UMG’s Motion for Summary Judgment
Global Eagle’s Response
Judge Wu’s Tentative Order
Judge Wu’s Supplemental Order
UMG’s Motion for Summary Judgment
Global Eagle’s Response
Judge Wu’s Tentative Order
Judge Wu’s Supplemental Order
ESPN recently initiated a rate proceeding with performing rights organization BMI. ESPN claimed that the rate BMI was seeking was above market and asked the federal district court for the Southern District of New York, which has continuing jurisdiction over the consent decree between BMI and the Department of Justice to determine “reasonable” rates. BMI has responded (attached below) and claims it is simply asking ESPN to continue paying the same percentage of revenue rate to which it agreed 10 years ago.
BMI claims that ESPN utilizes a BMI blanket license to cover so-called “incidental and ambient” music performances, such as in broadcasts of live sporting events; e.g., at Heinz Field the Pittsburgh Steelers sometimes play Styx’ “Renegade” during commercial breaks when the Steelers are on defense to “hype” the crowd. If the Steelers are on Monday Night Football and ESPN breaks back to the game before “Renegade” has stopped playing, for the purpose of music copyright licensing ESPN has “performed” that song, for which it must have a license. This is true even though Heinz Field already has its own license to perform that song to the fans sitting in the stadium to watch the game. In a bit of litigation hyperbole BMI argues that “ambient stadium music is a critical component of the broadcast that allows ESPN to attract viewers by making them feel like they are sitting in the stadium cheering on their favorite team.” How can something that is “ambient” (e.g., “as ignorable as it is interesting”) also be a “critical component” of a broadcast?
So how much does BMI want ESPN to pay for this ambient but “critical component”? $15 million per year. That figure is the product of ESPN’s annual revenue ($11b in 2014) multiplied by 0.1375%, the lowest rate among the rates charged for cable television broadcasts (“music intensive” programming networks pay 0.9% of gross revenue, “general entertainment” programming networks pay 0.375% of gross revenue, and “news and sports” programming networks pay 0.1375% of gross revenue.).
However, in 2005, the last year of ESPN’s prior license with BMI, ESPN’s annual revenue was “just” $5b. 1 This is one of the problems with a percentage of revenue royalty rate: while it may be that ESPN viewed its “incidental and ambient” music performances on live broadcasts of sports to be “worth” $6.875mm annually, it does not mean that those same performances are “worth” more than twice that amount. This is especially true at a time when ESPN’s revenues are declining rapidly and content acquisitions costs are increasing. 2
BMI’s answer is below:
The Copyright Office (“CRO”) recently released what it called a response to a letter of inquiry by Rep. Doug Collins entitled “Views of the United States Copyright Office Concerning PRO Licensing of Jointly Owned Works (the “Views”),” which is provided below. For myriad reasons, this “response” appears to be totally contrived. For example, Rep. Collins sent his letter of inquiry on Tuesday, January 12, 2016. The CRO responded on Friday, January 29th – a mere 13 working days later. During these 13 days, the CRO was apparently able to (i) reach out to a sizeable number of PROs and music publishers, review potentially dozens of (confidential?) agreements between publishers and songwriters 1, and (iii) write 29 single-spaced pages of text supported by 153 footnotes! Within 4 business days of receiving this response for the CRO, Rep. Collins apparently had the idea that the Department of Justice might benefit from the CRO’s thoughts–given that the DOJ has been reviewing the consent decrees under which ASCAP and BMI operate, including the issue of whether these decrees require ASCAP and BMI to grant “100%” licenses to songs, even when the ASCAP or BMI-member songwriters are co-writers that control less than 100% of the underlying copyright in the musical work (so-called “fractional” licensing; songs for which the underlying copyright is “split” among two or more co-writers are sometimes referred to as “split works.”). The DOJ provides details of its investigation of the ASCAP and BMI consent decrees here: https://www.justice.gov/atr/antitrust-consent-decree-review-ascap-and-bmi-2015.
