP repertory in all segments of the
     music user's activities in a single industry, the fee
     for which varies depending upon which segments contain
     ASCAP music not otherwise licensed for public
     performance.

     (S) "Through-to-the-Audience License" means a license
     that authorizes the simultaneous or so-called 'delayed'
     performances of ASCAP music that are contained in
     content transmitted or delivered by a music user to
     another music user with whom the licensee has an
     economic relationship relating to that content[.]

AFJ2, §§ II(E), (J), (K), (S).

                                 -8-
was formed on June 3, 2005.    It supplies BG/FG music to

thousands of locations, including restaurants, shopping

centers, hotels, retail stores, and similar public venues.4

DMX does not offer particular songs; rather, DMX music

designers select songs based on the general genre and feel

of a particular program.    DMX typically delivers or uses

approximately 150,000 of its available musical compositions

each year.   These works are owned or controlled by more than

14,000 different publishers.

          DMX provides music programming to its customers

through "off-premise" and "on-premise" delivery mechanisms.

Off-premise delivery involves the transmission of music to

customers via direct broadcast satellite signals to the

establishment's sound system.    On-premise delivery involves

the on-site transmission of music to customers through a

     4
          Under the AFJ2, BG/FG music service is defined as: a
service "that transmits performances of music to subscribers and
that furnishes to those subscribers equipment not otherwise
available to the general public that enables subscribers to make
the transmitted performances on their premises. A [BG/FG] music
service does not include radio or television stations or
networks, cable television networks or systems, persons that
transmit renditions of music to private homes, apartments, or
hotel or motel guest rooms, or persons that transmit renditions
of music to subscribers that charge admission." AFJ2, § II(D).

                               -9-
proprietary DMX device that is installed at the customer

location.     Both off- and on-premise DMX customers have

access to a wide array of programming.     DMX's off-premise

data reflects the frequency with which particular works are

performed.    In contrast, DMX's on-premise data identifies

which works were distributed, but not their relative

frequency.    DMX also offers "select" and "signature"

service.     Select service offers all or some of DMX's various

channels sorted by musical category.     Signature service

involves music programming designed for the specific

customer.

            DMX's main BG/FG music industry competitors are

Muzak LLC ("Muzak"), Music Choice, Inc. ("Music Choice"),

PlayNetwork, Inc. ("PlayNetwork"), and Trusonic, Inc.

("Trusonic").     In recent years, music consultants who

utilize digital media devices and online music services to

create programming for businesses have also created

increased competition in the BG/FB music industry.

Increased industry competition and the national economic

downturn have also reduced DMX's revenue and the fees that

                               -10-
it charges its customers.   From 2005 to 2010, DMX's average

per-customer monthly revenue declined by 37 percent.      From

2008 to 2010, the rates DMX charged its customers declined

by 25 percent.

         In 2006, DMX began a direct licensing campaign,

contracting directly with individual music composers and

their publishers.   DMX pursued direct licenses, in part, to

reduce the cost of business primarily associated with ASCAP

and BMI's blanket licenses.   DMX hired Music Reports

Incorporated, a company specializing in high-volume music

license administration, to assist in the design and

implementation of its direct licensing campaign.

         By late 2010, DMX had signed 850 direct licenses,

covering more than 7,000 separate music catalogs and

hundreds of thousands of songs.      DMX's direct licenses

typically provide each publisher with a pro rata share of an

annual $25 per-location royalty pool.     This $25 amount

represents all annual royalty payments attributable to each

physical location at which a DMX program is performed.       Each

publisher's pro rata share is calculated from its percentage

                              -11-
of plays on DMX's off-premise channels as a proxy for plays

across DMX's entire service.     DMX's direct licenses also

include a "most-favored-nations clause" that ensures that

each publisher's royalties are calculated using the same pro

rata allocation methodology.

