Monthly Archives: January 2014

Warner Seeks Settlement with Artists over Digital Royalties

Plaintiffs’ class action counsel filed papers on Tuesday asking Judge Seeborg of the Northern District of California to approve the settlement of the class of recording artists to whom Warner allegedly underpaid royalties for digital download sales by applying the ‘sales’ rate structure instead of the more artist-friendly ‘license’ rates, relying on F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010), in which the 9th Circuit concluded that Eminem was entitled to a 50% royalty for digital downloads under the ‘license’ language in his recording contract.

The settlement comprises a retrospective (limited to the statute of limitations on copyright claims of 3 years) and prospective aspects.

Retrospectively, artists will receive their pro-rata share of a fund Warner will establish $11.5mm (less the $2.8mm the lawyers will take home) based on that artist’s percentage of revenue generated by Warner by digital downloads, which the parties stipulated is $381,510,000.  So the artists are getting their prorata share of about 3% of the revenue Warner generated from downloads.  I’d call that a win for Warner.

Prospectively, class members that file the appropriate paperwork will receive up to a 5% bump in royalty rate, however, no artist will see her royalty rate exceed a ‘Royalty Cap’ of 14% nor see her royalty rate fall below the Royalty Floor of 10%.  Given that Eminem got 50% from Universal under the F.B.T. case, I’d call this another like a win for Warner.

The motion for approval of settlement can be found here.

SESACked

Magistrate Judge Lynne Sitarski of the Eastern District of Pennsylvania has issued her report and recommendation regarding the motion for preliminary injunction filed by Radio Music License Committee (RMLC) against performing rights organization (PRO) SESAC, Inc., seeking to prevent SESAC from instituting a rate increase during the pendency of the RMLC’s antitrust suit against SESAC for violations of Secs. 1 and 2 of the Sherman Act.  While Mag. Judge Sitarski denied the RMLC’s motion, the RMLC is probably still thrilled with her R&R.

I described here the antitrust suit filed by the local television broadcasters against SESAC for antitrust violations.  That suit was filed in the Southern District of New York and has SESAC’s motion for summary judgment pending.  A companions case was filed by the RMLC in the Eastern District of Pennsylvania.  In that case, the RMLC sued SESAC for violations of Sections 1 and 2 of the Sherman Act.  Specifically, Section 1 claim, “an antitrust plaintiff must plead the following two elements: (1) that the defendant was a party to a contract, combination … or conspiracy and (2) that the conspiracy to which the defendant was a party imposed an    unreasonable restraint on trade.”  Section 2 of the Sherman Act by using “de facto exclusive contracting practices to create a market artificially insulated from competition.” “Liability under section 2 requires: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

When SESAC sought to increase the royalty rate applicable to RMLC member stations for CY 2014, the RMLC filed a motion for preliminary injunction to block the rate increase.  Ultimately, Judge Sitarsky concluded that remedies in the form of monetary damages could make the RMLC whole (if the RMLC is successful at trial) and denied the motion for an injunction.  In reaching her decision, however, Judge Sitarsky indicated she thinks the RMLC has established a prima facie case of a likelihood of success on the merits.

A key part of her reasoning was the inability of RMLC-member stations to license around SESAC because the exact scope of SESAC’s repertoire is unknown (some might say ‘hidden’).  This opacity around catalog information is important for at least two reasons.  First, not knowing what is within and without the SESAC repertoire impact Judge Sitarsky’s analysis of the applicable ‘market’ against which the RMLC’s antitrust allegations will be directed.

According to Judge Sitarsky:

The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” Queen City Pizza v. Domino’s Pizza, 124 F.3d 430, 436 (3d. Cir. 1997) (cited cases omitted). Interchangeability implies that one product is roughly equivalent to another for the use to which it is put. Id. When assessing reasonable interchangeability, factors to be considered include price, use, and qualities. Id.. Reasonable interchangeability is usually present when there is “cross-elasticity of demand” between the product itself and the substitutes for it.  Cross-elasticity of demand is present when the rise in the price of a good would cause the demand for substitutable goods to increase.

Because stations “cannot substitute non-SESAC performance rights for SESAC performance rights if SESAC charges above-competitive license fees,” Judge Sitarsky concluded that the “RMLC has produced sufficient evidence to make a prima facie showing that the relevant product market is the market for SESAC’s blanket license.”

This lack of transparency is also important to the court’s determination that direct licensing was an option for RMLC-member stations.  For example, Judge Sitarsky differentiated the SESAC case from the case involving CBS’ antitrust claims against ASCAP and BMI of the 1970s and 80s.

