DMX Can Obtain Its Music Through Direct Licenses

After performing-rights organizations ASCAP and BMI lost royalty rate challenges against background music provider DMX Inc. in 2010, they turned to a pair of former U.S. solicitors general to handle their appeals: Gibson, Dunn & Crutcher's Theodore Olson for ASCAP and Wilmer, Cutler, Pickering, Hale and Dorr's Seth Waxman for BMI.

But all that appellate firepower wasn't enough to turn their fortunes around. DMX and its own big-gun litigator, Weil, Gotshal & Manges partner R. Bruce Rich, persuaded the U.S. Court of Appeals for the Second Circuit to affirm the lower court decisions in the consolidated appeal, which stemmed from separate suits filed by ASCAP and BMI in 2006. Broadcast Music Inc. v. DMX Inc., 10-3429.

DMX had adopted a direct licensing plan, and negotiated with musicians and publishers rather than paying for a blanket license from ASCAP or BMI. DMX's licensing pool grew to include more than 850 individual companies, led in size by Sony. Modeling their rate structures after agreements with DMX rival background music company Muzak, ASCAP proposed a royalty rate of $49 per customer location and BMI offered $36 per location.

DMX countered by offering less than $20 per location, claiming ASCAP's and BMI's rates were not reflective of the market. DMX also maintained that ASCAP's and BMI's proposed rates should be reduced based on what DMX paid for its direct licenses. ASCAP disagreed, arguing that such a licensing scheme was precluded by a deal that ASCAP reached with the federal government to settle antitrust claims in 2001.

Writing in June 2012 for a unanimous three-judge Second Circuit panel, Judge Denny Chin held that two lower court judges were correct when they adopted DMX's royalty rate. He found ASCAP's and BMI's proposed rates “did not reflect a sufficiently competitive market.” Chin ruled the rates set by the district courts were reasonable and adequately compensated ASCAP and BMI.

“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,” wrote Chin, who cautioned that ASCAP's and BMI's rates could discourage direct licensing within the music industry.

After performing-rights organizations ASCAP and BMI lost royalty rate challenges against background music provider DMX Inc. in 2010, they turned to a pair of former U.S. solicitors general to handle their appeals: Gibson, Dunn & Crutcher's Theodore Olson for ASCAP and Wilmer, Cutler, Pickering, Hale and Dorr's Seth Waxman for BMI.

But all that appellate firepower wasn't enough to turn their fortunes around. DMX and its own big-gun litigator, Weil, Gotshal & Manges partner R. Bruce Rich, persuaded the U.S. Court of Appeals for the Second Circuit to affirm the lower court decisions in the consolidated appeal, which stemmed from separate suits filed by ASCAP and BMI in 2006. Broadcast Music Inc. v. DMX Inc., 10-3429.

DMX had adopted a direct licensing plan, and negotiated with musicians and publishers rather than paying for a blanket license from ASCAP or BMI. DMX's licensing pool grew to include more than 850 individual companies, led in size by Sony. Modeling their rate structures after agreements with DMX rival background music company Muzak, ASCAP proposed a royalty rate of $49 per customer location and BMI offered $36 per location.

DMX countered by offering less than $20 per location, claiming ASCAP's and BMI's rates were not reflective of the market. DMX also maintained that ASCAP's and BMI's proposed rates should be reduced based on what DMX paid for its direct licenses. ASCAP disagreed, arguing that such a licensing scheme was precluded by a deal that ASCAP reached with the federal government to settle antitrust claims in 2001.

Writing in June 2012 for a unanimous three-judge Second Circuit panel, Judge Denny Chin held that two lower court judges were correct when they adopted DMX's royalty rate. He found ASCAP's and BMI's proposed rates “did not reflect a sufficiently competitive market.” Chin ruled the rates set by the district courts were reasonable and adequately compensated ASCAP and BMI.

“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,” wrote Chin, who cautioned that ASCAP's and BMI's rates could discourage direct licensing within the music industry.