DMX Wins Battle over ASCAP for Direct Music Licensing

Last July, Muzak competitor DMX and its Weil, Gotshal & Manges lawyers won a licensing fee ruling against Broadcast Music Inc. that had the potential to revolutionize the background music industry. See, Broadcast Music Inc. v. DMX Inc., 08 Civ. 216(LLS) (2010). Now the revolution continues: U.S. District Judge Denise Cote of the Southern District of New York has ruled that DMX must pay the American Society of Composers, Authors and Publishers (ASCAP) a fee of only $13.74 to license ASCAP music in each of the 95,000 stores, restaurants and other locations that DMX supplies with background music. ASCAP wanted DMX to pay almost $50 per location. In re Application of THP Capstar Acquisition Corp., 09 Civ. 7069(DLC).

Playing a New Tune

Why are the two licensing rulings a game-changer? Because DMX innovated a new business model in the background music industry. Instead of licensing music only through ASCAP and BMI ' as the rest of the industry does ' DMX reached out to hundreds of companies in the recording business, eventually establishing a licensing pool that now includes about 850 individual companies, including Sony. The company then asserted that the blanket licensing fees it pays to BMI and ASCAP should be reduced to reflect what it's already paying their songwriter and recording artist members through the fees DMX pays through the licensing pool.

In July, Manhattan federal District Judge Louis Stanton, who oversees all BMI licensing fee litigation, agreed with DMX that the background-music supplier should pay BMI a fee of $18.31 for each DMX-supplied location, rather than the $36.36 BMI wanted. (BMI has brought in Seth Waxman of Wilmer Cutler Pickering Hale and Dorr to appeal Judge Stanton's ruling to the U.S. Court of Appeals for the Second Circuit.)

But ASCAP and its lawyers at White & Case didn't take much of a hint from BMI's parallel litigation with DMX. In fact, they staked out an even more extreme position in a bench trial this fall before Judge Cote than BMI had with Judge Stanton. Christopher Glancy of White & Case asserted in ASCAP's closing argument before Judge Cote in November that ASCAP doesn't believe DMX's individual license fees should be carved out from the blanket fee DMX pays ASCAP, despite a Justice Department consent decree that requires ASCAP and BMI to accommodate the sort of direct licensing program DMX has. “ASCAP sells a product,” Glancy told Judge Cote. “The product is a single product, the blanket license.”

ASCAP Hits Sour Note for Judge

ASCAP's intransigence prompted a remarkable comment from Judge Cote. “I just find ASCAP's litigation strategy interesting,” she told Glancy on the last day of the bench trial. “It's like you have abandoned the field. You chose not to play on the field. ' But I don't know why you would make that choice, why ASCAP would make that choice, and particularly because BMI didn't. Admittedly, I don't need to understand why parties make their litigation choices. That's not my role. But nonetheless, it's hard not to wonder, just as a human being. And I don't know if it's because ASCAP prides itself on being more aggressive than BMI or what it is, but to just not engage ' and not present an alternative for a direct licensing program and the pricing of a blanket license in that context, I just find interesting.”

It's never a good sign when the judge presiding over a bench trial says she doesn't understand your litigation strategy, and, indeed, in her ruling, Judge Cote gave very short shrift to ASCAP's argument that DMX should get no discount from the blanket fee, saying the proposal “can be swiftly rejected” as unreasonable under the terms of the consent decree. She also rejected as unreasonable an alternative ASCAP proposal that acknowledged a carve-out from the blanket fee for DMX's licensing program, but then tacked on “administrative expenses” that essentially offset the discount.

The judge found DMX's proposal that it pay a per-location fee of $13.74, on the other hand, to be reasonable. (The fee is based on a per-location floor fee of $3 and a prorated royalty fee of $10.74 for the 48% of DMX's playlist that is licensed by ASCAP.) And because ASCAP offered no reasonable alternative to DMX's proposal, the judge approved the license fee DMX suggested.

DMX counsel R. Bruce Rich of Weil said: “The court has recognized the benefits of a license formula with ASCAP that permits individual licenses of the type DMX has entered into with more than 850 companies.”

ASCAP counsel Glancy of White & Case deferred to ASCAP for comment, which said in a statement that it “is examining [its] options.”