As is obvious from the sarcasm-laden prose above, I am highly skeptical that the above “facts” occurred as they appear. If you think my suspicions are misplaced, consider that just two weeks before the Views were released, the CRO released a report on the so-called “making available” right. That report was written in response to a letter of inquiry that was sent to the CRO by then Representative Mel Watt on December 13, 2013; i.e., while the CRO was able to draft a response to Rep. Collins in 13 working days, it labored for 801 calendar days to respond to Rep. Watt!
Even assuming the CRO miraculously crafted the attached in 13 days, it still suffers from fundamental flaws that make it completely unhelpful to the discussion of whether the blanket licenses that ASCAP and BMI offer — under requirements of their respective consent decrees — do and should provide 100% licenses to split works.
For example, the CRO begins by stating that “the fractional licensing of jointly owned musical works—a longstanding practice of the music industry—went unquestioned as a background fact by the many stakeholders who participated, including both licensors and licensees.” (Views p. 2). There are at least two significant problems with this statement. First, several of the citations in support of this “fact” appear to be taken wildly out of context.
Likewise, Spotify does state that “Although the Copyright Laws provide that a nonexclusive licensee of a co-author of a joint work may not be sued for copyright infringement, custom and practice in the music industry has developed such that each co-author of a musical work only licenses its proportionate share in the underlying work.” (Comments Submitted in Response to U.S. Copyright Office’s March 17, 2014 Notice of Inquiry at 4 (May 23, 2014), available at http://copyright.gov/policy/musiclicensingstudy/comments/Docket2014_3/Spotify_USA_Inc_MLS_2014.pdf). Spotify’s quote, however, is in the context of its explanation of why fractional licensing is bad and why Sec. 115 of the Copyright Act should be amended to create a blanket license under which 100% licenses would be granted! (“This means that in order to avoid liability for copyright infringement – and the crushing statutory damages available under the Copyright Laws – Spotify must obtain licenses from each co-author owning a share in an individual work, no matter how small that co-author’s interest might be. … Spotify believes that the effectiveness of the Section 115 license can be ensured if uses of musical works were covered pursuant to a blanket license, in a manner similar to the Section 114 license.”) (pp. 4-6).
This leads to the second significant problem: the evidence regarding fractional licensing is in connection with individual music publishers licensing the reproduction (or synchronization) rights in their individual repertory to interactive services, not the blanket performance licenses issued by ASCAP and BMI, under which these same music publishers, who in a competitive market would be competing against each other on price to license services, jointly set a single price, which–absent the consent decrees–would be a violation of antitrust laws! Based on a series of statements regarding the licensing practices of individual publishers, each licensing only its particular catalog, the CRO, in a cagey (and totally disingenuous) slight-of-hand, then states “Despite the wide-ranging nature of the study and invitation to raise additional issues, none of the participants identified fractional licensing of musical works by the PROs as a practice that needed to be changed.” Do you see what the CRO does there? It notes that industry participants acknowledge that publishers, when licensing their individual catalogs — typically in connection with licensing reproduction or synchronization rights — license on a fractional basis, and from that concludes that the licenses granted by ASCAP and BMI, which are blanket licenses that aggregate the catalogs of thousands of individual publishers who would otherwise be competing against one another on price, must likewise be only granting fractional licenses.
Perhaps the most egregious example of the lengths to which the CRO goes to reach its desired conclusion — rather than the one dictated by the actual Copyright Act — is the following statement and supporting citations: “Because the industry practice of fractional licensing of performance rights … has been amply documented in the submissions of commenting parties in the DOJ’s pending review process, the below analysis assumes that fact and focuses primarily on the legal consequences that follow.” (Views p. 3). Do you care to guess which submissions the CRO cites in support of this “ample documentation”? If you guessed ASCAP, BMI and SESAC, you are correct. 2
Apparently the CRO failed to read the following submissions:
The CRO at least accurately states the basic principle of copyright co-ownership: “Co-owners of a joint work “[are] treated generally as tenants in common, with each coowner having an independent right to use [or] license the use of a work, subject to a duty of accounting to the other coowners for any profits.” Each co-owner may thus grant a nonexclusive license to use the entire work without the consent of other co-owners, provided that the licensor accounts for and pays over to his or her co-owners their pro-rata shares of the proceeds.” (Views p. 6) (internal citations omitted). Citing the copyright treatise Goldstein on Copyright, the CRO notes “the default rules within the Act are only a “starting point,” with “collaborators . . . free to alter this statutory allocation of rights and liabilities by contract.” Id. (emphasis added) It is striking that the following 23 pages deal with these contractual arrangements among copyright owners to alter the basic principle of copyright law; i.e., the ways in which a (supposedly) independent economic actor (a co-writer) uses private contractual provisions to restrict the exercise of the full panoply of rights enjoyed by another independent economic actor (her other co-writers).