         In 2007, DMX obtained a direct license from

Sony/ATV Music Publishing ("Sony") -- one of the industry's

largest music publishers -- that contained the same royalty

allocation as all of DMX's other direct licenses:    a pro

rata share of the annual $25 per-location royalty pool.       DMX

believed that signing a major music publisher like Sony, or

one of its competitors (Universal Music Publishing Group

("Universal"), EMI Music Publishing ("EMI"), or Warner-

Chappell Music Publishing ("Warner-Chappell")), was

necessary for a successful direct licensing program.    DMX

thus made substantial efforts to attract Sony, offering a

royalty advance of $2.4 million and an administrative

payment of $300,000.   According to DMX, the advance was "the

price to be paid if DMX was to break through the powerful

status quo and pioneer a new licensing paradigm."    Brief of

                               -12-
Applicant-Appellee (DMX) at 19, ASCAP v. DMX, No. 11-127-cv

(2d Cir. April 29, 2011).    In 2009, DMX's license with Sony

was extended through 2012.    Since 2007, DMX has continued to

increase the frequency with which it plays Sony music.

     c.   ASCAP's Agreements with
          Other BG/FG Music Providers

          In 2005, ASCAP entered into a blanket license

agreement with Muzak (the "ASCAP-Muzak Agreement"), the

largest BG/FG music service provider in the United States.

The ASCAP-Muzak Agreement provided that, from 2005 through

2009, Muzak would pay ASCAP a flat annual fee of

approximately $6.8 million or an effective annual per-

location fee of $41.21.5    The ASCAP-Muzak Agreement also

provided that Muzak's annual fee would not increase if its

subscriber base grew at an annual rate of 8 percent or less.

If the annual growth rate of Muzak's subscriber base was

greater than 8 percent, Muzak agreed to pay ASCAP an

additional annual per-location fee of $41 for each location

     5
          The ASCAP-Muzak Agreement's annual per-location fee of
$41.21 was calculated by dividing its flat annual fee by the
number of Muzak's commercial subscriber locations.

                              -13-
in excess of the allotted 8 percent growth allowance.   In

effect, the ASCAP-Muzak Agreement's growth provision

provided that if, over the course of its five-year license

term, Muzak increased its subscriber base at an annual rate

of precisely 8 percent, then Muzak's per-location annual fee

would drop to $28.05, averaging $32.52 for the five-year

term.   Muzak also agreed to pay ASCAP a lump sum to settle

all claims arising prior to 2005, including claims for past

due royalties.   On April 24, 2009, as a result of Muzak's

lack of growth and then-pending bankruptcy, ASCAP agreed to

reduce Muzak's annual fee.

          ASCAP also entered into agreements similar to the

Muzak-ASCAP Agreement with Music Choice, PlayNetwork, and

Trusonic that covered varying time periods between 1999 and

2010.   These agreements included annual per-location rates

between $41 and $45.   Under these agreements, Music Choice,

PlayNetwork, and Trusonic also paid ASCAP substantial lump

sums to resolve past disputes.

                             -14-
     d.     BMI's Agreements with
            Other BG/FG Music Providers

            From 1994 to 2004, Muzak paid BMI an annual per-

location fee of approximately $12 to $14.     In 2004, BMI and

Muzak entered into a traditional blanket licensing agreement

(the "BMI-Muzak Agreement") whereby Muzak agreed to pay BMI

a base fee of $30 million over the five-year license period

beginning in 2004 and ending in 2009.     This five-year fee

translated into an annual per-location fee of $36.36.6      The

BMI-Muzak Agreement took into account approximately $5

million that BMI alleged Muzak owed for retroactive license

fees.     Like the ASCAP-Muzak Agreement, the BMI-Muzak

Agreement provided that Muzak's annual per-location fee

would be maintained unless the number of Muzak locations

grew at a rate greater than 8 percent per year.      If Muzak

grew at an annual rate of precisely 8 percent, Muzak could

eventually obtain an annual per-location fee of $24.75.7

     6
          When BMI and Muzak entered into the BMI-Muzak
Agreement, Muzak had 165,000 commercial subscriber locations.
The annual per-location fee of $36.36 was thus calculated by
dividing $30 million by 5 years and then by 165,000 locations.
     7
          This figure was calculated by dividing $30 million by 5
and then by 242,439. The 242,439 figure was calculated by

                               -15-
          BMI offered the $36.36 rate and a license similar

to the BMI-Muzak Agreement to DMX's other competitors;

PlayNetwork and Trusonic accepted BMI's offer.

