Monthly Archives: March 2014

SESACed Part Deux

Judge Engelmayer (SDNY) has denied SESAC’s motion for summary judgment in the antitrust lawsuit brought by the Television Music License Committee (“TMLC”), in which the TMLC claims that SESAC and its affiliates have violated §§ 1 and 2 of the Sherman Act by combining to unlawfully restrain trade and by conspiring to monopolize the market for the performance rights to the musical works within SESAC’s repertory.  His order can be found here.

The TMLC alleges that SESAC has violated the Sherman Act by (1) removing the incentive for a station to acquire a direct license by offering no fee credit against the cost of its blanket license for music the licensee has separately acquired from the copyright owner; (2) making its per-program license economically non-viable by revising the formula by which the cost for that license is calculated so that it invariably exceeds the cost of the blanket license; (3) promising its key affiliates—composers whose music is so ubiquitous that a station effectively cannot avoid—large upfront payments, and in return requiring these affiliates to enter into supplemental agreements that effectively bar them from offering direct licenses; and (4) refused to disclose the full contents of its repertory to impede stations from making independent licensing arrangements,

A central question to answer is whether local television stations could do without a SESAC license.  Judge Engelmayer concluded they cannot.

For a number of practical reasons, to assure that it has the legal right to broadcast all the music contained in its third-party programs and commercial announcements, a local station generally must acquire licenses from all three PROs.  For one, the sheer volume of music broadcast by a station across its third-party programs makes it likely that this music will draw upon the repertories of ASCAP, BMI, and SESAC. For another, stations are contractually prohibited from altering, removing, or substituting alternatives for, the music embedded in third-party programming.  A station cannot strip out, or excise, music contained within the repertory of a PRO with whom it wishes not to contract. It also may be difficult, or even impossible, for a station to identify, at the time it buys the rights to air a program, all music embedded in that program, let alone the PRO to whose repertory each musical work belongs. … Finally, the alternative sales channel for music performance rights that conceivably might have developed—in which the right to perform embedded music would be secured by the producer and sold to the station along with the third-party program—has not so developed. … But, as a matter of what plaintiffs call “longstanding industry practice,” performance rights to embedded music are generally not conveyed along with the program.

One interesting feature of SESAC’s relationship with certain members is penalties for engaging in direct licenses with licensees.  For example, certain SESAC affiliate’s that received advances or other guaranteed money (sometimes well over $1 million a year) would suffer large monetary penalties for issuing a direct license; e.g., for one composer, the penalty is $500,000 for the first direct license to be issued, with penalties for issuing additional direct licenses escalating to $1 million.  Other SESAC affiliates are required to forfeit to SESAC all royalties obtained under a direct license.  Other SESAC affiliates are required to refer any request for a direct license to SESAC and issue a direct license only if SESAC does not reach an agreement with the affiliate, and then only “at a rate no less than SESAC’s current licensing rates.”  Unsurprisingly, the music of the SESAC affiliates subject to these supplemental agreements is in high demand by television stations, including the composers of music embedded in the programs “Seinfeld,” “Will & Grace, “Less than Perfect,” “Reba,” “Grey’s Anatomy,” “Boston Legal,” “Ally McBeal,” “The Good Wife,” “The Bachelor,” “Ugly Betty,” “In Plain Sight,” “Monk,” “GCB,” and “Medium,”  While the number of composers subject to these special terms is numerically small, “together account for between 43 and 50% of SESAC’s total royalties.”

SESAC attempted to argue that there was no evidence of collusion because its affiliate agreements did not specifically state that SESAC would pool all licenses and only offer a blanket license to licensees.  Judge Engelmayer rejected this arguments as equivalent to arguing that “McDonald’s, to get the point across to customers, needed to state explicitly that it intended to continue in the future to offer the Big Mac.”

Judge Engelmayer’s ruling opens the path for the TMLC’s case to go a jury, which has to be a frightening thought for SESAC, especially on the heels of the ED Pa Report and Recommendation of the Magistrate Judge in the Radio Music License Committee’s antitrust suit against SESAC.  I will be interested to see how this plays out.

 

 

Copyright Equality (Article Review)

I recently read an article by Northwestern Law professor Peter DiCola entitled, “Copyright Equality: Free Speech, Efficiency, and Regulatory Parity in Distribution” 93 Boston University Law Review 1837 (2013) available here.  Prof. DiCola offers an interesting take on the disparity between royalty rates and rate setting standards for different music distribution platforms: these disparities violate the First Amendment.  How does Prof. DiCola reach this conclusion?

Unequal treatment, moreover, threatens freedom of speech and freedom of the press. The distinct features of each distribution technology represent several choices about what content will be available, in what sequence, with what user interface, and so on. For example, the playlists of AM and FM radio are vastly different than the playlists of webcasting services. By allowing some technologies, like traditional and satellite radio, to pay lower royalties, Congress is implicitly favoring the kind of content that those media tend to provide. By treating different media for music distribution unequally, both procedurally and substantively, Congress is shaping the public sphere and implicitly favoring some types of content over others. This violates the principles developed in two lines of First Amendment Supreme Court cases.  Thus, the unequal treatment of the distributors of copyrighted works is not just arcane, bureaucratic, and complicated; it is also inefficient and a violation of free speech values. (page 1842)

Prof. DiCola compares the “distortion of consumers’ choices among [music distribution platforms] … [to] an unjustified tax or subsidy that favors certain firms or industries and disfavors others. One can think of the differential royalty rates in the music industry as analogous to farm subsidies, which have caused an overemphasis on corn and other “base crops.” In the music industry, copyright’s policy on music distribution has had the effect of propping up traditional and satellite radio while hampering webcasting and on-demand streaming. Congress, in short, has been picking winners in the music industry. (page 1841)

Prof. DiCola offers three ways in which these disparities can be reduced:

First, copyright should contain a general performance right in sound recordings to require AM and FM radio to pay royalties to sound recording copyright owners. This legislative change is necessary to achieve parity with all the other music distribution services. Second, Congress should direct the Copyright Royalty Board to determine the sound recording royalty rates for different types of radio – AM, FM, satellite, cable, webcasting, and on-demand streaming – under the same process and based on the same standard. Congress mandating equality of the process would not necessarily produce equal royalty rates, but it would ensure that any deviations from equality are justified. Finally, differences in substantive royalty rates resulting from this process should have a basis in substantial evidence that could survive heightened First Amendment scrutiny. (page 1895)

I found the argument very compelling.