This focus on what co-writers are permitted to do under the Copyright Act allows the CRO to completely ignore whether such actions might run afoul of antitrust laws. For example, the CRO states “As permitted under the 1976 Act, these contracts represent an agreement by the cowriters to divide and apportion as between themselves what would otherwise be the default equal and undivided interests in the copyright.” (Views p. 9) (emphasis added) Likewise, the CRO describes a contractual provision limiting co-owners’ ability to license 100% of a co-authored work as “as clearly permitted under the Act ….” (Views p. 10)
The biased nature of the CRO’s inquiry is further evidenced in its discussion of the intersection of the Copyright Act and the ASCAP and BMI consent decrees. The CRO states that, “Although [the definition of “repertoire” in the ASCAP and BMI consent decrees] neither specifically embraces nor rejects the concept of partial interests, because the consent decrees were amended after 1978, the definition of repertoire in each should be construed consistently with the 1976 Copyright Act, which allows for divided ownership of exclusive rights, including the right of public performance.” (Views p. 13). It is also true, however, that 1976 Act is also the source of the bedrock copyright principle that co-owners are tenants-in-common, each controlling an undivided partial interest in the entire copyrighted work. Presumably, the consent decrees need to be “construed consistently” with that principle as well.
Further, the CRO claims that, “given the definition of “repertoire” in the decrees (“those works the right of public performance [the PRO] has . . . the right to license”), to reject such an understanding [that the repertoire only includes the fractional interest of a member-songwriter] would mean that the ASCAP and BMI repertoires must exclude any work for which the PRO could offer only a partial license, since there would be no “right” to license the entire work.” (Views p. 14). Such a conclusion, however, is completely at odds with the standard membership / affiliation agreements into a songwriter enters with ASCAP / BMI, respectively. For example, ASCAP’s form writer agreement grants to ASCAP “the right to license non-dramatic public performances” of “each musical work” that the owner “wrote, composed, published, acquired or owned” “alone, or jointly, or in collaboration with others” and in which “the owner now has any right, title, interest or control whatsoever, in whole or in part.” BMI’s form writer agreement – while less detailed – likewise grants to BMI the right to license non-dramatic public performances of “all musical compositions … composed by you alone or with one or more co-writers.” (see Comments of Media Licensees’ at p. 7). In other words, in order to conclude that the definition of “repertoire” in the ASCAP and BMI consent decrees must mean only that fraction of a work controlled by a member-songwriter, the CRO had to completely ignore the actual agreements into which the PROs enter with songwriters that specifically grant to each PRO the right to license all of a co-written work.
One might wonder whether the CRO didn’t know about the existence of these ASCAP and BMI songwriter agreements. That might be a possibility except for the fact that on the very next page the CRO cites to the very ASCAP and BMI writer agreements I cite in the previous paragraph!