2.   Proceedings Below

     a.   ASCAP v. DMX

          On June 3, 2005, DMX requested an "adjustable-fee

blanket license" ("AFBL"), or a "blanket license with a

carve-out," from ASCAP.    An AFBL is essentially a blanket

fee reduced to account for music directly licensed from

music publishers and owners that also appear within the

PRO's repertoire.    BMI v. DMX, 726 F. Supp. 2d. 355, 355

(S.D.N.Y. 2010).    ASCAP and DMX, however, could not agree on

a license fee.   On July 25, 2006, pursuant to the AFJ2,

ASCAP applied to the district court (the "ASCAP rate court")

to set a reasonable rate for DMX's requested license.      ASCAP

presented two fee proposals to the ASCAP rate court and

increasing Muzak's 165,000 commercial subscriber locations by 8
percent each year over the course of 5 years, representing the
number of projected commercial subscriber locations Muzak would
have if it continued to grow at 8 percent over 5 years.

                              -16-
maintained that a blanket license with a carve-out for

direct licensing was not a reasonable fee structure.

          First, ASCAP proposed a blanket license with no

carve-out for DMX's direct licensing program.   This first

proposal offered a flat fee calculated by multiplying an

annual per-location rate by the number of locations and then

by the number of years of the license.   ASCAP argued that

this proposal was proportionate to the fees Muzak agreed to

pay ASCAP.

          Specifically, for the period beginning June 5,

2005 and ending December 31, 2009, ASCAP proposed a flat fee

of $15,677,777 for all performances of all works in the

ASCAP repertory.   ASCAP calculated this figure by

multiplying the annual per-location rate used in the ASCAP-

Muzak Agreement ($41.21) by 83,000, the number of DMX

customer locations in 2005, and then by 4 and 7/12 years,

the length of the period from June 5, 2005 to December 31,

2009.   In addition, for the period from 2010 through 2012,

ASCAP proposed an annual per-location rate of $49, to be

adjusted for inflation.   To arrive at this rate, ASCAP

                             -17-
divided the annual flat fee of $3,420,606 by 69,000, the

number of DMX customer locations in 2009.

         Second, in the alternative, ASCAP proposed a

"blanket license with a static credit," or "carve-out,"

based on the fees Muzak agreed to pay ASCAP and on a portion

of the payments DMX made to its direct licensors in 2009.

ASCAP's second proposal offered the same flat fee proposed

in the first option, reduced by a discount and then

increased by an administrative fee.   Under this proposal,

ASCAP's suggested flat fee of $15,677,777 or $3,420,606 per

year would be reduced by a credit for payments that DMX made

to ASCAP members for performances of their works licensed

through direct licenses.   The credit was calculated by

reducing the amount DMX paid for directly-licensed music

first by 10 percent to account for the portion of those

payments intended to compensate publishers for mechanical

rights, and second by an additional 50 percent to identify

those royalties that were paid to publishers for

compositions not within the ASCAP repertory.   The credit,

however, would be offset by an additional administration

                             -18-
charge of $25,000 per year for expenses that ASCAP would

incur in implementing the carve-out license.   Because DMX

did not begin its direct license program until 2006, the

administrative fees would be applicable only from 2007

through 2009.   Accordingly, ASCAP's total proposed license

fee of $15,410,096 constituted the blanket rate of

$15,677,777, reduced by the carve-out-credit and the

administrative fee of $75,000 for the applicable three-year

period.

