The following comes from music industry attorney Steve Gordon, whose career experience includes Sony Music in-house counsel. Gordon’s upcoming book, The Future of the Music Business: Fourth Edition, will be released in May.
As I previously reported, Irving Azoff is now threatening to sue YouTube in what his lawyer says could be a “billion” dollar lawsuit. Azoff is trying to create the fourth US performing rights organization (PRO) and has demanded that YouTube take down 20,000 songs in which he claims his company, Global Music Rights (GMR), controls exclusive public performance rights. But as I pointed out in my prior article, because of restrictions in ASCAP and BMI’s deals with their writers and in their membership rules, it is subject to question whether GMR has the rights that Azoff claims it has.
However, new information has come to light that makes it seem much more likely that Azoff can indeed enforce his threats. That’s because, according to knowledgeable sources, the existing licenses with ASCAP and BMI may be “interim” and not final licenses.
Under the Consent Decrees governing ASCAP and BMI, music users are authorized to perform any of the songs in the ASCAP and BMI repertories, upon their request for a license and pending the negotiation of a final license agreement (also referred to as a “license-in-effect”) or a determination of a reasonable fee by the respective “Rate Courts.” Such temporary license grants are typically referred to as “interim” licenses and are not deemed final or licenses-in-effect.
If GMR acquired rights in some of those 20,000 songs during a time that ASCAP and BMI had only interim licenses with YouTube, it’s possible that YouTube may not rely entirely on its ASCAP and BMI licenses for songs withdrawn by GMR’s writers.
Indeed, it is not unusual for a PRO to have only an interim license with any particular potential licensee. ASCAP and BMI, in particular, may have financial incentives not to enter into a final license quickly. That’s because they operate under Consent Decrees, and under those Decrees ASCAP and BMI can enter into protracted negotiations without worrying about whether they will be paid for the period of time that those negotiations continue. Ultimately, they will be paid retroactively.
And what happens if there’s an impasse? Under the Consent Decrees, either the PRO or the potential licensee can haul the other into “Rate Court” if they can’t reach an agreement on rates. At that point a federal judge will determine the rate after the parties’ attorneys present their cases. But when the final license goes into effect, it’s retroactive. That means the licensee has to pay ASCAP or BMI, as the case may be, for any period of time prior to the execution of the final license that the licensee used their music.
That may be the reason, if my sources are correct, that neither ASCAP nor BMI have final licenses with YouTube – they are probably holding out for higher rates than YouTube wants to pay. And they are in no rush to sue YouTube in Rate Court because such a move would cost a fortune in legal fees.
But if ASCAP and BMI only have interim licenses with YouTube, that could be a fatal chink in YouTube’s armor against Azoff’s GMR.
Here’s why: If ASCAP and BMI do not have final licenses in place with YouTube, and Azoff ‘s writers removed their songs from their repertoires, YouTube may not have the authority to play those songs. The reason is that if there are no pre-existing final licenses or “licenses-in-effect” between ASCAP and BMI on the one hand and YouTube on the other, ASCAP and BMI may not have the right to continue to license those songs to YouTube.
As to songs left parked at ASCAP and BMI, YouTube is not at risk because the interim licenses include those songs. But in regard to the songs that Azoff’s writers took with them, it seems that GMR could indeed start a humdinger of a lawsuit! Maybe even one that’s worth more than a billion dollars since statutory damages for willful copyright infringement are potentially $150,000 per song.