In fact, the prevarication gets even more blatant. The CRO states, “The practice of divided ownership and fractional licensing is also consistent with the ASCAP and BMI membership agreements and related documents. For example, the grant of rights by a writer or publisher to BMI extends only to rights “own[ed]” or “acquire[d]” by the member to perform “any part or all of the [member’s] Works.” The BMI writer agreement further provides that, upon termination of the agreement, if BMI “continue[s] to license your interest in any Work,” it will continue to make payments. While the ASCAP membership agreements are less clear on these points, ASCAP’s title registration system is indicative of fractional administration of works.” (p. 16)
The entire paragraph 4(a) of the BMI agreement reads, “Except as otherwise provided herein, you hereby grant to us for the Period: (a) All the rights that you own or acquire publicly to perform, and to license others to perform, anywhere in the world, in any and all places and in any and all media, now known or which hereafter may be developed, any part or all of the Works.” Thus, the grant specifically provides BMI with the right to license all of the “Work” that was written or co-written by the songwriter. You will also note that “Works” is a defined term, the definition of which is, “[(1)(b)](i) All musical compositions (including the musical segments and individual compositions written for a dramatic or dramatico-musical work) composed by you alone or with one or more co-writers during the Period.” Read together, it is clear that a BMI songwriter is granting to BMI the right to license all of a Work, even if that Work was written by more than that BMI songwriter.
The ASCAP songwriter agreement, far from being “less clear” on these points is, in fact, a model of clarity, making the CRO’s claims to the contrary that much more egregious. Section 1 of ASCAP’s Membership Agreement reads as follows:
“The [songwriter] grants to the [ASCAP] for the term hereof, the right to license non-dramatic public performances (as hereinafter defined), of each musical work:
Of which the[songwriter] is a copyright proprietor; or
Which the[songwriter], alone, or jointly, or in collaboration with others, wrote, composed, published, acquired or owned; or
In which the[songwriter] now has any right, title, interest or control whatsoever, in whole or in part; or
Which hereafter, during the term hereof, may be written, composed, acquired, owned, published or copyrighted by the[songwriter], alone, jointly or in collaboration with others; or
In which the[songwriter] may hereafter, during the term hereof, have any right, title, interest or control, whatsoever, in whole or in part.
The right to license the public performance of every such musical work shall be deemed granted to the [ASCAP] by this instrument for the term hereof, immediately upon the work being written, composed, acquired, owned, published or copyrighted.
The CRO’s decision to simply ignore all of this language, including the eight seperate instances in which joint authorship and/or partial ownership are specifically included in the works the member is dedicating to the ASCAP repertoire is, frankly, shocking.
The rest of the CRO letter is a recitation of the parade of horribles that will befall songwriters, publishers and PROs if the consent decrees are interpreted in a way that requires 100% licensing. Markedly absent from this parade are the reasons why licensees should bear the burden of costs associated with fixing these (potential) problems. For example, the CRO notes that,
[I]t appears that neither ASCAP nor BMI has in place a mechanism that would allow the PRO to track and account for payments to non-members on a broad basis, and that there would be significant obstacles to achieving this. In many cases, the PRO may not have current or reliable information concerning the current co-owners of a particular song, including how to contact them—let alone heirs or assignees. As the Office explained in its recent report, the music licensing marketplace is characterized by a lack of uniform data concerning song ownership and licensing. The ASCAP and BMI royalty payment systems presumably would need to be significantly enlarged (and largely crossduplicated) to generate payments for a multitude of non-members. Equally if not more overwhelming would be a scenario whereby individual authors and publishers receiving 100- percent payments from ASCAP and BMI would need to track down and pay royalties to coowners themselves. (Views p. 21)
To which a licensee might reasonably respond, “so?” The publishers and PROs chose to allow this system of individual fractional ownership coupled with 100% collective blanket licensing to evolve over the last 50 years. The same parties cannot now be heard to complain that they don’t like the system they’ve created and want someone else to pay to clean it up. The licensee community is certainly is a far less advantageous position to know how to contact all of the current owners of a particular song or make payments thereto.
More fundamentally, this entire exercise is being driven by the publishers’ desire to partially withdraw their performance rights from ASCAP and BMI to “hold up” digital music services for higher fees. This PRO system was able to evolve over the past 50 years precisely because the publishers viewed collective licensing as better than individual licensing. But collective licensing — which is otherwise a violation of antitrust law — comes at a cost. Now that the bill has come due, it appears that the songwriters, publishers and PROs want someone else to pay it.