          Further, for the 2010 through 2012 period, ASCAP

proposed the same blanket rate as its first proposal -- $49

per-location, adjusted for inflation -- in addition to the

$25,000 yearly administrative charge.   For this period,

under ASCAP's second proposal, DMX would receive an annual

$230,000 credit, adjusted for inflation, to account for the

amount of royalties DMX paid its direct licensors in 2009;

fluctuations in DMX's direct licensing would not affect its

credit.

          DMX contended that ASCAP's agreements with other

BG/FG providers did not reflect the competitive market and,

                             -19-
for the years following 2009, counter-proposed a blanket

license with a carve-out incorporating the extent to which

it relied on direct licenses.    DMX's proposal involved:    (1)

a "floor fee" reflecting the minimum amount that DMX would

be obligated to pay ASCAP even if all of the ASCAP-

affiliated music that DMX performed was directly licensed;

(2) an "unbundled music fee," or the "pure" value of the

performance rights for ASCAP music performed by DMX; and (3)

the share of all DMX performances of ASCAP-affiliated music

licensed to DMX solely by ASCAP (the "share licensed via

ASCAP").   Combined, the floor fee and the unbundled music

fee equaled the blanket fee, or the maximum amount to which

ASCAP would be entitled under DMX's proposal.

           DMX contemplated the following rate formula:     the

sum of the floor fee plus the unbundled music fee multiplied

by the share licensed via ASCAP.8    By multiplying the

    8
          DMX's proposed rate formula can also be described as
the product of the difference between the blanket fee and the
floor fee multiplied by the difference between 1 and the share
licensed via ASCAP and then subtracted from the blanket fee. One
minus the share licensed via ASCAP is equivalent to dividing the
total number of ASCAP works transmitted by DMX for which DMX has
a direct license by the total number of ASCAP works transmitted

                              -20-
unbundled music fee and the share licensed via ASCAP, DMX

would pay ASCAP an amount that varied depending on the

extent to which DMX subscribers actually played ASCAP works

that were also directly licensed.

          Specifically, DMX proposed a floor fee of $3 per

location and an unbundled music fee of $10.74 per location.

DMX, drawing from ASCAP's records, contended that the $3

floor fee represented the combination of $2.14 for expenses

specific to BG/FG music service and $0.86 for general

overhead expenses.   DMX calculated the $10.74 unbundled

music fee first by reducing the annual $25 per-location

royalty pool from the direct license agreements by 10

percent to account for the direct license agreements' grant

of mechanical and public performance rights.   DMX then

further reduced the resulting $22.50 per-location fee to

reflect ASCAP's 48 percent share of total performances on

the DMX network.

          On December 1, 2010, following a five-day bench

trial, the ASCAP rate court (Cote, J.) issued an opinion and

by DMX.

                             -21-
order adopting DMX's proposal to set the final rate.       In re

Application of THP Capstar Acquisition Corp., 756 F. Supp.

2d 516 (S.D.N.Y. 2010) ("ASCAP").    The court rejected

ASCAP's first proposal because it found that the Muzak

Agreement was "not a reliable benchmark."    Id. at 543.

