The U.S. Court of Appeals for the Second Circuit ruled Monday that a district court imposed unreasonable licensing rates in *Broadcast Music, Inc. v. North American Concert Promoters Association*, reversing key portions of a 2023 decision that would have increased fees paid by concert venues.
The Second Circuit held that the district court's rate-setting methodology and expanded definition of "gross revenues" lacked legal foundation, marking a victory for the North American Concert Promoters Association (NACPA) in its challenge to higher licensing fees.
Broadcast Music, Inc. (BMI) operates as a performing rights organization that licenses musical works to venues and broadcasters. Due to BMI's substantial market share, the company operates under a decades-old antitrust consent decree that requires it to charge reasonable licensing fees and allows courts to determine appropriate rates when parties cannot reach agreement.
The dispute arose during negotiations for licensing periods covering 2014-2018 and 2018-2022, when BMI and NACPA failed to agree on both the rate percentage and the revenue base used to calculate fees. NACPA has historically purchased blanket licenses covering BMI's entire musical repertory, allowing artists to perform any songs in BMI's catalog at concerts and venues.
For the first time in the parties' relationship, BMI petitioned the U.S. District Court for the Southern District of New York to resolve the impasse. In 2023, the district court accepted BMI's proposed rate quote for the 2014-2018 period and established a rate of 0.5 percent of NACPA's gross revenues for the 2018-2022 period.
Crucially, the district court also expanded the definition of "gross revenues" to include revenue streams not previously counted in the calculation base. This expansion would have significantly increased the total fees paid by concert promoters, as the percentage rate would apply to a broader range of income sources.
NACPA appealed both the rate determination and the revenue base expansion, while BMI filed a cross-appeal challenging the district court's denial of its motion for prejudgment interest on the licensing fees.
Circuit Judges John Wesley and Steven Menashi, writing for a two-judge panel, concluded that the district court erred in its rate-setting approach. Judge Beth Robinson, originally assigned to the panel, recused herself and took no part in the decision.
"We conclude that the district court imposed unreasonable rates," the Second Circuit wrote. The appeals court specifically criticized the district court's adoption of "a definition of the revenue base that had no precedent" in prior licensing disputes.
The ruling represents a significant development in music industry licensing, as it affects how courts should calculate reasonable rates under BMI's consent decree. The decision impacts not only BMI and NACPA but potentially other music licensing negotiations where rate disputes require judicial resolution.
BMI's consent decree, entered decades ago to resolve antitrust concerns about the company's market dominance, requires that licensing fees be reasonable and provides a mechanism for court intervention when private negotiations fail. The decree serves as a key safeguard against potential monopolistic pricing in the music licensing market.
Concert promoters and venue operators rely on blanket licenses to legally use copyrighted music at events. Without these licenses, venues would need to secure individual permissions for each musical work performed, making live music events economically impractical.
The Second Circuit's decision suggests that courts must carefully justify any expansion of revenue bases used in licensing fee calculations, particularly when such expansions lack precedent in prior cases or industry practice.
The ruling may prompt renewed negotiations between BMI and NACPA, as the parties now must determine appropriate rates within the framework established by the appeals court. The decision also provides guidance for future licensing disputes involving BMI and other music industry participants.
While the Second Circuit found the district court's rates unreasonable, the appeals court did not immediately establish alternative rates. Instead, the decision appears to require reconsideration of the rate-setting methodology and revenue base definition.
The case highlights ongoing tensions in the music industry over licensing fees, as streaming services, concert venues, and other users of copyrighted music negotiate with performing rights organizations that control vast catalogs of musical works.
Both parties may consider further appeals or petition for Supreme Court review, though such requests face high bars for acceptance. More likely, the case will return to the district court for reconsideration of the licensing rates under the appeals court's guidance.