What Your Craft Brewing Business Needs To Know About Music Licensing


As increasingly more breweries, distilleries, wineries and even farms convert their operations from a more traditional manufacturing and distribution model to a model which incorporates hosting and serving patrons on-site, numerous legal issues arise.  One of those very important but oft-neglected legal issues, for businesses that offer music, whether live, by digital stream or by radio, is the issue of music licensing.

When Is A Public Performance License Required?

Almost all businesses, whether a retail store, spa, restaurant, bar or agri-business, that publicly broadcast music through a radio, digital stream or other means or offer live public performances of music in connection with their commercial activities are required by law to license the music they are broadcasting through a public performance license. This is almost always true even if such music is offered only as background music or as an otherwise subtle enhancement of the business ambiance.

Most of the music that is commonly played live or through the radio is held by a music licensing company (“MLC”), such as the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI) and the Society of European Stage Authors and Composers (SESAC). Most major songwriters and publishers license their music to a MLC so they can be relieved of the burden of having to constantly police the use of their music and calculate and recoup fees related to the licensing of their music. Each MLC then monitors the commercial use of each of the songs it holds and ensures that such commercial use has been properly licensed and paid for by the end-user. MLCs employ field agents to monitor the commercial use of their music at regional and local events, such as festivals and small concerts, to ensure that operators of large and small events, alike, pay the required licensing fees.

Of course, individuals who buy compact discs or download music have the right to enjoy such music for their personal use without the requirement of such licensing. However, the theory holds that commercial enterprises, even if offering such music as background music, benefit monetarily from the use of that music. Thus, the original rights-holders of such music should receive a portion of the revenue that the commercial enterprise reaps as a result of broadcasting such music, even if the use of such music is just a minor factor in the commercial success of the business.
 
How Do Public Performance Licenses Work?

Public Performance Licenses are normally granted for a period of one year and the fees for such licenses are generally based on factors such as ticket sales for live performances or audience size and frequency with which the music is broadcast for businesses such as radio stations and restaurants. For example, an owner of a small bar offering infrequent live performances may opt to purchase a separate license for each public performance. Conversely, an owner of a radio station, which regularly plays a wide variety of songs, will likely opt to purchase a blanket license. A blanket license allows a licensee to make a one-time payment for the licensing of all of the music played by it for the entire year, rather than being burdened by sorting out the licensing issues on a per-song or per-performance basis. Each MLC offers numerous licensing forms so that licensing fees can be calculated appropriately regardless of the circumstances in which the music is broadcast.

Who Bears The Burden Of Acquiring the Public Performance License?

Much of the confusion behind the licensing of publicly broadcast music lies in the question of who is responsible for obtaining the public performance license in the case of a live performance. Too often, because of this confusion, unsuspecting small business owners, such as bar and restaurant owners and owners of farms, which specialize in “agri-tainment”, overlook whether such fees have actually been paid.  This can be a costly mistake. If business owners are caught offering such public performances of music and have not paid the proper licensing fees, they are often forced to pay thousands, sometimes tens of thousands in back fees, penalties and, potentially, attorneys’ fees.

Although the MLCs often pursue the venue hosts for back fees, the law does not specifically delineate who bears the burden of licensing the music. While it might seem commonsensical to many that the band actually performing the music, and not the business owner who simply hired the band, has the burden to pay the licensing fees, the case law states that “it has long been held that one may be liable for copyright infringement even though he has not himself performed the protected composition.” [1]  From this statement, it is clear that the band playing the music is not the only party who may be found liable for copyright infringement as a result of performing such music without the appropriate license. The business owner, too, may be liable.

Further, the Second Circuit has concluded that “one may be vicariously liable if he has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” [2] This is the case “even in the absence of actual knowledge that the copyright monopoly is being impaired.” [3] Thus, it seems clear that anyone who has a direct financial interest in such a public performance and who, has the ability to supervise the infringing activity, regardless of actual knowledge of the infringement – i.e. venue owners, event organizers, production companies, and, potentially, band managers and booking agents – are responsible for ensuring that proper licenses have been obtained.

Despite the wide net that the law casts on those who are even tangentially involved with such public performances, typically, in practice, it is the venue owner who pays such fees; as ultimately it is the party most likely to benefit directly from offering such public performances. Regardless of which party actually obtains the appropriate license, all other parties involved in the performance should ensure that this task has been properly performed.

For that reason, unless the issue is already addressed as a provision in another agreement between the parties, the parties involved with the performance, which most often includes the venue owner, the performer and/or the performer’s manager, should enter into a formal agreement in which they clearly delineate who is responsible for ensuring that the proper licensing is in place, and who will be responsible for the cost of such licensing.  This agreement may also include indemnification and liability provisions, which protect the parties involved in the event they are damaged by the non-performance of the other parties responsible for obtaining such licensing.

Conclusion

Broadcasting music, whether live or through the radio, can be of great financial benefit to businesses, both large and small. However, broadcasting music in connection with one’s commercial activities does not come without risk. Business owners offering public performances of music should ensure that the necessary licenses have been acquired, allowing them to broadcast such music publicly.
 
Businesses offering live performances of music should keep careful records of the songs played by the performers. Additionally, constructing a properly drafted agreement between the business and any third parties involved with the public performance offering, addressing which party bears the burden of acquiring the necessary licenses, among other issues, is a must. Businesses should contact an attorney knowledgeable in the field of music licensing for additional guidance with respect to the public performance of music in their business.

[1] Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1161-62 (2d Cir. 1971).
[2] Id. at 1162.
[3] Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963).

This blog was written by Hank Abromson at Miles & Stockbridge.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.