The Shadowy Underworld of Music Licensing

By Z. Peter Sawicki & James L. Young
 
A copyright owner has a bundle of controlling rights in the copyrighted work, including the right to make copies and derivative works, and the right to distribute, transmit and display the work. These rights also include performance rights that provide another means for generating revenue, in addition to selling the original work or copies of the original work. Performance rights are especially important in the music industry when the music is used in public performances.

For music, performance rights come into play any time copyrighted music is played in a public venue. What does this mean to you, the business attorney? Well, if your client operates a facility (e.g., a store) and music is played there, the copyright owner has a right to be compensated for that performance. This includes music being played through a radio at a coffee shop, music being played by a band during a parade, and music being played by a yoga instructor. Any time music is played publicly, the copyright owner has a right to compensation for that public performance. This is the case even if your client purchased the CD and is playing it though its stereo system.

The Good
A copyright owner does not have the resources it takes to determine each time a song is played publicly. In response, organizations (called performance rights organizations – PROs for short) have come into existence. PROs provide blanket licenses to shop owners, parade organizers and yoga instructors. The money collected is then distributed to the copyright owners. This is not a simple process – the public performance royalty collection system is extremely complicated.

The Players
Shortly after the 1909 Copyright Law was enacted, the American Society of Composers, Authors and Publishers (ASCAP) was created. ASCAP first tabulated the publication of printed sheet music and then began tracking the sales of recordings. As new performance formats have been created such as music videos, ASCAP has evolved to track and collect performance revenue from those sources. ASCAP has over 500,000 members (e.g., copyright owners such as artists, composers and publishers).

Broadcast Music Incorporated (BMI) was created in 1939 because of dissatisfaction with ASCAP, which was ignoring certain segments of the music industry, and due to what some felt were monopolistic practices including price-fixing. BMI currently has over 650,000 members.

SESAC is a third, much smaller PRO organization. Recently, Bob Dylan and some other well-known music owners switched to SESAC, and SESAC has suddenly become a much larger player, with about 30,000 affiliated writers.

Other players have also come onto the scene such as Muzak, Ringling Brothers Circus, Disney on Ice and others. Each of these has its own special license, which has further complicated the operations of small business owners who play music in their facilities.

The Bad
Any organization that allows music to be performed or broadcast publicly and that fails to buy a license is at risk of being sued by one or more (and perhaps all) of the PROs on behalf of music copyright owners. How do the PROs find out about such public performances? Enforcers! All three PROs have field agents who, through newspapers, radio and surfing the Internet, become aware of businesses who do not have licenses with their organization. When a new nightclub starts offering live music, an agent will either show up or write a letter demanding money in exchange for a license.

The Ugly
ASCAP has lawyers who do virtually nothing else but successfully represent it against bar owners and business owners. Legal precedent in such actions has been well established over the years and so far, no one has been able to win a lawsuit against ASCAP for copyright infringement by public performance. Even Google (YouTube) had to pay millions.

The business owner essentially has no choice but to pay, and probably to pay all three PROs. Each PRO will demand a license and ignore the other PRO licenses. Many business owners who have refused to enter into such licenses have been sued for copyright infringement and then also end up having to pay the PRO’s attorney’s fees (in addition to copyright infringement damages).

There are some statutory exceptions to public performance copyright infringement. For example, a “small” facility using six speakers, of which no more than four are in one room (and meeting some other criteria), may be exempt. However, PROs often ignore these exceptions and demand licenses anyway.

With the explosive growth of the entertainment industry and the creation of the new formats for playing music, these three PROs have collected over $2 billion and their power in the industry has only increased.

The situation is complex and it is stacked in favor of the copyright owners. As Mark Twain once said, ”Only one thing is impossible for God: to find any sense in any copyright law on this planet.”


Mr. Sawicki & Mr. Young are shareholders at Westman, Champlin & Koehler. Pete & Jim both have over 30 years of experience obtaining, licensing, evaluating and enforcing patents. Each has also developed an extensive practice regarding the clearance, registration, licensing and enforcement of trademarks. They work closely with clients to understand their values and business plans, and to provide customized and effective strategies for intellectual property asset procurement, growth, management and protection. To contact Z. Peter Sawicki call (612) 330-0581 or James L. Young at (612) 330-0495. Please email them directly at psawicki@wck.com or jyoung@wck.com.