The instant case is distinguishable from CBS I because the SESAC blanket license is the sole source of the performance rights that radio stations need. This is because radio stations are unable to obtain a bundle of direct licenses acquired on an individual transaction basis for the music in SESAC’s repertory because they cannot determine what such a bundle  would entail. That is: only SESAC knows each and every song that comprises its repertory.

the inability of radio stations to conclusively determine what songs are SESAC songs precludes them from obtaining individual licenses from the composers, and foregoing a SESAC license. In other words, a SESAC blanket license is not reasonably interchangeable with a bundle of direct licenses permitting the use of SESAC’s repertory because the individual songs in SESAC’s repertory cannot be conclusively determined. While SESAC permits direct licensing by its affiliates, it is the entire bundle that a radio station needs to avoid infringement, and what constitutes the entire bundle is unknown.

Because the access to direct licenses was a key determination in the US Supreme Court that the ASCAP and BMI blanket licenses weren’t antitrust violations, this conclusion of Judge Sitarsky, if adopted by the District Judge, could have significant impact on whether SESAC’s blanket license can survive antitrust scrutiny.

Judge Sitarsky’s report and recommendation is here.

Santa Claus Is Comin’ To EMI

In 1934, John Frederick Coots and Haven Gillespie wrote the song “Santa Claus Is Comin’ to Town.”  They conveyed the copyright to Leo Feist, Inc., a prominent music publisher at the time.  The copyright in the song was covered by the 1909 Act, which provided for a 28 year initial term followed by a second 28 year renewal term.  In 1951, Coots and Gillespie entered into a new agreement granting Feist the renewal term, such that when the original term ended in 1962, Feist remained the copyright owner for the renewal term (until 1990).  Coots’ heirs claim the song still generates $1mm per year in royalties, in which they share 25% (half of the half of the writers’ share).

The 1909 Act has been extensively amended over the years, beginning in 1976.  Two significant changes involve (1) the duration of copyright and (2) the rights of authors to terminate transfers.

With respect to copyright duration, the 1976 Act provided for a term of 75 years for all works created before January 1, 1978, which would include Santa Claus Is Comin’ to Town.  In 1998, the Sonny Bono Act the term was extended another 20 years, meaning Santa Claus Is Comin’ to Town enjoys a 95 year term–from 1934 to 2029.

The 1976 Act completely changed the way in which authors could regain control of their works.  Rather than 2 separate terms, the 1976 Act has a single term, but a right to terminate any transfer after a certain period of time.  For works created before January 1, 1978, Sec. 304(c)(3) of the Act provides for termination of any transfer of copyright ownership “can be effected at any time during the period of five years beginning at the end of the fifty-six years from the date the copyright was originally secured, or beginning January 1, 1978, whichever is later.” In this case, 56 years after 1934 is 1990.  Because the Bono Act extended the term of copyright by another 20 years, there is a second termination provision in Sec. 304, which allows for termination to be effected “during a period of 5 years beginning at the end of 75 years from the date the copyright was originally secured.”  But only where the author had not previously exercised a termination right.

Importantly, Sec. 304(c) has a recordation formality: a copy of any notice of termination must be recorded with the Copyright Office “before the effective date of termination, as a condition to its taking effect.”

On September 24, 1981, pursuant to Section 304(c), Coots sent Feist a notice to terminate the 1951 Agreement, selecting October 23, 1990 as the effective date of termination.  On November 25, 1981, Coots’ attorney, M. William Krasilovsky sent the 1981 Notice to the Copyright Office for recordation.  For you collectors of copyright trading cards, William Krasilovsky is the author of This Business of Music (now in its 10th edition), one of the most respected books on the music industry.  However, on May 7, 1982, the Copyright Office sent Krasilovsky a letter, stating, “[p]ursuant to our telephone conversation of March 1, 1982, we are returning [the 1981 Notice] to you unrecorded.” Only Krasilovskywas copied on the letter. The 1981 Notice was never later recorded with the Copyright Office.

On April 6, 2004, Gloria Coots Baldwin, Patricia Bergdahl, and Christine Palmitessa (Coots’ heirs) sent EMI, which had purchased Feist, a termination notice (the “2004 Notice”), pursuant to Section 304(d) seeking to terminate Coots’ transfer effective in 2009 (1934 plus 75 years),  EMI filed a motion for summary judgment on the grounds that (a) the 1981 termination was ineffective because the notice was never recorded in the Copyright Office and (b) the 2004 notice was ineffective because it was a second attempt to terminate a transfer, which Sec. 304(d) does not allow.  Judge Scheindlin of the Southern District of New York agreed with EMI and granted its motion.  Her decision is here.