Looks like Pandora is about 6.25% of total US music revenue.
A recent order from Judge Jones in the Eastern District of Pennsylvania provides SESAC some much needed relief, but SESAC still faces a difficult trial. Readers will recall that the RMLC brought Sherman Act claims against SESAC for allegedly anticompetitive behavior. Specifically, the RMLC alleged three violations:: § 1—Horizontal Price Fixing (Count I), § 1—Group Boycott/Refusal to Deal (Count II), and § 2—Monopolization (Count III). In response, SESAC filed a motion to dismiss. Judge Jones threw out the § 1 claims, but denied SESAC’s motion regarding the § 2 (monopolization) claim.
In analyzing SESAC’s motion to dismiss, the court concluded that the RMLC’s “§1 and §2 claims are based on the confluence of four of SESAC’s licensing practices: SESAC’s blanket license (and its refusal to offer other licensing options), its procurement of a critical mass of must-have works, its de facto exclusive dealing contracts with its affiliates and its lack of transparency as to the works in its repertory.” Breaking down the 3 alleged violations, the court looked first at the § 1 claims (price fixing and refusal to deal) and concluded that the RMLC had failed to adequately plead a violation.
A hub-and-spoke conspiracy requires agreements between each spoke and the hub and between and among each of the spokes themselves. Howard Hess Dental Labs., Inc. v. Dentsply Intern., Inc., 602 F.3d 237, 255 (3d Cir. 2010) (“In other words, the ‘rim’ connecting the various ‘spokes’ is missing.”). After reviewing the allegations of agreement and the parties’ respective briefs, the court has concluded that plaintiff has failed to allege sufficient facts from which the court can draw a plausible inference of a hub-and-spoke conspiracy between and among SESAC and its affiliates. In particular, the court agrees with defendants that plaintiff has failed to plead the rim of a hub-and-spoke conspiracy by failing to plausibly allege agreements among SESAC’s affiliates.
Turning next to the § 2 claim (monopoly), the court considered that “Plaintiff alleges that SESAC excludes competitors by obtaining a critical mass of must-have works, selling them exclusively in the blanket license format, discouraging direct licensing by refusing to offer carve-out rights and obscuring the works in its repertory.” The court found the RMLC had “sufficiently pleaded that SESAC’s lack of transparency exacerbates the exclusionary nature of its conduct by forcing radio stations to purchase the SESAC license even if they do not plan to perform the songs in SESAC’s repertory for fear that they may unwittingly air copyrighted content.” Looks like this claim is going to be decided by a jury…
The order is below:
An interesting lawsuit was recently filed by a group of radio stations over the digital retransmissions of terrestrial broadcasts. VerStandig Broadcasting filed a declaratory judgment action against sound recording performance royalty collection society SoundExchange over a specific exception in the Copyright Act that limits the exclusive public performance right in sound recordings to be exclude retransmissions of AM/FM broadcasts within 150 miles of the original over-the-air transmission. Specifically, Section 114(d) limits the scope of a copyright owner’s exclusive right in the public performance of sound recordings by means of a digital audio transmission.
The performance of a sound recording publicly by means of a digital audio transmission, other than as part of an interactive service, is not an infringement … if the performance is part of … a retransmission of a nonsubscription broadcast transmission: Provided, That, in the case of a retransmission of a radio station’s broadcast transmission … the radio station’s broadcast transmission is not willfully or repeatedly retransmitted more than a radius of 150 miles from the site of the radio broadcast transmitter … . 17 U.S.C. § 114(d)(1)(B)(i).
VerStandig claims that when Congress created the retransmission exception, “geo-fencing” technology, which is technology that “determines a recipient’s physical location by comparing a receiving computer’s IP address, WiFi and GSM access point, GPS coordinates, or some combination against a real world map of those virtual addresses,” wasn’t available to limit the recipients of AM/FM broadcasters’ retransmissions. According to VerStandig, “When data is geo-fenced, only recipients physically located within the authorized locations can access the data over the Internet. Recipients who are physically located outside the geo-fence who attempt to access the data over the Internet receive a message explaining that the data is unavailable.” Today, according to VerStandig, “Geo-fencing is a proven technology. It is used by the gaming industry to restrict access to online gambling to recipients physically located in jurisdictions where gaming is legal. And it is used by marketers for the direct advertising of products to persons physically located in targeted markets.”
