All In or Not at All: Pandora v. ASCAP and the Limits of Partial Withdrawal

The Second Circuit held that ASCAP's consent decree forbids music publishers from selectively pulling their performance rights out of the collective for digital services like Pandora.

In Pandora Media, Inc. v. American Society of Composers, Authors & Publishers, No. 14-1158 (2d Cir. May 6, 2015), the U.S. Court of Appeals for the Second Circuit confronted a structural question at the heart of performance-rights licensing: may a music publisher pull some of its catalog out of ASCAP for digital services while leaving the rest inside the collective? Affirming the ASCAP rate court, the panel held that the answer is no — ASCAP’s governing consent decree does not permit such “partial withdrawals.” The decision preserved the all-or-nothing logic of blanket licensing and set the rate Pandora would pay at 1.85% of revenue.

At a glance

Matter: Pandora Media, Inc. v. American Society of Composers, Authors & Publishers, No. 14-1158
Forum: U.S. Court of Appeals for the Second Circuit, on appeal from the S.D.N.Y. ASCAP rate court (Judge Denise Cote)
Decided: May 6, 2015
Governing instrument: The amended ASCAP antitrust consent decree (AFJ2)
Issue one — withdrawal: Whether publishers may selectively withdraw “new media” / digital performance rights from ASCAP
Issue two — rate: The fee for the Pandora–ASCAP license for 2011 through 2015
Holdings: AFJ2 unambiguously bars partial withdrawals; the rate is 1.85% of revenue

ASCAP is a performing-rights organization: it licenses, on behalf of its songwriter and publisher members, the right to publicly perform musical compositions — the right implicated whenever a song is streamed, broadcast, or played in a venue. Because pooling the performance rights of nearly the entire industry raises obvious antitrust concerns, ASCAP has operated since 1941 under a consent decree with the U.S. Department of Justice, amended in 2001 into the instrument known as AFJ2.

Two features of AFJ2 drove this case. First, ASCAP must grant a license to any music user that applies — the blanket license that lets a service perform ASCAP’s entire repertory. Second, when a user and ASCAP cannot agree on a fee, either may ask the S.D.N.Y. “rate court” to set a reasonable rate. AFJ2 thus converts a private licensing market into a regulated one, with a federal judge as backstop.

The publishers’ gambit and Pandora’s response

By the early 2010s, major publishers had concluded that the rate-court system undervalued their digital performance rights. Sony/ATV, Universal Music Publishing, and EMI Music Publishing sought to withdraw their “new media” rights from ASCAP — keeping the collective for traditional radio and venues, but pulling digital so they could negotiate directly with services like Pandora and command higher fees outside the consent-decree framework. Pandora, anticipating that this selective withdrawal would let publishers extract supracompetitive rates while still using ASCAP’s blanket license as leverage, sought a license covering ASCAP’s full repertory and asked the rate court to resolve both the withdrawal question and the fee.

The rate court, presided over by Judge Denise Cote, sided with Pandora on both. It held that AFJ2 did not permit publishers to license their works to ASCAP for some users but not others, and it set the rate at 1.85% of revenue across the disputed period. ASCAP appealed.

The Second Circuit’s reading: the repertory is indivisible

The appellate panel affirmed. The core of the decision was textual. AFJ2 requires ASCAP to license its repertory to any applicant, and it defines that repertory in terms of the works ASCAP has the right to license at the relevant time. The court read these provisions together to mean that a work is either in the ASCAP repertory — available to every applicant under a blanket license — or it is not. There is no middle category in which a composition is available to bricks-and-mortar licensees but withheld from digital ones.

On that reading, the publishers’ attempted partial withdrawals could not achieve their goal. Because the works had not been fully removed from ASCAP, they remained in the repertory and therefore remained available to Pandora under its blanket license at the rate-court rate. The court concluded that AFJ2’s plain language “unambiguously” precluded ASCAP from accepting partial withdrawals; the partially withdrawn works “remain in the ASCAP repertory.”

The practical effect was to neutralize a strategy designed to circumvent the consent decree’s protective architecture. Publishers could not have it both ways — using ASCAP’s collective machinery for some users while exiting it for the most lucrative digital market.

The rate fight and the conduct that shaped it

On the fee, the court upheld the 1.85% figure. ASCAP had pressed for escalating rates climbing toward 3%, while Pandora had argued for 1.70%; the rate court landed at 1.85%, the same benchmark reflected in certain market agreements. The appellate panel found no error in that determination.

The rate proceeding was also notable for what it revealed about negotiating conduct. The rate court had credited evidence — including reporting on coordinated dealings — suggesting that ASCAP and the withdrawing publishers had not bargained with Pandora at arm’s length, behavior the court treated as undercutting ASCAP’s higher-rate benchmarks. That factual backdrop reinforced the rate court’s selection of a competitive-market figure and helped insulate the 1.85% rate on appeal.

Open questions

Is the answer regulatory rather than judicial? The decision interprets AFJ2 as written; whether publishers should be able to withdraw digital rights is ultimately a question for the DOJ’s consent-decree review, not the courts.
What happens if the decrees are modified or lifted? The holding rests entirely on AFJ2’s text. A revised or sunset decree could reopen partial withdrawal and reshape the rate-court regime.
How transferable is the reasoning to BMI? BMI operates under a separate consent decree with different language, and parallel rate disputes have produced divergent rates — leaving the cross-PRO implications unsettled.

Implications

Blanket means blanket. Under AFJ2, ASCAP’s repertory is all-or-nothing; a publisher cannot license a work to some applicants and withhold it from others.
Consent decrees cabin market power. The ruling preserved the decree’s core protection — guaranteed access at a court-set rate — against an end-run through selective withdrawal.
Negotiating conduct affects rates. Evidence of non-arm’s-length dealing can discredit a PRO’s proposed benchmarks and anchor a lower competitive rate.
Reform pressure shifts to the DOJ. Publishers seeking flexibility on digital rights must look to consent-decree modification, not litigation.
A durable benchmark. The 1.85% rate became a reference point for subsequent digital-performance licensing negotiations.

Frequently asked questions

What is a “partial withdrawal,” and why did publishers want one? A partial withdrawal is an attempt to remove only certain rights — here, digital “new media” performance rights — from ASCAP while keeping the rest in the collective. Major publishers wanted to negotiate digital licenses directly with services like Pandora to command higher fees than the rate court was setting, while still relying on ASCAP for traditional outlets.

Why couldn’t ASCAP simply agree to it? Because ASCAP operates under the AFJ2 consent decree, which requires it to license its full repertory to any applicant. The Second Circuit read that obligation to mean a work is either in the repertory for everyone or out for everyone — leaving no room for ASCAP to accept rights for some users but not others.

How does a mechanical royalty differ from the performance right in this case? A mechanical royalty covers reproducing and distributing a composition (as in downloads and interactive-stream copies). This case concerns the separate public-performance right — the right to perform a work publicly — which ASCAP and BMI license collectively and which the rate courts value under their consent decrees.