SESAC Antitrust Case Gets a Green Light

The interworkings of performance rights societies are fascinating only to those of us cursed with the responsibilities of negotiating or litigating against them.  However, an antitrust case against SESAC has the makings of a very interesting story.

In 2009, the local television industry filed an antitrust case against SESAC alleging both §1 (combination in restraint of trade) and §2 (monopolization) violations of the Sherman Act.  The local television stations argue that SESAC’s insistence on only issuing a blanket license is a violation of the Sherman Act because the local television stations receive much of their content “in the can” — meaning they cannot remove SESAC songs from their programming.  SESAC moved to dismiss under FRCP 12(b)(6) for failure to state a claim.  Judge Naomi Buchwald of the SDNY denied SESAC’s motion.

In what will excite antitrust wonks and bore the rest of us, Judge Buchwald decides the threshold definitional question of “what is the relevant market?” with an analysis of the “contract power” argument from Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3rd Cir. 1997).  SESAC sought to define the relevant market as public performance rights to all musical works in the SESAC, ASCAP and BMI repertory, even though SESAC has a very small percentage of the overall market.  Because local television stations sign contracts with program producers that forbid them from removing SESAC songs, SESAC argued that these contracts created the problems of which the local television stations complained, not SESAC’s insistence on issuing a blanket license.

Queen City and its progeny stand for the proposition that a “relevant market” can’t be defined by the contractual relationship that gives rise to the antitrust-plaintiff’s claims.  By way of example, in Hack v. President and Fellows of Yale College, 237 F.3d 81 (2d Cir. 2000), unmarried freshman and sophomores below the age of 21 sued Yale for its practice of requiring freshman and sophomores to live on campus.  There the Second Circuit concluded that but for the contract between Yale students and Yale College, the students could have purchased housing from any seller in New Haven, CT.  In other words, where “an antitrust defendant’s alleged market power arises solely from a contractual provision limiting a plaintiff’s ability to purchase a product in what would otherwise be a competitive market” there is no antitrust violation.

In this case, however, Judge Buchwald concluded that the relevant market was the SESAC repertory because while the contracts that the local television stations signed with program producers forbid them from removing any songs (including SESAC works), those contracts did not require that they purchase the public performance rights only through a SESAC blanket license.  Having defined the relevant market, Judge Buchwald then discusses the numerous (unsuccessful) antitrust cases against ASCAP and BMI on which SESAC relied in further claiming that it was immune to antitrust scrutiny.  There, Judge Buchwald noted that in each case those decisions were reached only after a fully trial on the merits and not at the pleading stage.  She also noted that ASCAP and BMI operate under consent decrees that prohibit some–if not all–of the actions of which the local television stations complain.

I really hope this goes to trial as I am fascinated to see what comes out in discovery.

The opinion is below:
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