Category Archives: SESAC

SESAC’d Post Script

The antitrust case brought by the Television Music License Committee against SESAC detailed here previously has been settled.  SESAC agreed to pay the TMLC members $43mm as damages (i.e., excessive royalty fees) and $16mm in legal fees.  The papers are below.

 

TMLC v SESAC (Memo Re Settlement)

TMLC v SESAC (Settlement Agt)

SESACed (the saga continues)

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:

 

RMLC v SESAC Antitrust Decision

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.

 

 

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.

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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