Tag Archives: Antitrust

Rdio Fights Back

Rdio is pushing back against Sony in Rdio’s bankruptcy case. You may recall that Sony has sued 3 former Rdio executives for fraud in relation to Rdio’s sale to Pandora and Chapter 11 filing. Rdio has hired Winston Strawn to investigate whether Sony conspired with other record labels to fix prices in the subscription streaming service market. According to the attached motion filed in N.D. Cal. Bankruptcy Court, Rdio “believes that Sony and Orchard have engaged in anticompetitive conduct to fix and control prices and unreasonably restrain trade for the licensing, marketing, and use of music by services, like the Debtor, for the digital streaming of music to consumers worldwide.” The bankruptcy code provides fairly broad discovery for debtors to investigate creditor claims, so Rdio might actually be able to get some documents out of Sony. As the first major interactive service to go belly up, this may be the opening salvo in Sherman Act claims against the labels.

 Sony has engaged Glenn Pomerantz from Munger Tolles, who represented SoundExchange in Web IV.


Rdio v Sony re MFNs by Christopher S. Harrison on Scribd

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 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.



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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