VerStandig sent SoundExchange a letter notifying SoundExchange of VerStandig’s intention to stop paying royalties on performances of retransmissions within 150 miles of the original transmission. SoundExchange apparently responded by stating that “the 150-mile exemption applies only ‘to retransmissions of broadcasts by cable systems to their subscribers or retransmissions by broadcasters over the air’ and that if the 150-mile exemption ‘did apply to [VerStandig’s] proposed simulcasting’ [VerStandig] would nevertheless need to pay royalties for copies or reproductions of the sound recordings in the FM broadcasts that it live streams.”
With respect to the first argument, the Senate Report on the Digital Performance in Sound Recordings Act appears to reject this conclusion. The Senate Report says
Section 114(d)(1)(B)(i) (retransmission of radio signals within 150-
mile radius of transmitter)
Under this provision, retransmissions of a radio station within a
150-mile radius of the site of that station’s transmitter are exempt,
whether retransmitted on a subscription or a nonsubscription
basis, provided that they are not part of an interactive service.
This provision does not, however, exempt the willful or repeated
retransmission of a radio station’s broadcast transmission more
than a 150-mile radius from the radio station’s transmitter. The
Committee recognizes that the 150-mile limit could serve as a dangerous
trap for the uninitiated or inattentive. To ensure against
that possibility, section 114(d)(1)(B)(i) provides that a retransmission
beyond the 150-mile radius will fall outside the exemption
only if the retransmission is willful or repeated. The Committee
intends the phrase ‘‘willful or repeated’’ to be understood in
the same way that phrase was used in section 111 of the Act, as
explained in the House Report on the 1976 Act, H. Rept. 1476, 94th
Cong., 2d sess. 93 (1976).
Pursuant to section 114(d)(1)(B)(i)(I), the 150-mile limitation does
not apply when a nonsubscription broadcast transmission by an
FCC-licensed station is retransmitted on a nonsubscription basis by
an FCC-licensed terrestrial broadcast station, terrestrial translator,
or terrestrial repeater. In other words, a radio station’s broadcast
transmission may be retransmitted by another FCC-licensed broadcast
station (or translator or repeater) on a nonsubscription basis
without regard to the 150-mile restriction.
In addition to appearing to generally support VerStandig’s position, the highlighted language appears to capture TuneIn and iHeartRadio’s aggregation of simulcast transmissions. As I understand it, the bulk of listening of retransmitted terrestrial broadcasts on services like iHeart are people listening to their old home-town station in their new town; e.g., I can listen to KDKA from Pittsburgh here in Oakland.
With respect to SoundExchange’s second argument (i.e., needing a license to make reproductions), this may run head-long into a very interesting fair use defense. If Congress intended radio broadcasters to retransmit digitally their analog signals without paying a royalty under Sec. 114, could Congress have intended for the record labels to be able to demand a royalty (or sue for statutory damages for copyright infringement) for making ephemeral copies under Sec. 112? My gut tells me that can’t be what Congress intended, but that might not matter is the law is otherwise unambiguous on this point.
The Complaint is here.
As readers of this blog will recall, aging rockers Flo & Eddie filed three separate lawsuits alleging that Sirius XM has infringed certain state- or common law copyrights of a class of owners of sound recordings fixed prior to 1972. Sirius XM has filed a motion to transfer the California case, which was transferred from state to federal court, and the Florida case to the Southern District of New York. While this legal maneuver is relatively uninteresting, the motion does indicate at least one defense that is likely to feature prominently in this and the related case filed by the so-called “major” record companies, – titled Capitol Records, LLC et al. v. Sirius XM Radio Inc., No. BC520981 – in California state court raising similar issues: laches.
