Class Action Lawsuit Challenges ASCAP, BMI Arbitration Agreements, Says Entities Should be Audited [UPDATE]

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A proposed class action lawsuit aims to challenge the theory that the American Society of Composers, Authors and Publishers—ASCAP—and Broadcast Music Inc.—BMI—owe no fiduciary duty to songwriters, arguing that the major music licensing fee and royalty processors should be audited and their mandatory arbitration agreements ruled void and unenforceable. 

The plaintiffs, songwriter and producer Alexander C. Baker and the LLC of his music-driven animated entertainment entity called “Adam Bravery,” claim in the 57-page lawsuit that ASCAP and BMI, who under the federal Copyright Act fit the bill of 501(c)(3) non-profit “performing rights societies,” should be declared as state actors given the groups were long ago “found [to be] monopolists in federal antitrust litigation.” 

According to the suit, the mandatory arbitration provision wielded by ASCAP and BMI is unenforceable given songwriters are required to sign it as a pre-condition to receive any performance royalties at all. 

The individual plaintiff, a former ASCAP signee who made the switch to BMI in 1999, further claims that the latter, after paying royalties faithfully for over 20 years, “stopped doing so without legal justification, but upon a false and fabricated pretext.” The individual plaintiff’s allegations are tied into a dispute that the lawsuit says arose amid his June 2014 divorce from his wife and business partner with whom he wrote “thousands” of songs. (The lawsuit, found at the bottom of this page, goes into detail on the plaintiff’s claims starting on page 31 in the complaint.) 

From the complaint: 

“For all intents and purposes, any Songwriter who seeks to earn Performance Royalty money must sign with either ASCAP or BMI. Since both entities are operating under an identical Consent Decree, the ‘choice’ of ‘ASCAP vs. BMI’ is a distinction without a difference. Songwriters have no choice. Songwriters must either sign the Writer ‘Agreement’ with ASCAP & BMI, or else not ever collect Performance Royalties. Any Songwriter who refuses to sign with ASCAP & BMI faces economic ruin. For this reason, Songwriters seek a Declaratory Judgment that ASCAP & BMI’s Mandatory Arbitration Agreement is void for economic duress.” 

The defendants have, since well before World War II, entered into contracts with music publishers and writers for the purpose of collecting and distributing performance royalty money, the suit explains. Per the case, performance royalties are “typically the only way a Songwriter can monetize” what they’ve written given they’re neither an artist nor publisher. 

On the defendants’ end, ASCAP and BMI enter into license agreements with music users, such as television networks, radio stations, night clubs and other live and online entertainment platforms where music is heard, the lawsuit says. The defendants, who the suit says each collect roughly $1 billion per year, charge a license fee in exchange for granting the right to publicly “perform” the music written and published by ASCAP and BMI members, the complaint relays. ASCAP and BMI retain that license fee money for a period of time, roughly nine months, per the case, and take an “unknown amount” of those funds for their own operating expenses before distributing the remainder as performance royalties on a quarterly basis, the lawsuit says 

“To the best of Plaintiffs’ knowledge, ASCAP & BMI have never divulged their ‘formula’ by which Performance Royalties are calculated,” the lawsuit reads. 

After ASCAP and BMI were prosecuted decades ago by the federal government for violations of the Sherman Anti-Trust Act, the defendants were thereafter bound by the consent decree that resulted from the United States’ prosecution, the complaint continues. Per the case, the consent decree is periodically negotiated, with the most recent version stemming from 1994. 

That version of the consent decree to which ASCAP and BMI are bound dictates that neither entity has a right to refuse membership to any songwriter with at least one work published, the lawsuit says. Further, the 1994 consent decree, the suit states, also requires ASCAP and BMI to divest all songwriters of their enumerated right to a jury trial, stating, in part: 

“Defendant [ASCAP & BMI] shall include in all contracts which it tenders to writers, publishers and music users relating to the licensing of performance rights a clause requiring the parties to submit to arbitration in the City, County and State of New York under the then prevailing rules of the American Arbitration Association, all disputes of any kind, nature or description in connection with the terms and conditions of such contracts or arising out of the performance thereof or based upon an alleged breach thereof, except that in all contracts tendered by defendant to music users, the clause requiring the parties to submit to arbitration will exclude disputes that are cognizable by the Court pursuant to Article XIV hereof.” 

The plaintiff charges that the mandatory arbitration provision to which songwriters must agree is void and unenforceable because it was signed “under coercion.” According to the lawsuit, ASCAP and BMI have effectively pressured songwriters into agreeing to the mandatory arbitration clause, with no reasonable alternative, as a condition to receiving money that’s rightfully theirs. 

More from the lawsuit: 

“Thus, to earn a living, a Songwriter has no reasonable alternative to ASCAP & BMI. It is either sign ASCAP & BMI’s Mandatory Arbitration Clause, or face economic ruin. This is more than theory or speculation. After collecting royalties upwards of $1 million over the years, Class Representatives Alexander Baker and Adam Bravery LLC are now faced with economic ruin, as a direct and proximate consequence of BMI’s unjustified royalty stoppage. Had Baker never signed the Mandatory Arbitration Clause in the first place, he could not possibly have ever received any of the money he did, and would have been economically ruined long ago.” 

The plaintiffs go on to argue that because no proposed class members were party to the DOJ’s consent decree with the defendants, they thusly could not have agreed to any part of it.

The lawsuit’s January 14 filing came a day prior to a virtual Vanderbilt University Law School event at which outgoing Assistant Attorney General for the U.S. Department of Justice’s Antitrust Division Makan Delrahim said the DOJ had ended its consent decree review for ASCAP and BMI without taking action. According to Billboard.com, this means the agreements that govern how ASCAP and BMI operate “will continue to exist as they are now.” 

The consent decrees were put in place to prevent anticompetitive conduct and determine “sensible” music licensing rates, and required ASCAP and BMI to issue licenses covering all works in their repertories upon request from music users, industry website MusicRow.com wrote in a January 15, 2021 post. Billboard wrote that Delrahim, who tendered his resignation on January 13, acknowledged that while he sees a need to somehow modify the nearly 80-year-old consent decrees governing how ASCAP and BMI operate, the coronavirus pandemic has posed a unique challenge in that the DOJ was prevented from holding in-person meetings to engage in negotiations on how best to modify the consent decrees. 

The suit looks to represent a proposed class comprised of all ASCAP & BMI writer members who signed the standard writer “agreement” and who wish to collect performance royalties but also wish to no longer be bound by the “unenforceable, unconscionable and/or unconstitutional terms and conditions imposed upon them by ASCAP & BMI as a pre-condition.” 

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