Last July, Muzak competitor DMX and its Weil, Gotshal & Manges lawyers won a licensing fee ruling against Broadcast Music Inc. that had the potential to revolutionize the background music industry. See, Broadcast Music Inc. v. DMX Inc., 08 Civ. 216(LLS) (2010). Now the revolution continues: U.S. District Judge Denise Cote of the Southern District of New York has ruled that DMX must pay the American Society of Composers, Authors and Publishers (ASCAP) a fee of only $13.74 to license ASCAP music in each of the 95,000 stores, restaurants and other locations that DMX supplies with background music. ASCAP wanted DMX to pay almost $50 per location. In re Application of THP Capstar Acquisition Corp., 09 Civ. 7069(DLC).

Playing a New Tune

Why are the two licensing rulings a game-changer? Because DMX innovated a new business model in the background music industry. Instead of licensing music only through ASCAP and BMI ' as the rest of the industry does ' DMX reached out to hundreds of companies in the recording business, eventually establishing a licensing pool that now includes about 850 individual companies, including Sony. The company then asserted that the blanket licensing fees it pays to BMI and ASCAP should be reduced to reflect what it's already paying their songwriter and recording artist members through the fees DMX pays through the licensing pool.

In July, Manhattan federal District Judge Louis Stanton, who oversees all BMI licensing fee litigation, agreed with DMX that the background-music supplier should pay BMI a fee of $18.31 for each DMX-supplied location, rather than the $36.36 BMI wanted. (BMI has brought in Seth Waxman of Wilmer Cutler Pickering Hale and Dorr to appeal Judge Stanton's ruling to the U.S. Court of Appeals for the Second Circuit.)

But ASCAP and its lawyers at White & Case didn't take much of a hint from BMI's parallel litigation with DMX. In fact, they staked out an even more extreme position in a bench trial this fall before Judge Cote than BMI had with Judge Stanton. Christopher Glancy of White & Case asserted in ASCAP's closing argument before Judge Cote in November that ASCAP doesn't believe DMX's individual license fees should be carved out from the blanket fee DMX pays ASCAP, despite a Justice Department consent decree that requires ASCAP and BMI to accommodate the sort of direct licensing program DMX has. “ASCAP sells a product,” Glancy told Judge Cote. “The product is a single product, the blanket license.”

ASCAP Hits Sour Note for Judge

ASCAP's intransigence prompted a remarkable comment from Judge Cote. “I just find ASCAP's litigation strategy interesting,” she told Glancy on the last day of the bench trial. “It's like you have abandoned the field. You chose not to play on the field. ' But I don't know why you would make that choice, why ASCAP would make that choice, and particularly because BMI didn't. Admittedly, I don't need to understand why parties make their litigation choices. That's not my role. But nonetheless, it's hard not to wonder, just as a human being. And I don't know if it's because ASCAP prides itself on being more aggressive than BMI or what it is, but to just not engage ' and not present an alternative for a direct licensing program and the pricing of a blanket license in that context, I just find interesting.”

It's never a good sign when the judge presiding over a bench trial says she doesn't understand your litigation strategy, and, indeed, in her ruling, Judge Cote gave very short shrift to ASCAP's argument that DMX should get no discount from the blanket fee, saying the proposal “can be swiftly rejected” as unreasonable under the terms of the consent decree. She also rejected as unreasonable an alternative ASCAP proposal that acknowledged a carve-out from the blanket fee for DMX's licensing program, but then tacked on “administrative expenses” that essentially offset the discount.

The judge found DMX's proposal that it pay a per-location fee of $13.74, on the other hand, to be reasonable. (The fee is based on a per-location floor fee of $3 and a prorated royalty fee of $10.74 for the 48% of DMX's playlist that is licensed by ASCAP.) And because ASCAP offered no reasonable alternative to DMX's proposal, the judge approved the license fee DMX suggested.

DMX counsel R. Bruce Rich of Weil said: “The court has recognized the benefits of a license formula with ASCAP that permits individual licenses of the type DMX has entered into with more than 850 companies.”

ASCAP counsel Glancy of White & Case deferred to ASCAP for comment, which said in a statement that it “is examining [its] options.”