Laches, an equitable defense based on the doctrine of estoppel, is the unreasonable delay in pursuing a right or claim that prejudices the opposing party. According to Sirius XM’s motion,
Plaintiff apparently has become aggrieved by the distinction drawn by Congress in withholding copyright protection from its Pre-1972 Recordings; thus now, after decades of inaction while a wide variety of music users, including radio and television broadcasters, bars, restaurants and website operators, exploited those Pre-1972 Recordings countless millions of times without paying fees, it asserts a purported right under the law of various states to be compensated by Sirius XM for comparable unlicensed uses. Plaintiff’s multiple court filings constitute a form of lawsuit lottery in search of an elusive new state-law right that would radically overturn decades of settled practice.
The laches defense raises a number of interesting issues. For example, since at least the late 1980s, almost all terrestrial radio stations have used digital copies stored on servers to originate performances; i.e., the days of “disc jockeys” spinning vinyl have been gone for decades. Presumably, under Flo & Eddie’s complaint, these terrestrial radio broadcasters needed a license to make copies of Pre-72 recordings and, potentially, to perform them.
Terrestrial radio stations have been simulcasting performances over the internet for nearly 20 years, presumably implicating the right of performance by digital audio transmission that Flo & Eddie allege exist under certain state laws for Pre-72 recordings. Has SoundExchange, which collects and distributes royalties under certain statutory licenses for the public performance of sound recordings by digital audio transmission, been collecting royalties from these terrestrial radio broadcasters and remitting such payments to Pre-72 artists? Because federal copyright doesn’t apply to Pre-72 recordings, if SoundExchange were collecting such royalties it would owe the terrestrial radio simulcasters a refund. If SoundExchange hasn’t, why hasn’t Flo & Eddie sued terrestrial radio?
Flo & Eddie will undoubtedly respond that they had no way of knowing that they weren’t getting paid by Sirius XM until the most recent Copyright Royalty Board proceeding, at this pre-72 recordings were a significant issue.
[The allegations raised by SoundExchange against Sirius XM that Sirius XM was inappropriately deducting revenue from its royalty calculation to account for Pre-72 recordings are inapplicable in the context of a per-song royalty, where each Pre-72 recording can be identified and appropriately excluded from royalty calculations. Per-song royalties have existed since at least 2008.]
The motion is here.
It’s been a tough few weeks for satellite radio service Sirius XM. On August 1, former Frank Zappa bandmates Mark Volman and Howard Kaylan (a/k/a Flo & Eddie), who performed together as The Turtles since 1965 and are most known for the song “Happy Together,” sued Sirius XM in California state court over the alleged unauthorized reproduction, distribution and public performance of The Turtles sound recordings. Then, on August 15, Flo & Eddie sued Sirius XM in New York federal court over the same allegations. In both cases, Flo & Eddie seek to represent a class of similarly situated plaintiffs. In the California case, Flo & Eddie allege damages exceed $100,000,000.00. Finally, on August 26, SoundExchange sued Sirius XM in the federal district court for the District of Columbia over alleged underpayments of sound recording performance royalties. SoundExchange alleges that Sirius XM owes tens of millions of dollars in underpaid royalties.
At issue in each case is an anomaly of the protection of sound recordings in the Copyright Act. While musical works have been protected by federal copyright since 1831, sound recordings did not enjoy any federal copyright protection until 1972. In 1971, as technology advances made it easier for people to make unauthorized copies of records (think peer-to-peer file sharing in the physical world), Congress extended copyright protection to sound recordings, but only with respect to the exclusive right to reproduce and distribute and only for sound recordings “fixed” on or after February 15, 1972 (sound recordings fixed prior to that date are typically referred to as “pre-72”). There are a variety of reasons why Congress decided not to grant copyright protection to all sound recordings (e.g., apply the right retroactively), but one reason was the lobbying of the record industry, which claimed that applying federal copyright protection to pre-72 recordings would cause havoc on music industry agreements written before federal protection existed.