Specifically, the ASCAP rate court found that:    (1) the

2005-2009 license on which ASCAP relied was only one part of

a much larger transaction settling existing disputes and

resolving issues relating to an eleven-year period; (2) "it

is dangerous to rely on a per[-]location fee" extrapolated

from the starting point of a flat fee deal that allowed

expected growth in locations and contemplated a possible

decline in the effective rate from $41.21 to $28.05 over the

license term; (3) DMX refused to enter a license premised on

the same formula; and (4) economic conditions in the

industry had changed since ASCAP and Muzak entered into

their agreement.   Id. at 539-43.   With respect to ASCAP's

second proposal, the ASCAP rate court found that:   (1) ASCAP

failed to show that a $41.21 rate for the pre-2010 period or

a $49 rate for 2010 was an "appropriate base from which to

                             -22-
construct the blanket rate"; (2) ASCAP's proposed flat fee

for 2006-2009 did not account for DMX's substantial loss of

customer locations during that period; (3) the "dollar-for-

dollar" carve-out-credit ASCAP proposed did not reasonably

reflect DMX's direct license initiative, would discourage

DMX from continuing with its direct licensing program, and

represented a windfall to ASCAP members who did not directly

contract with DMX; and (4) ASCAP failed to provide

sufficient evidence to support its proposed $25,000 annual

surcharge for administering the credits.     Id. at 542-43.

           On December 20, 2010, the ASCAP rate court entered

judgment setting the specific terms of the rate.      Adopting

DMX's proposal, the ASCAP rate court set a floor fee of $3,

a blanket fee of $13.74, and an unbundled music fee of

$10.74.9   The resulting annual per-location fee was set at

$13.74 (the blanket fee) minus the product of $10.74 (the

unbundled music fee) and a direct license ratio of 48

percent.   The direct license ratio was set as the total

     9
          The floor fee was calculated by subtracting the
unbundled music fee from the blanket fee.

                              -23-
number of ASCAP works transmitted by DMX's off-premise

service for which DMX has a direct license with at least one

publisher of the work (pro-rated to reflect the ownership

shares of the directly-licensed ASCAP-affiliated publisher),

divided by the total number of ASCAP works transmitted by

DMX's off-premise service (pro-rated to reflect the share of

the song's ownership affiliated with ASCAP).

    b.   BMI v. DMX

         On June 3, 2005, DMX requested an AFBL from BMI.

The parties commenced negotiations but were unable to reach

agreement.   On January 10, 2008, BMI petitioned the district

court (the "BMI rate court") to determine a reasonable fee.

BMI did not dispute DMX's entitlement to an AFBL.   DMX and

BMI agreed that the AFBL fee should include:   (1) a full

blanket rate, or the amount DMX would pay if it used no

directly-licensed BMI music; (2) a floor fee that DMX would

pay even if it directly licensed all the BMI music it used;

and (3) a crediting mechanism for calculating DMX's discount

off the full blanket fee for each directly-licensed music

                             -24-
performance.   The parties, however, disagreed as to how to

value these components.

         BMI proposed a rate with a blanket fee calculation

based on the blanket license agreement it first entered into

with Muzak (the "BMI-Muzak Agreement") -- and later made

with other BG/FG providers -- for the 2004-2009 period.        BMI

proposed a total blanket fee of $41.81 per location.      To

arrive at this fee, BMI increased its proposed annual per-

location fee of $36.36 by 15 percent to account for the

additional costs of an AFBL and the "option value" the AFBL

provides over the traditional blanket license.

         DMX proposed a blanket license rate with BMI that

incorporated its direct licensing program into its proposed

fee structure; this proposal was nearly identical to the one

DMX proposed in ASCAP.    Specifically, DMX proposed a blanket

fee of $11.32 per location, representing an unbundled music

fee for the rights to perform the works in BMI's repertoire

and a floor fee to compensate BMI for the value of its

services and the benefits of a blanket license.    DMX,

referencing approximately 550 direct licenses with music

                              -25-
publishers as benchmarks, proposed a share of an annual $25

per-location royalty pool equivalent to $10 -- 40 percent of

$25 -- to represent the portion of DMX's music performances

drawn exclusively from BMI's repertoire.

          On July 26, 2010, following a ten-day bench trial,

the BMI rate court (Stanton, J.) rejected the BMI-Muzak

Agreement as a benchmark for the value of DMX's AFBL.      BMI,

726 F. Supp. 2d at 359.    The court adopted DMX's proposal

and entered judgment setting a final annual per-location

blanket fee of $18.91, an annual per-location floor fee of

$8.66,10 and a direct licensing ratio to be calculated using

DMX's off-premise performances as a proxy for all of its

performances.   Id. at 364.

