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When It Comes to the Music Consent Decrees, Process Is Key

· May 24, 2018

The Department of Justice (DOJ) has begun to enforce its new agenda that includes, among other things, terminating legacy consent decrees under a so-called Judgement Termination Initiative. Its goal is to terminate decrees that “no longer protect competition.” Makan Delrahim, Assistant Attorney General for the Antitrust Division, has indicated another goal for consent decrees — to reduce the use of behavioral remedies. The DOJ is of the view that the antitrust division is a law enforcement agency as opposed to a regulator. Under this premise, DOJ understands that consent decrees that rely heavily on behavioral remedies, remedies that shape conduct, go against the enforcement nature of the agency.

Under this latter goal, Delrahim indicated at a consent decree roundtable that he is considering the possibility of sunsetting the ASCAP and BMI consent decrees that protect the music industry. Whereas the initiative to sunset outdated antitrust settlements is laudable, much more care is needed when dealing with the music consent decrees to ensure that consumers are not harmed with this initiative.

The music industry’s decrees are unique as they are instrumental to the existence of the U.S. music industry as we know it. And, they are the result of the difficulty in trying to match an extremely large number of rights-holders with a large number of music users of varying levels of sophistication. This has created a market where it is better for all parties if music rights are consolidated and offered as a blanket license, so long as those that gather rights do not abuse their position to charge monopoly prices. Terminating these consent decrees without a full process and opportunity for Congress to provide for an alternative would be a mistake and harm consumers.

As CCIA explained in its recent comments to the DOJ, these consent decrees allow normally prohibited coordination in order to make the music market more efficient. These consent decrees are vital for the current functioning of music markets by balancing a complex web of market complications and interests. As I have explained previously [1] [2] [3], even small changes to how these consent decrees are interpreted could produce big effects, including an increase in prices and uncertainty. Completely removing the decrees the industry relies on would almost certainly lead to litigation and market disruption.

The music decrees, if included in the DOJ’s Judgment Termination Initiative, would face the same process as those decrees that are no longer applicable. The DOJ will only announce it plans to seek termination of a decree after it has conducted a non-public internal review. Once a decree is selected for inclusion in the Initiative, it will be announced to the public in batches and the public will only have 30 days to submit comments to the DOJ. At the close of this period, the DOJ will make a final determination and file a motion with the appropriate court to terminate the consent decree. This begins the judicial process in which the public may again have an opportunity to participate.

Unfortunately, this process is insufficient for consent decrees, like the music consent decrees, on which there is longstanding reliance by industry participants. The allotted 30 day comment period that is planned for the “legacy” decree program simply won’t cut it. The DOJ examined the music decrees just four years ago and it took the DOJ until the end of 2016 to conclude that process. This two year review concluded in a 22-page statement that not only should the consent decrees not be changed, they should be interpreted to maximally protect licensees from improper gaming and to maximize benefits to consumers. During this process, the DOJ sought two rounds [1] [2] of public comments and received over 370 comments combined.

The music consent decrees have established a market that is a quasi-regulated monopoly. If DOJ considers based upon this fact that regulation should not come from consent decrees but rather from Congress, then Congress should be allowed to participate in any decision to remove these decrees. If these decrees must be eliminated, then Congress should first have new protections ready to immediately take their place. This would require significant process from Congress as well, and the timing is poor.

The Senate is poised to pass a package of music bills, the Music Modernization Act, AMP Act, and CLASSICS Act, that marks a bipartisan and industry-wide compromise on many important issues plaguing the music industry. The House has already passed its own version of this music omnibus and there is a very good chance a final bill will hit President Trump’s desk this year. The Congressional process in passing these bills is mostly complete, and represents a huge lift by Senator Orrin Hatch and Representative Bob Goodlatte. The passage of these bills will certainly add to their legacy. Not only is it a little late to add another complicated fix into these bills, but the Music Modernization Act directly references and modifies the consent decrees as part of the compromise among interested parties by requiring random assignment of judges in “rate court” proceedings. Terminating the decrees will serve to throw the proverbial monkey wrench into Congress’s efforts to update music licensing.

Due to the importance of the decrees to the music industry, DOJ should consider a much more detailed process, along with communication with Congress, before making any determination on whether the music consent decrees should be terminated. However, while the music industry may look like a Gordian Knot, simply slicing through it is ill-advised. Proper process will allow the market and Congress opportunity to participate and prepare for an alternative solution so that a termination of the decrees won’t pull the rug out from under the industry and harm consumers.

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