“a provision reviewed by the Office addressed the interests of three songwriters, one affiliated with ASCAP, who received a 50 percent share of the copyright, and two affiliated with BMI, who each received a 25 percent share.” pp. 9-10.
“one contractual provision reviewed by the Office awarded one of three co-writers a one-third share of the copyright, but prohibited that co-writer from granting even a partial (i.e., fractional) license in the work.” (p. 10).
“one representative provision in a copublishing agreement reviewed by the Office stated specifically that where the songwriter “writes, owns, and/or controls less than one hundred percent (100%)” of a musical composition, the songwriter was granting the publisher rights only to the writer’s “fractional share” of the work. In another agreement, the songwriter granted rights to existing and future compositions only “to the extent written, composed, created, owned, controlled and/or acquired” by the songwriter.” (p. 11)
one coadministration clause applicable to two songwriters reviewed by the Office provided that the parties would enter into agreements “solely with respect” to their respective interests and that all proceeds were to be paid “directly to (Party A) and (Party B) in the shares set forth (in the agreement).” (p. 12) ↩
As I’ve often said, reviewing litigation dockets is a great place to learn new things. Instead of focusing on a judge’s final decision, one can often learn more by reading the party’s pleadings, which provide the strongest advocacy for a particular legal position. [caveat–it is critical to read BOTH side’s pleadings]. It is also often the case that a recording artist or songwriter’s contract will be appended to the complaint, providing useful insight not only into the issues in a particular litigation, but towards how the music industry evolves over time. I was reading Rita Ora’s recording contract with Roc Nation–a copy of which can be found here–and I remembered some research I’d done a while ago but never bothered to post here. Specifically, a review of 3 recording contracts executed between 1983 and 1992 demonstrate how public performance for sound recording royalties made their way into major label recording contracts. [caveat–this is not intended to be scientific; it is merely an interesting fact based on the 3 contracts in question]
So, check this out. In 1983, CBS did *not* have any language about public performance rights in sound recordings—check out the Toto contract below. By 1989, the language does exist—see 10.04 of the Allman Bros. agreement with CBS reproduced below. Identical language appears in the Interscope license with Dr. Dre is 1992—see 10.05 of the Dre agreement reproduced below—even though I’m not aware of any relationship between CBS (which was bought by Sony) and Interscope (which was bought by UMG)!
The Toto recording contract is below.
The Allman Bros. recording contract is below.
Dr. Dre’s recording agreement is below:
I recently came across two interesting articles that discuss whether the Copyright Act preempts state or common law performance rights in sound recordings fixed prior to 1972.
Ostensibly, Prof. Pulsinelli’s article is focused on the Legacy Sound Recording Protection Act (the “LSRPA”), which was introduced in the last session of the Tennessee state legislature. The LSRPA would grant owners of Pre 72 Recordings essentially the same rights in Tennessee that owners of sound recordings made after 1972 enjoy under the federal Copyright Act.
Prof. Ross’ article takes as its jumping off point two recent federal district court decisions, one in California and another in New York, which found an exclusive right in Pre 72 Recordings. See Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. CV 13-5693, 2014 WL 4725382 (C.D. Cal. Sept. 22, 2014); Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 13 Civ. 5784, 2014 WL 7172270 (S.D.N.Y. Nov. 14, 2014).
Both articles focus analysis on whether state laws, whether statutory or common, that attempt to create a performance right in Pre 72 Recordings are preempted by the Copyright Act. Both articles begin by noting that sound recordings did not enjoy any federal copyright protection until the enactment of the Sound Recording Act of 1971, which established a reproduction and distribution right—but not a performance right—for sound recording initially fixed after February 15, 1972. When Congress completed its major rewrite of the Copyright Act in 1976, it included a very broad preemption clause embodied in § 301(a), which effectively preempts all state laws purporting to grant any right “equivalent to” any right provided in § 106. Not wanting to displace the reproduction and distribution rights in Pre 72 Recordings that many states historically provided to discourage record piracy, a.k.a. “bootlegging”, § 301(c) then goes on to exempt Pre 72 Recordings from the general preemption of § 301(a).