          These appeals followed.

                           DISCUSSION

          On appeal, ASCAP and BMI principally argue that

the district court in both cases set an unreasonable fee for

     10
          The floor fee included three components: (1) $6.18 in
overhead costs, equal to 17 percent of BMI's per-location income
of $36.36; (2) $2.38 in routine costs per location; and (3) $0.10
in initial development costs. Id. at 364.

                              -26-
their respective licenses with DMX by incorporating the

extent to which DMX relied on direct licenses.     First, ASCAP

argues that direct licenses should not be factored into its

licensing rate structure with DMX because a rate structure

with an adjustable carve-out for direct licenses conflicts

with the AFJ2 and is unreasonable.11    Second, ASCAP, in the

alternative, and BMI both argue that direct licenses should

only be marginally incorporated into their licensing fee

structures with DMX.   They argue that the district court in

both cases erred by using DMX's direct licensing agreements

with music publishers as benchmarks for their respective

licensing fees and that their licenses with DMX's

competitors should have been adopted as benchmarks because

they were more accurate valuations of their services and

more indicative of the "competitive market."

          We first discuss ASCAP's contention that a rate

structure with an adjustable carve-out conflicts with the

AFJ2; we then discuss the district court's rejection of

     11
          BMI did not dispute -- in the rate court proceeding or
on appeal -- that DMX was entitled to a blanket license with a
carve-out. Id. at 355-56.

                              -27-
ASCAP and BMI's proposals and the reasonableness of the

rates set by the district court.

I.    The AFJ2

          ASCAP contends that a rate structure with an

adjustable carve-out conflicts with the AFJ2.       ASCAP argues,

inter alia, that by defining certain licenses and not

defining a blanket license with an adjustable carve-out, the

AFJ2 excludes the latter.     The ASCAP rate court rejected

this argument.

          Consent decrees are construed "basically as

contracts."      AEI, 275 F.3d at 175 (internal citations and

quotation marks omitted).     When the language of a consent

decree is unambiguous, deference is paid to the plain

meaning of the decree's language.      Id.   The decree's scope

must be discerned within its four corners, and not with

respect to what might satisfy one of the parties' purposes.

Id.   When the language of a decree is ambiguous, however, a

court may consider, inter alia, extrinsic evidence to

determine the parties' intent, including the purpose of the

provision and the overall context of the decree.       Id.   We

                                -28-
review the district court's interpretation of a consent

decree de novo and its factual findings for clear error.

Id.

            The AFJ2 defines four types of licenses:     blanket,

per-program, per-segment, and through-to-the-audience

licenses.    See supra note 3 and accompanying text.     In

addition, section V of the AFJ2 discusses "Through-to-the-

Audience Licenses," section VI discusses "Licensing," and

section VII discusses "Per-Program and Per-Segment

Licenses."    See AFJ2 §§ V, VI, VII.   Section VII(C)

provides:    "Nothing in th[e AFJ2] shall prevent ASCAP and

any music user from agreeing on any other form of license."

AFJ2, § VII(C).    Thus, although the AFJ2 defines types of

licenses that ASCAP could provide to DMX, on its face, the

AFJ2 plainly permits other forms of licenses and does not

preclude blanket licenses with adjustable carve-outs.

            Although we did not expressly address this issue

in AEI, BMI raised a similar argument in that case.       AEI,

275 F.3d at 176.    There, we explained that a request for a

blanket license subject to a carve-out constitutes "a

                              -29-
request not for a new type of license, but for a blanket

license with a different fee basis, over which the district

court has rate-setting authority and which [the PRO] must

offer."   Id. at 171, 175-77; see also United States v.