State law protection for pre-1972 sound recordings is a complicated subject. State protection of pre-1972 sound recordings is a patchwork of criminal laws, civil statutes and common law. Early cases relied principally on unfair competition to protect sound recordings from unauthorized duplication and sale. By the 1950s, record piracy had become a serious problem, with pirates openly competing with record companies. For that reason, in the 1960s, states began to pass laws making it a criminal offense to duplicate and distribute sound recordings, without authorization, for commercial purposes. New York was the first such state in 1967; California was the second, in 1968.
In addition to the criminal penalties, some states have statutes that provide civil remedies. Section 980(a)(2) of the California statute is a good example:
The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior sound recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.
The most notable case in recent years involving pre-1972 sound recordings was Capitol Records, Inc. v. Naxos of America, Inc. At issue were recordings of classical music performances originally made in the 1930s. Capitol, with a license from EMI, the successor of the original recording company, remastered the recordings, and was distributing them in the United States. Naxos obtained the original lacquer masters and restored the recordings in the UK, where they were in the public domain, and began marketing them in the United States in competition with Capitol. Capitol sued in federal court for unfair competition, misappropriation and common law copyright infringement. The district court granted summary judgment to Naxos because the recordings were in the public domain in the UK, where they were originally recorded.
When that decision was appealed, the U.S. Court of Appeals for the Second Circuit concluded that New York law was unclear in some important respects and certified the question of state law to the New York Court of Appeals. The New York Court of Appeals accepted the case, and held that foreign sound recordings remain protected under “common law copyright” in New York until 2067, even though they may be in the public domain in their home country. The court explained that a common law copyright claim in New York “consists of two elements: (1) the existence of a valid copyright; and (2) unauthorized reproduction of the work protected by copyright.” It went on to state that “[c]opyright infringement is distinguishable from unfair competition, which in addition to unauthorized copying and distribution requires competition in the marketplace or similar actions designed for commercial benefit.”
In 2009 Congress asked the Copyright Office to investigate the appropriateness of extending federal copyright protection to pre-72 recordings. In December 2011, the Copyright Office released its report, entitled Federal Copyright Protection for Pre-1972 Sound Recordings, in which it recommended that federal copyright extended to pre-72 recordings. As the Copyright Office noted in that report,
“Until 1995 there was no public performance right in sound recordings under federal law, and it does not appear that, in practice, pre-1972 sound recordings had such protection. The current right provided by federal law applies only to digital audio transmissions (not to broadcasts) of copyrighted sound recordings. It is possible that a state court would entertain a claim for unfair competition or common law copyright infringement if, for example, it were faced with a claim that pre-1972 sound recordings were being made available through internet streaming, particularly if it were persuaded that the use was substituting for purchases of the plaintiff’s recording. But no such case has yet arisen.”
Well, now such case has arisen. There are significant issues yet to be resolved, not the least of which is how you certify a class of potential plaintiffs whose sound recordings were fixed over several decades under different recording contracts. More importantly, Sirius XM will have a host of available defenses (affirmative or otherwise) that courts—including the Supreme Court—have recently suggested need to be considered as part of the class certification process.
For example, in the on-going dispute over Google’s digitization of books, the Second Circuit recently delayed class certification to consider Google’s alleged fair use defense.
