In re Pandora Media, Inc.

The American Society of Composers, Authors and Publishers (ASCAP), which consolidates music licenses to administer licensing to third parties, operates subject to an antitrust-based consent decree issued in 1941. The controlling version of the consent decree is known as AFJ2. AFJ2 requires ASCAP to grant a performance license to any entity that requests a license. AFJ2 also prohibits price discrimination among similarly situated licensees. ASCAP members must agree to the terms of the consent decree, as implemented through the ASCAP Compendium. Although the ASCAP Compendium can be modified at any time, the compendium is still subject to the 1941 consent decree. In 2011 ASCAP amended the Compendium to allow members to withdraw ASCAP’s right to license the member’s works to new media entities while continuing to allow licensing to older entities. Pandora Media, Incorporated (Pandora) (plaintiff) is an internet-based radio service with licenses for between one and two million songs. Pandora creates customized radio stations for subscribers by allowing them to select a song as the basis for the station, and to further customize the station by allowing users to rate the songs played. Pandora is considered a new media entity under the terms of the ASCAP Compendium amendment. When certain ASCAP members began to withdraw new media rights from ASCAP, Pandora began negotiating direct licensing agreements. Negotiations with Sony/ATV Music Publishing LLC (Sony) were problematic, and Sony demanded that Pandora pay a license fee equal to 12 percent of Pandora’s revenues. The industry average was four percent. Sony’s demand was based on the perceived unfair disparity between the amount to be paid for sound recording licenses, which amounted to 50 percent of revenue, and performance licenses. Pandora also applied in 2010 for a new ASCAP license for the years 2011 through 2015. However, ASCAP did not negotiate the license terms, and when Sony withdrew in September 2012, Pandora filed a rate court petition to determine a license rate. Under time constraints, Pandora agreed to pay Sony five percent of revenues, or an increase of 25 percent over the previous rate. In 2013, the district court held that AFJ2 prohibited ASCAP’s amendment to the Compendium because ASCAP’s members must allow for licensing to any music user requesting a license.