ASCAP, 309 F. Supp. 2d 566, 581 (S.D.N.Y. 2004) ("Muzak")

(concluding that "the present AFJ2 may be construed to

permit the issuance of a blanket license with a fee

structure that reflects direct licensing arrangements

previously entered into by applicants" and "the existence of

such direct licensing relationships may and will be

considered by this Court in a rate court proceeding").      We

rejected the contention, then advanced by BMI, that the BMI

Decree "applie[d] only to those licenses specifically

mentioned in the BMI Decree, and to the traditional blanket

license with its traditional per premise fee structure."

AEI, 275 F.3d at 176.   Our reasoning in AEI applies with

equal force here.

          Accordingly, the district court correctly rejected

ASCAP's contention that the AFJ2 does not permit a rate

                             -30-
structure that features an adjustable carve-out.       As the

ASCAP rate court correctly determined:

            [The AFJ2] is an antitrust consent decree
            providing a mechanism for the setting of
            reasonable license fees in a unique
            market in which ASCAP indisputably
            exercises market power. While ASCAP may
            be unwilling to offer a blanket license
            with a carve-out for a direct licensing
            program, the terms of AFJ2, the decisions
            interpreting and applying AFJ2, and the
            record evidence from this trial each
            indicate that such a license is
            appropriate and justified here.

ASCAP, 756 F. Supp. 2d at 541.       We thus hold that the AFJ2

permits blanket licenses subject to carve-outs to account

for direct licensing, and we reject ASCAP's claim that a

blanket license with an adjustable carve-out conflicts with

the AJF2.

II. The Rates

    A.      Applicable Law

            Under the AFJ2 and the BMI Decree, ASCAP and BMI

are required "to grant to any music user making a written

request therefor a non-exclusive license to perform all of

the works in the ASCAP repertory."       AFJ2, § VI; see BMI

                              -31-
Decree, § IV(A).12    If the parties are unable to reach

agreement, after prescribed periods of negotiations, either

party may apply to the district court for a determination of

a reasonable fee.     AFJ2, § IX(A); see BMI Decree, §

XIV(A).13    In these rate court proceedings, the burden of

     12
          The BMI Decree provides that BMI is "enjoined and
restrained from: (A) Failing to grant permission, on the written
request of all writers and publishers of a musical composition
including the copyright proprietor thereof, allowing such persons
to issue to a music user making direct performances to the public
a non-exclusive license permitting the making of specified
performances of such musical composition by such music user
directly to the public, provided that the defendant shall not be
required to make payment with respect to performances so
licensed." BMI Decree, § IV(A).
     13
            The AFJ2 provides:

     If the parties are unable to reach agreement within
     sixty (60) days from the date when the request for a
     license is received by ASCAP, or within sixty (60) days
     of ASCAP's request for information, whichever is later,
     the music user may apply to the Court for a
     determination of a reasonable fee retroactive to the
     date of the written request for a license . . . . If
     the parties are unable to agree upon a reasonable fee
     within ninety (90) days from the date when ASCAP
     advises the music user of the fee that it deems
     reasonable or requests additional information from the
     music user, and if the music user has not applied to
     the Court for a determination of a reasonable fee,
     ASCAP may apply to the Court for the determination of a
     reasonable fee . . . .

AFJ2, § IX(A).

                                 -32-
proof is on the PRO to establish the reasonableness of the

fee it seeks.   AFJ2, § IX(B); see BMI Decree, § XIV(A).14

If the PRO establishes that its requested rate is

reasonable, then the district court shall adopt it.      See

AFJ2, § IX(D); BMI Decree, § XIV(A).15    If the PRO is unable

           The BMI Decree similarly provides:

     If the parties are unable to agree upon a reasonable
     fee within sixty (60) days from the date when defendant
     advises the applicant of the fee which it deems
     reasonable, the applicant may forthwith apply to this
     Court for the determination of a reasonable fee . . . .
     If the parties are unable to agree upon a reasonable
     fee within ninety (90) days from the date when
     defendant advises the applicant of the fee which it
     deems reasonable and no such filing by applicant for
     the determination of a reasonable fee for the license
     requested is pending, then defendant may forthwith
     apply to this Court for the determination of a
     reasonable fee. . . .

