Pandora Opens A New Box Of Copyright Issues

For users of the popular Pandora Internet Radio website, the day the music dies has been delayed for at least a few more years. That’s thanks to U.S. District Court Judge Denise Cote of the Southern District of New York, who earlier this month saved the music service from being stripped of its rights to play songs owned by major record companies Sony/EMI, Warner, Universal, and BMG. It’s a case showing that the ever-shifting legal landscape regarding online music consumption is still in many ways tied to the Golden Age of Radio.

For those who aren’t familiar (and if you’re a music fan, definitely check it out), Pandora works by playing songs that correspond to a general type of music or artist that the user selects. The listener can give positive or negative feedback for each song that plays, allowing the site to narrow its selections to songs that the listener is more likely to enjoy. Along the way, links are provided so that users can easily buy the songs or albums from online retailers. Combined with its popular streaming service and mobile app, this nifty little audio experiment has turned into big business: Pandora reportedly has more than 150 million registered users and is valued at $2.6 billion, having pulled in $427.1 million in revenue is Fiscal Year 2013.

Not surprisingly, the music-publisher bigwigs want to grab that cash with both hands and make a stash. Pandora gets a bunch of their tunes through a five-year blanket license, attained in 2011, with the American Society of Composers, Authors, and Publishers (ASCAP), a performing rights organization. So later that year, Sony/EMI took away ASCAP’s right to license its music to “new media,” i.e., money-making Internet innovators such as Pandora. That brought Pandora crawling into the negotiation room, and last year an separate licensing agreement was reached with Sony/EMI. Smelling the blood in the water, Warner, Universal, and BMG then announced that they, too, were yanking ASCAP’s new-media licensing rights. Same old song and dance.

Rather than have their content held hostage by each individual record company, Pandora got up, stood up – stood up for their rights in federal court (with apologies to Bab Marley), arguing that their license with ASCAP wasn’t affected by the later “new media” restrictions imposed by the publishers. The case turned on a long-standing consent decree that resulted from a U.S.D.O.J. antitrust lawsuit alleging monopolization of performing-rights licenses. Reached in 1941 – a time when, if Pandora had existed, its most popular playlists would have included Glenn Miller’s “Chattanooga Choo Choo” and Jimmy Dorsey’s “Amapola” and “Green Eyes” – the decree restricts how ASCAP may issue licenses.

The record companies argued Pandora’s license to use ASCAP’s “works” could be limited by ASCAP’s rights to the songs. On summary judgment, Judge Cote disagreed, finding that the consent decree gave Pandora a license to use all of the “works” in ASCAP’s repertory, regardless of any “new media” restrictions claimed by music publishers: “[T]he ‘ASCAP repertory’ is defined in terms of ‘works’ and not ‘individual rights’ in works with respect to classes of potential licensees” – i.e., the compositions themselves, not just the legal rights attached to them. If the songs are in ASCAP’s catalogue, she held, the organization had no ability to restrict which songs Pandora could or could not use.

Result? Gotta let the music play… for the time being, at least. Under the decree’s rate-dispute procedures, Judge Cote will still have resolve disagreements between Pandora and ASCAP about the reasonableness of ASCAP’s licensing fees; that trial is set to begin in December, with Pandora alleging that it can’t sustain a profit under the current cost. And, of course, new play-pretty-much-anything-you-want-to-at-any-time online services such as Spotify still threaten to put Pandora in the same grave as cassette tapes.

This blog post was prepared in collaboration with a former New York University film student, and Chris Mincher, an STSW litigator and former Washington editor of The Onion and The A.V. Club. For questions related to this post, contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or bsinclair@silvermanthompson.com