Putting aside the merits of Google’s claim that plaintiffs are not representative of the certified class—an argument which, in our view, may carry some force—we believe that the resolution of Google’s fair use defense in the first instance will necessarily inform and perhaps moot our analysis of many class certification issues, including those regarding the commonality of plaintiffs’ injuries, the typicality of their claims, and the predominance of common questions of law or fact, see Fed. R. Civ. P. 23(a)(2), (3), (b)(3). See, e.g., FPX, LLC v. Google, Inc., 276 F.R.D. 543, 551 (E.D. Tex. 2011) (denying plaintiffs’ request for class certification “because of the fact-specific inquiries the court would have to evaluate to address [defendants’] affirmative defenses [including fair use of trademarks]”); Vulcan Golf, LLC v. Google Inc., 254 F.R.D. 521, 531 (N.D. Ill. 2008) (“The existence of affirmative defenses [such as fair use of trademarks] which require individual resolution can be considered as part of the court’s analysis to determine whether individual issues predominate under Rule 23(b)(3).”); see also Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 n.12 (1978) (“Evaluation of many of the questions entering into determination of class action questions is intimately involved with the merits of the claims. The typicality of the representative’s claims or defenses . . . and the presence of common questions of law or fact are obvious examples.” (quotation marks omitted)); Castano v. Am. Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996) (“[A] court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.”); cf. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2561 (2011) (holding that “a class cannot be certified on the premise that [a defendant] will not be entitled to litigate its statutory defenses to individual claims”). Moreover, we are persuaded that holding the issue of class certification in abeyance until Google’s fair use defense has been resolved will not prejudice the interests of either party during the projected proceedings before the District Court following remand. Accordingly, we vacate the District Court’s order of June 11, 2012 certifying plaintiffs’ proposed class, and we remand the cause to the District Court, for consideration of the fair use issues.
Even assuming a class can get certified, there are still significant issues facing the plaintiff, including, but not limited to, whether a public performance right exists in state common law, how to measure damages in the absence of the statutory remedy available under federal copyright, and the scope of individual state courts over out-of-state “infringements.”
I ran across the below article by Carly Olson, a 3L at Northwestern, about DMX’s rate proceedings against ASCAP and BMI. Ms. Olson wisely (and prophetically) concludes that the Second Circuit should affirm the district court opinions in DMX’s favor. I couldn’t agree more. And, thankfully, neither could the Second Circuit!
Check out the article here.
It’s been a bad few weeks for ASCAP. First, the Second Circuit affirmed Judge Cote’s decision in the MobiTV rate case. Now, the Second Circuit has affirmed Judge Cote again, this time in the long-running rate dispute with DMX. Adding insult to injury, the Second Circuit affirmed Judge Stanton’s decision in DMX’s rate dispute with BMI in the same opinion, which is provided below.
The BMI appeal was relatively straightforward–it argued that the direct licenses into which DMX had entered with music publishers for the right to publicly perform works in the publisher’s repertory wasn’t a reasonable benchmark for fee-setting. BMI argued Judge Stanton should have used BMI’s agreement with Muzak, which was at a much higher rate, as the benchmark. The Second Circuit disagreed with BMI (and agreed with Judge Stanton) that
The [direct licenses were ] not an unreasonable benchmark for DMX’s per-location licensing fees with ASCAP and BMI. It reflected the competitive market, was an appropriate valuation of the right to publicly perform the licensed musical works, and was consistent with the four factors that guide the selection of a benchmark (a comparable right, similar parties, similar economic circumstances, and whether the rate would be set in a sufficiently competitive market). … The right in question — the right to public performance — was comparable. The parties were also similarly situated. Hundreds of music publishers and administrators agreed to the annual $25 per location royalty pool, and thus, the ASCAP rate court did not err in finding that the “collective decisions [of hundreds of publishers and administrators] to execute direct licenses [were] comparable to the decision [a PRO] makes in entering a license.” … While the economic circumstances of direct licensors differ from those of ASCAP and BMI, these differences were balanced by the additional compensation that PROs received under the district court’s rate formulas and “the degree of competition that the direct licenses inject into th[e] marketplace.” … Accordingly, in both cases, the district court did not err in finding that, for rights to publicly perform licensed musical works, direct licenses were more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs on BG/FG music providers. (Internal citations omitted)
This holding, that direct licenses are more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs, will have far-reaching implications for licensors and licensees beyond DMX and the background music industry.
