from the incredible dept
Yet, in the last few years, we've been covering the incredible and bizarre legal fight between ASCAP and Pandora, which has seen ASCAP stoop to amazing lows. You can read some of the basic background in some of our previous posts. A key part of this was that the major labels, key members of ASCAP, suddenly started "dropping out" of ASCAP in order to do licensing directly. At first we thought this was a sign of how the labels might be realizing that ASCAP was obsolete and out of touch, but it has since become clear that these "removals" were all something of a scam to force Pandora into higher rates.
What happened was that ASCAP and Pandora had first negotiated a higher rate than Pandora had agreed to in the past -- reaching a handshake agreement. However, before that agreement could be finalized, these labels started "withdrawing" from ASCAP in order to negotiate directly. As part of that, both ASCAP and the labels refused to tell Pandora which songs had been withdrawn, meaning that if Pandora accidentally played one of the withdrawn songs (again, without knowing which songs were withdrawn), it would face massive copyright infringement liability. With its back to the wall, Pandora was forced to agree to much, much higher rates with those labels who had "withdrawn" their songs -- and then those labels magically put their songs back in ASCAP... and then ASCAP claimed that those newly "negotiated" deals represented "true market" deals, and argued that in an open market, it deserved those kinds of crazy high royalty rates. Pandora pointed out that this pretty clearly violated the antitrust decree against ASCAP -- an argument that Pandora won in the first round.
The case is moving forward, and many more details have been revealed, highlighting just how slimy ASCAP and the major labels have been about this. It makes it quite clear that the "withdrawals" were never actually about the labels withdrawing their music from ASCAP, but what certainly looks like collusion to have labels "withdraw," put a gun to Pandora's head, get them to agree to massively higher rates to avoid a lawsuit, and then feed that info back to ASCAP, which would continue "managing" the songs, even though they had been "withdrawn."
This comes clear in Paul Williams' deposition. Given that all these major labels were apparently "withdrawing" all of their digital rights, you might think (1) that ASCAP would be upset since it was losing all its key labels and (2) that Williams might look at reducing the cost of his licenses, since apparently they would no longer have all these important songs. Not so. From the trial transcript, here's Pandora's lawyer explaining how Williams responded when they asked him about it at his deposition:
"Did you ever consider that ASCAP could charge a lower price and try to get more people to use the works left in ASCAP rather than have users use the higher priced EMI repertoire?"On top of that, it details how, even as these labels were "withdrawing," representatives from those very same labels/publishers still sat on ASCAP's board. As for that issue of the labels and ASCAP refusing to reveal what songs were being withdrawn, more evidence has come out during the case, showing that this was all part of the plan between the labels and ASCAP. In fact, they joked about it over email, which has now come out. During the opening, Pandora's lawyer told the story of Pandora seeking information about what songs were being withdrawn by Sony.
"Answer: Never once did that occur to me."
In other words, it was all about raising the rates. It was not about competition.
Your Honor, by the time Pandora asked for this information on November 1st, both ASCAP and Mr. Brodsky [Sony Executive VP] had in their possession this very list. The deposition testimony from ASCAP was that this list as is could have been delivered to Pandora within 24 hours were it only to get the go-ahead from Sony to do so. ASCAP never received the go-ahead.There's a lot more in there, but it seems abundantly clear that these labels "withdrawing" from ASCAP had nothing to do with competition or market rates. It appears that it had little to do with even withdrawing from ASCAP. Instead, it seems to have been designed from the start to basically screw over Pandora, in what certainly smells an awful lot like collusion, by forcing Pandora to pay exorbitant rates or suddenly face a massive copyright liability because no one would tell them what songs were being "withdrawn" from an existing licensing agreement. Then, ASCAP and the other labels could turn around and use those "agreements" pretending they represented a "market rate" to argue for higher rates at the Copyright Royalty Board, which is supposed to try to come up with a "market rate" for various licenses (even though the high rates were supposed to have a confidentiality agreement tied to them).
We cited much of the internal back-and-forth on this in our briefs... My favorite is the following exchange between Mr. DeFilippis and Mr. Reimer of ASCAP on December 19th, 2013, PX 193. You see the question being asked by Mr. DeFilippis: why didn't Sony provide the list to Pandora?
Mr. Reimer's response: Ask me tomorrow.
Mr. DeFilippis: Right. With drink in hand.
And the inference here is just incredible. This data was sitting there, your Honor, and nobody was willing to give it to Pandora.
Considering ASCAP's previous antitrust problems, this certainly looks... incredibly sketchy. And then it's ASCAP going around claiming that Pandora is somehow trying to game the system? The whole thing is incredible, and paints a really nasty looking portrait of the highly questionable games that ASCAP and the major labels/publishers played to try to force ridiculously high licenses on Pandora by setting up fake competition, and putting a gun to Pandora's head.
ASCAP has often come across as sleazy in the past, but the details coming out at this trial take it to a whole new level.