BMI Decree, § XIV(A).
     14
          The AFJ2 provides: "In any such proceeding, the burden
of proof shall be on ASCAP to establish the reasonableness of the
fee it seeks. . . ." AFJ2, § IX(B).

          The BMI Decree provides: "In any such proceeding,
defendant shall have the burden of proof to establish the
reasonableness of the fee requested by it." BMI Decree, §
XIV(A).
     15
          The AFJ2 provides: "Should ASCAP not establish that
the fee it requested is reasonable, then the Court shall
determine a reasonable fee based upon all the evidence." AFJ2, §
IX(D).

                              -33-
to establish that its requested rate is reasonable, then the

rate court shall determine a reasonable fee based on all the

evidence, including a proposal from the music user.      AFJ2, §

IX(D); see BMI Decree, § XIV(A).

          We review rates set by the district court for

reasonableness.   United States v. BMI, 426 F.3d 91, 96 (2d

Cir. 2005) ("Music Choice").     "Fundamental to the concept of

'reasonableness' is a determination of what an applicant

would pay in a competitive market, taking into account the

fact that [the PRO], as a monopolist, 'exercise[s]

disproportionate power over the market for music rights.'"

United States v. ASCAP, 627 F.3d 64, 76 (2d Cir. 2010)

("RealNetworks") (quoting Music Choice, 426 F.3d at 91).

Benchmarks, or agreements reached after arms' length

negotiation between other similar parties in the industry,

are often used by the rate court in determining the fair

market value of the music.     See id.   In assessing whether

          The BMI Decree provides: "Should defendant not
establish that the fee requested by it is a reasonable one, then
the Court shall determine a reasonable fee based upon all the
evidence." BMI Decree, § XIV(A).

                               -34-
another agreement provides a valid benchmark, the district

court must consider whether the other agreement dealt with a

comparable right, whether it involved similar parties in

similar economic circumstances, and whether it arose in a

sufficiently competitive market.      See Music Choice, 426 F.3d

at 95.

          We review for clear error the district court's

findings of fact relating to the benchmark agreements,

including whether they were formed in a freely competitive

market.   See id. at 96 (benchmarks); ASCAP v. Showtime/The

Movie Channel, Inc., 912 F.2d 563, 569 (2d Cir. 1990)

(freely competitive market).     Adjustments to the benchmark

"to best approximate the fair market value of the music may

be based on factual findings, but also may contain legal

conclusions that we review de novo."      Music Choice, 426 F.3d

at 96.

    B.    Application

          Under the AFJ2 and the BMI Decree, the district

court, in both cases, had the authority to set a reasonable

rate for DMX's licenses with ASCAP and BMI if ASCAP and BMI

                               -35-
did not satisfy their burden of proving that their proposals

were reasonable.   See AFJ2, § IX(B); BMI Decree, § XIV(A).

For the reasons set forth below, we hold that it was not

clearly erroneous for the ASCAP and BMI rate courts to find

that the ASCAP-Muzak and BMI-Muzak Agreements (together, the

"Muzak Agreements") did not reflect rates that would be set

in a competitive market.   See Music Choice, 426 F.3d at 96.

We also hold that, in both cases, the district court

reasonably rejected ASCAP and BMI's proposals and adopted

DMX's recommended benchmarks to set the licensing fees.      See

id.   Finally, we hold that rate courts can take direct

licenses into account in setting rates between commercial

music service providers and PROs.     We first discuss the

district court's rejection of ASCAP and BMI's proposals; we

then discuss the reasonableness of the rates set by the rate

courts.

          i.   ASCAP and BMI's Proposed Benchmarks

          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 carve-

out" 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 back-

pay 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.

         ii. The Rates Set By the District Court

         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 per-

location 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-
                         CONCLUSION

         For the reasons set forth above, we AFFIRM the

judgments of the district court.

                            -47-