The Second Circuit quickly dispensed with ASCAP’s contention that it was not required under its consent decree to offer an adjustable fee blanket license, holding that ASCAP’s consent decree (“AFJ2”) “permits blanket licenses subject to carve-outs to account for direct licensing, and we reject ASCAP’s claim that a blanket license with an adjustable carve-out conflicts with the AJF2.”
In affirming Judge Cote’s rejection of ASCAP’s fee proposal, the Second Circuit noted that “based on the testimony of ASCAP’s Chief Economist, it was not clearly erroneous for the district court to find that a static carve-out structure was anti-competitive and “inequitable” because it would effectively require DMX to pay more in total licensing fees and create incentives for DMX to abandon its direct licensing campaign.”
While some have declared Clear Channel’s deal with Big Machine as “groundbreaking” and “unprecedented,” the truth is that DMX and its rate court proceedings against ASCAP and BMI laid the foundation for Clear Channel’s deal. All Clear Channel did was apply DMX’s model to terrestrial radio and webcasting.
The Second Circuit’s opinion is below
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In the first appeal of an ASCAP rate proceeding under Judge Cote, the Second Circuit has affirmed the District Court’s decision.
The case is interesting for several reasons. First, as noted, it is the first rate decision of Judge Cote to be appealed. The last rate decision of Judge Connor, the former SDNY judge who managed the ASCAP docket, the Yahoo! case, was recently remanded. Second, the parties offered two vastly different views of the value of the through-to-the-audience (TTTA) license ASCAP provided. In the proceedings in the District Court, ASCAP contended that it was entitled to over $41 million in fees for the period between 2003 and 2011. Mobi contended that it owed only $301,257.99 for the period from November 2003 to July 2009. Third, Judge Cote did not attempt to fashion her own reasonable rate. Instead, she rejected ASCAP’s proposed fee proposal and generally adopted MobiTV’s fee proposal. The result of Judge Cote adopting MobiTV’s proposal was a judgment setting a fee of $405,000 for the period from November 2003 through March 2010.
The Second Circuit’s decision is below:
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The Ninth Circuit, in an unpublished opinion, has affirmed a Central District of California’s granting of summary judgment in favor of music publishers whose works were publicly performed without proper license. Range Road Music, Inc. v. East Coast Foods, Inc., 10-55691 (9th Cir., January 12, 2012). The facts of the case are straightforward and similar to hundreds of other cases publishers bring against small businesses each year for unlicensed public performance. In May, 2008, an investigator visited Roscoe’s House of Chicken & Waffles in Long Beach, California. The investigator heard a band perform at least 4 songs and a DJ play another 4 songs from CDs. Roscoe’s failed to obtain the necessary public performance licenses to perform these songs and the publishers filed suit for copyright infringement.
The defendants in this case, East Coast Foods, Inc. and Herbert Hudson, argued that the allegedly infringing performances actually occurred at The Sea Bird Jazz Lounge, which is located at the same address but operated as a separate business and owned by a separate company, Shoreline Foods, Inc.. Hudson, the sole officer and director of East Coast Foods and President of Shoreline Foods, was sued in his individual capacity.
The plaintiff publishers argued that East Coast Foods and Hudson were vicariously liable for the copyright infringement that occurred at The Sea Bird. A defendant can be vicarious liable for copyright infringement if he “exercises the requisite control over the direct infringer and … derives a direct financial benefit from the direct infringement.” (at p. 5). The District Court found that Hudson, as the sole officer and director of East Coast, did control the premises where the infringing performances occurred and did derive a financial benefit through the sale of food and liquor and was, therefore, vicariously liable for the copyright infringement that took place at Roscoe’s / Sea Bird.
In total, the District Court awarded the plaintiff publishers $203,728.22, which included $4,500 for each of the 8 infringements ($36,000) and attorneys’ fees and costs in the amount of $167,728.22. Because he was found vicariously liable, Mr. Hudson is personally responsible for satisfying the entire $204,000 judgment.
The Ninth Circuit opinion is here:
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The District Court’s granting of summary judgment is here:
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The District Court’s award of fees is here:
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