The Second Circuit on Tuesday ordered a federal judge to recalculate what royalties are owed to a music licensor from the North American Concert Promoters Association, saying the judge had adopted a revenue structure with no precedent in the concert industry without explaining why.

A two-judge panel said in an order that the royalties ordered by U.S. District Judge Louis Stanton to be owed to Broadcast Music Inc. included revenue streams that don't reflect the fair market value of the music at issue and include significant administrative costs.

"The district court did not expressly assign weights to the benchmark agreements it considered but implicitly accorded greater weight to less comparable benchmarks," the order reads. "It relied on agreements with unaffiliated individual promoters even though NACPA has historically obtained significantly lower rates from the same counterparties."

Judge Stanton ruled in March 2023 that BMI deserved higher copyright royalties for live concerts, saying a rate increase and expansion of the gross revenue base was a reasonable update to a longstanding agreement between it and NACPA. As part of that ruling, he said that BMI's request for a tiered rate of .15% to .8% for the retroactive period from Jan. 1, 2014, through June 30, 2018, was reasonable. For the current period, the judge ruled that a .5% rate was reasonable.

The rates ordered by Judge Stanton were unreasonable, the panel said, and he did not explain what economic changes would justify a rate of more than double what NACPA had paid to BMI and the American Society of Composers, Authors and Publishers.

Judge Stanton's expansion of the revenue base had no precedent in the benchmark agreements identified by the parties, of which there were 12, the panel said. All of those agreements defined the revenue base the same way: the face value of concert tickets sold with customary deductions for ticket servicing fees, taxes, facility fees and parking, according to the order. But the judge expanded that definition without addressing "the fact that none of the domestic benchmark agreements the parties identified used anything other than the face value of tickets sold to measure the revenue base," the panel said.

Even if it were acceptable to define a revenue base according to what a consumer pays to go to a concert, Judge Stanton's order does not "conform to that principle," the order said. He included categories of revenue that don't reflect what consumers pay, such as box suites and VIP packages, the panel said.

NACPA had pointed out a problem with including box suite revenues: that they are usually sold through annual contracts for all events hosted at a venue, including sporting events, the order said. Judge Stanton, the panel said, had not addressed the difficult issue of separating live concert revenue from annualized box suite sales in his methodology.

Judge Stanton used an erroneous methodology in the analysis that led him to the .5% rate by applying greater weights to some benchmarks than others, the order said. He also erroneously considered license agreements with non-NACPA promoters and didn't identify significant changes in the live concert industry since BMI and ASCAP's last benchmark agreements were negotiated, according to the order.

Counsel for the parties did not respond to requests for comment Tuesday.

U.S. Circuit Judges Steven J. Menashi and Richard C. Wesley sat on the panel for the Second Circuit.

BMI is represented by Scott Edelman, Atara Miller and Andrew Porter of Milbank LLP.

NACPA is represented by Andrew Gass, Joseph Wetzel, Jennifer Giordano, Sarang Damle, Blake Stafford and Samir Deger-Sen of Latham & Watkins LLP, and Benjamin Marks and Sarah Sternlieb of Weil Gotshal & Manges LLP.

The case is Broadcast Music Inc. v. North American Concert Promoters Association, case number 23-935, in the U.S. Court of Appeals for the Second Circuit.