The Threat to the New Madison Intellectual Property Approach

By Roger Klein
November 24, 2020

“History will remember Delrahim as one of the most significant figures of this generation for protecting and preserving strong IP rights. But in his final weeks on the job, the Antitrust Division head needs to ensure that his Division doesn’t inadvertently dilute his otherwise near-perfect record.”

https://depositphotos.com/6496641/stock-photo-looking-at-the-opinion-section.htmlMakan Delrahim, the Assistant Attorney General for the Department of Justice’s (DOJ’s) Antitrust Division, has received much-deserved acclaim from fellow intellectual property hawks for his commitment to re-framing the Antitrust Division’s relationship with intellectual property law through a “New Madison” lens. Madison, the founder of the Constitution’s Patent and Copyright Clause, understood the nuanced relationship between the two. Over the last few years, Delrahim has gone to great lengths to restore his vision. It would be a shame if one significant oversight over music industry policy in the coming weeks incites a blemish on his otherwise impeccable three-year track record.

Delrahim’s New Madison Approach: An Overview

Delrahim is correct to suggest that the DOJ (and federal government more generally) has, for some time now, operated under a flawed understanding of its pro-consumer mandate.

Following James Madison’s teachings, antitrust leaders formulated that governing principle to protect the interests of consumers and consumers alone. Inconveniences for competitors were never supposed to factor into the Department’s antitrust decision-making matrix. This is especially true when it comes to their use of intellectual property protections.

Strong IP rights may serve as a temporary barrier to the business interests of competing corporations. That said, patents and copyrights don’t impede innovation, nor do they affect the end products that the American people receive. They foster economic growth by incentivizing inventors of all stripes to continue developing and creating. Throughout his tenure in the Antitrust Division, Delrahim has worked tirelessly to ensure Antitrust Division policy reflects this line of reasoning.

Delrahim’s Misfire on the Music PROs

In working through his New Madisonian approach, Delrahim has, for the last two years, kept a close and watchful eye on the antitrust restraints that govern the nation’s two largest music Performance Rights Organizations (PROs), the American Society of Composers and Publishers (ASCAP) and Broadcast Music Inc (BMI). These two organizations control 90% of music’s public performance rights, meaning that all businesses and event holders that desire to play recorded or written compositions must obtain the licenses from these two companies.

The Department of Justice put ASCAP and BMI under antitrust consent decrees in 1941, which created the blanket licensing system that now underpins the entire music industry.

The Supreme Court explained that the blanket license arose “out of the practical situation in the marketplace: thousands of users, thousands of copyright owners, and millions of compositions.” By allowing all users to purchase a single, fairly priced license that encompasses everything within ASCAP and BMI’s repertoires, this system safeguards businesses from having to negotiate with the world’s tens of thousands of different copyright owners on their own. Importantly, it also prevents ASCAP and BMI from using their market share to price-gouge and restrain access.

The decrees are largely responsible for the wide accessibility and use of music during the industry’s Golden Age. But now, Delrahim appears convinced that change to the ASCAP and BMI decrees is needed. In a video conference that took place just weeks ago, he signaled a desire to modify them before the end of the year. While minor changes might be acceptable, outright weakening of the core protections of these decrees could be catastrophic for the industry.

How Music’s PROs Fit into the New Madison Approach  

A company’s use of IP should not raise antitrust concerns on its own. Still, collectives can still weaponize others’ IP in violation the Sherman and Clayton Antitrust Acts, making them deserving of governmental behavioral remedies for a whole host of reasons.

Although the U.S. government did not formulate the bulk of the nation’s antitrust laws until over a half-century after his passing, Madison — always ahead of his time — understood this concept. In a 1788 letter to Thomas Jefferson, he said that monopolies “are justly classed among the greatest nuisances in Government” and that “the benefit even of limited monopolies is too doubtful to be opposed to that of their general suppression.”

ASCAP and BMI fit into this category. They are prime examples of IP-dependent organizations that are still deserving of antitrust scrutiny and restraints.

These two organizations obtained their 90 percent market share over the industry because independent music publishers combined together rather than competing with one another. Unlike the mere act of holding of patents or copyrights, this is a clear violation of Section 1 of the Sherman Antitrust Act, which reads in part that:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . .is declared illegal.

Artists and composers, which effectively created the IP in question, depend on the existence of these decrees that restrain ASCAP and BMI’s predatory impulses. During virtual remarks he gave at a DOJ event this summer, singer/songwriter Jon Bon Jovi made this clear:

The decrees are in place to protect ASCAP and BMI from using their market power against the small players in the system. And the smallest player, but the single most important in the whole public performance space, is the songwriter. With the existing rules, the system has been working. Songs get licensed, fans get to hear their music, and songwriters ultimately get paid.

ASCAP and BMI collect and distribute the revenue they receive from licensees (businesses and event holders) to the music publishers, who thereby compensate the composers, often the performer. The possible strong-arm tactics that ASCAP and BMI may use in the absence of music consent decrees (or in the presence of weaker ones) may benefit the music elite. However, by increasing costs and limiting access, it won’t benefit the growth and free flow of music that actual creators of music depend on to make a living.

In 2016, the DOJ understood the importance of the music decrees. After an extensive two-year review, it ruled that they “remain vital to an industry that has grown up in reliance on them” and opted not to make any changes to them. Nothing has changed within the industry that should cause it to change its mind today.

Don’t Tarnish a Near-Perfect Record

History will remember Delrahim as one of the most significant figures of this generation for protecting and preserving strong IP rights. But in his final weeks on the job, the Antitrust Division head needs to ensure that his Division doesn’t inadvertently dilute his otherwise near-perfect record by taking counterproductive action with respect to ASCAP and BMI.

Madison would have recognized that comprehensive antitrust policy has a place in the music industry, just as it does in every IP-dependent sector that’s run by collectives that could restrain trade and commerce. Here’s hoping that Delrahim and his team ultimately will as well.

Image Source: Deposit Photos
Image ID: 6496641
Copyright: stuartmiles 

The Author

Roger Klein

Roger Klein , M.D., J.D., is a Policy Advisor to the Heartland Institute and serves as an expert with the Federalist Society’s Regulatory Transparency Project. He is a Faculty Fellow at the Center for Law, Science & Innovation at the Sandra Day O'Connor College of Law at Arizona State University.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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