The ‘general’ preemption language in § 301(a) provides:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
The ‘exception’ to the general preemption language in § 301(c) provides:
With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067. The preemptive provisions of subsection (a) shall apply to any such rights and remedies pertaining to any cause of action arising from undertakings commenced on and after February 15, 2067. Notwithstanding the provisions of section 303, no sound recording fixed before February 15, 1972, shall be subject to copyright under this title before, on, or after February 15, 2067.
In order to determine whether performance rights for Pre 72 Recordings are preempted by the Copyright Act, the authors describe preemption and its primary forms. Preemption exists because of the Supremacy Clause of the Constitution (Article IV, Clause 2). There are two broad categories of preemption: express preemption and implied preemption. Express preemption occurs when the applicable statutory scheme contains a provision that expressly states that the federal statute is meant to preempt state law in a particular area. If the federal law does not contain an express preemption provision, the state law may nevertheless violate the Supremacy Clause under the theory of implied preemption if the federal statutory scheme is so detailed and pervasive that it “occupies the field,” leaving no room for state law to operate (so-called “field preemption”) or the state statute “‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’” (so-called “conflict preemption”). The fact that a statute contains an express preemption does not mean that the statute cannot still be found invalid as impliedly preempted.
The most important Supreme Court guidance on preemption in the context of conflict between state and federal law is Goldstein v. California (412 U.S. 546 (1973)). In Goldstein, the Court considered the validity of a California law criminalizing record piracy; i.e., the unauthorized reproduction and distribution of sound recordings. The timing of the case is quite complicated: it involves sound recording fixed prior to February 15, 1972, arrived at the Supreme Court after the passage of the SRA in 1971, but before the passage of the 1976 Copyright Act that added the express preemption provisions. In Goldstein, the Supreme Court upheld the California law as a valid exercise of the state’s power, finding that the Copyright Act left sound recordings “unattended,” and thus states could choose to protect them.
Prof. Pulsinelli quotes the Goldstein Court for the proposition that the Copyright Act itself is a reflection of Congress’ interest in setting broad, national policy around protecting copyrighted works, stating “[t]he objective of the Copyright Clause was clearly to facilitate the granting of rights national in scope.” Prof. Pulsinelli also quotes the House Report accompanying the 1976 Act, “One of the fundamental purposes behind the copyright clause of the Constitution … was to promote national uniformity and to avoid the practical difficulties of determining and enforcing an author’s rights under the differing laws and in the separate courts of the various States. Today, when the methods for dissemination of an author’s work are incomparably broader and faster than they were in 1789, national uniformity in copyright protection is even more essential than it was then to carry out the constitutional intent.” Performance rights in particular implicate the problems of varying state regulation, as noted by a variety of courts and commentators.
Prof. Pulsinelli argues that “At least theoretically, the Copyright Act is sufficiently comprehensive as to “occupy the field” and leave no room for the states to operate.238 However, given the strong express preemption provided in § 301(a), such an analysis is generally unnecessary—any law that escapes express preemption because it falls outside the scope of § 301(a) is likely also to fall outside the “field” occupied by the statutory scheme.” Instead, he argues that state law protections of performance rights in sound recordings is likely preempted under the “conflict preemption” doctrine.
Judge McMahon has indicated she is considering reconsidering her prior ruling in which she found a performance right in sound recordings fixed before 1972. Her order is below.
A magistrate judge has recommended that the lawsuit brought by VerStandig Broadcasting should be dismissed on jurisdictional grounds; i.e., for lack of Article III standing. In finding that the plaintiffs’ declaratory action failed to raise a justiciable controversy, the judge found that the issue of copyright liability is not “traceable” to SoundExchange because SoundExchange does not own or enforce copyrights Verstandig might infringe. As the judge stated: “Any dispute that may arise in that scenario is between the copyright owner and the broadcaster. Thus, the copyright owners themselves, who are ‘not party to this litigation, must act’ (or not act, as the case may be) in order for this particular injury to be cured.”
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.
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.