What Went Down at the DOJ 

“… last week a former Google lawyer at the DOJ anti-trust division against the recommendation of the US Copyright Office rammed through a 100% licensing rule that effectively brings the last of the “free” songwriters under the consent decree.”  

David Lowery at The Trichordist

“The Department of Justice’s position is arrogance at its worst. The decision fails to address the vitally important issue of terminating or reforming outdated consent decrees, and instead broadly expands its interpretation of existing consent decrees.”

— Rep. Doug Collins (R-GA) —

“… the consent decrees were put in place before the transistor radio was invented. They were never meant to, nor could they envision, existing in a world of iPhones, streaming and instant access to practically all music. Unfortunately, the DoJ went the opposite direction and chose the outcome most harmful to songwriters and the creative community.” 

— David Israelite, President & CEO, National Music Publishers Association —

The internet and tech industries like to evangelize a message that creators’ rights laws are “outdated” because they supposedly stand in the way of innovation and competition.  Of course, if a truly outdated law benefits their bottom line or their business models, then they’re only too happy to promote a message that the status quo must be preserved in the name of competition and innovation.  For instance, rights holders would like to see reform to the 1998 DMCA, while OSPs generally want the law to remain as obsolete and ineffective as it is.  But this general hypocrisy may be best dramatized by efforts to entrench the WWII-era federal consent decrees governing music composition and songwriting.

If only a songwriter could buy food and housing at 1940s prices, maybe this rate structure that now earns pennies on the dollar for millions of streaming plays could somehow be justified.  Instead, composers and songwriters remain shackled to a federal, Rate Court system that began when “Boogie Woogie Bugle Boy” was a new hit—one that could never have anticipated the holistic transformation to the music market produced by innovations like digital streaming. For the past few years, the songwriters and composers have been seeking reform to these licensing regimes in order to adapt pricing regimes that reflect the realities of the new market.  That’s how augmenting legal systems is supposed to work.  But on July 1—just in time for Independence Day as David Lowery pointed out—the Department of Justice recommended that American songwriters weren’t quite hampered enough by their rusty handcuffs. (Remember:  this is about regulating songwriters and composers — not weapons, automobile, or chemical manufacturers.)

Deputy Assistant Attorney General Renata B. Hesse, a former Google lawyer, issued two key recommendations.  The first is that any of the performance rights organizations PROs — ASCAP, BMI, or SESAC—must license 100% of a song for public performance no matter what percentage of the song the PRO legitimately represents.  Historically, when songwriters collaborate who are signatories to different PROs (which has happened thousands of times to produce songs you love), the associated PROs co-manage the rights so that all parties receive royalties accordingly.  On this matter, music attorney and blogger Chris Castle writes …

“… the [Obama] Administration has to ignore the implications to international trade, replace a voluntary licensing doctrine with a government mandate, ignore written agreements between generations of songwriters, and impose untold transaction costs on songwriters without requiring an increase in royalty rates to permit cost recovery.”

The second recommendation from Hesse is to reject songwriters’ and composers’ requests to withdraw their individual catalogs from digital licensing in order to negotiate fair market rates with services like Spotify, Apple Music, or Google.  This independent negotiation already occurs between the digital service providers and labels and artists who are not signatories to the PROs bound by the WWII-era consent decrees.

The real hypocrisy in this recommendation is that the DOJ is rejecting fair market negotiation for one class of artists on the grounds that such a ruling would be necessary to maintain the antitrust rationale for consent decrees in the first place.  But not only is Hesse looking at the 21st century market through an early 20th century lens (the largest PRO, ASCAP, was formed in 1914), but she is failing even to consider that the companies we now need the government to regulate are Apple, Google, Spotify, et al.  It cannot possibly be news to Hesse or anyone else at Justice that the titans of Silicon Valley are the new prospective monopolists of our times.  On the other hand, Chris Castle pulls no punches here when he argues that Hesse is in violation of Obama’s own Executive Order on Ethics because she is “working on antitrust matters for the benefit of Google, her former client.”

Organizations like Public Knowledge that support the recommendations by the DOJ, say that Hesse has acted properly in the service of the public interest.  Arguing that consolidation in the music publishing industry leads to monopolistic control of large catalogs, Raza Panjwani, Policy Council at PK, writes …

“… it’s refreshing to see that, based on reports, it appears that the Department of Justice is once again demonstrating that robust enforcement of antitrust law in the United States can play an integral role in preventing anticompetitive behavior, whether that’s the development of cable monopolies, price fixing in the ebook market, or collusion in an increasingly concentrated music publishing market. In each case, the ultimate winner is the public.”

I have to say, when I look at the many challenges in the world, I’m glad Public Knowledge is there to protect us from the caprice of songwriters.  I know that’s sarcastic, but seriously?  I think we have to admit that consolidation continues in every sector of the American economy and that the major internet players are only accelerating this phenomenon while paying lip service to the virtues of competition. Meanwhile, what sector more than music has been so dramatically warped by black-market forces that pegged the “natural price” for a song at zero?  To pretend that piracy is not still a bargaining chip for legal streaming services when negotiating with songwriters—if the DOJ would be so kind as to let them negotiate—is a disingenuous assessment of the market.

As is typical of our increasingly short-sighted business culture, the DOJ also fails to recognize that its recommendations are self-defeating—that they would act as disincentives to produce, collaborate, and innovate within this community of artists. Just like her former client, it seems that Hesse is too narrowly focused on the exploitation of existing works while failing to imagine the works that may (or may not) be produced in the future.  As such, her recommendations are unfortunately consistent with the digital market’s tendency to cannibalize older investments rather than to support newer ones. Yes, that’s an oversimplification, and the digital market continues to evolve.  But if history teaches us anything, it’s that the new, disruptive companies quickly become the new dominant forces—as willing and able as any to engage in non-competitive practices or to exploit suppliers.  As such, the DOJ’s recommendation to tighten these 75-year-old regulatory bonds on one class of independent (and often invisible) artists seems far less likely to foster competition than they are to further subsidize the free ride for America’s billionaires.

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