SoundExchange, Inc. v. Sirius XM Radio Inc.

• Citation: 65 F.Supp.3d 150,111 U.S.P.Q.2d 1909
• Decision Date: 25 August 2014
• Docket Number: Case No. 1:13 cv 1290 RJL
• Parties: SoundExchange, Inc., Plaintiff, v. Sirius XM Radio Inc., Defendant.
• Court: U.S. District Court — District of Columbia

65 F.Supp.3d 150

111 U.S.P.Q.2d 1909

SoundExchange, Inc., Plaintiff

v.Sirius XM Radio Inc., Defendant.

Case No. 1:13 cv 1290 RJL

United States District Court, District of Columbia.

Signed August 25, 2014

Filed August 26, 2014

Joshua Morris Segal, Michael Brian Desanctis, Jenner & Block, LLP, Washington, DC, for Plaintiff.

Peter Dean Isakoff, Weil, Gotshal & Manges, LLP, Washington, DC, Adam B. Banks, R. Bruce Rich, Todd D. Larson, Weil, Gotshal & Manges, LLP, New York, NY, for Defendant.

MEMORANDUM OPINION

[Dkt. # 13]

RICHARD J. LEON, United States District Judge

Plaintiff SoundExchange, Inc. (“SoundExchange”) brings this action against defendant Sirius XM Radio Inc. (“Sirius XM”) in an effort to recover royalties SoundExchange claims it is owed under the Copyright Act. See generally Compl. [Dkt. # 1]. Sirius XM moves to dismiss the Complaint, or, in the alternative, stay the action, pursuant to the doctrine of primary jurisdiction. Def. Sirius XM Radio Inc.'s Mot. to Dismiss Pl.'s Compl. (“Def.'s Mot.”) [Dkt. # 13]; Def. Sirius XM Radio Inc.'s Mem. of Law in Support of its Mot. to Dismiss at 2 (“Def.'s Mem.”) [Dkt. # 13–1]. After review of the motion, the applicable law, and the record herein, defendant's motion is GRANTED and the case is STAYED pending a decision by the Copyright Royalty Board (“CRB”).

BACKGROUND

Sirius XM is the only satellite digital audio radio service (“SDARS”) in the United States. Compl. ¶ 2. The Copyright Act grants entities such as Sirius XM a statutory license to digitally broadcast copyrighted sound recordings. 17 U.S.C. §§ 112, 114(d)(2) ; Compl. ¶¶ 1, 13. Statutory licensees pay royalties, but do not have to negotiate with individual copyright owners for every recording they want to broadcast. Instead, regulations implementing the Copyright Act charge SoundExchange, an independent non-profit organization, with collecting the performance royalties from statutory license users—such as SDARS, Internet radio stations, and cable TV music channels—and distributing those royalties to the copyright owners in accordance with 17 U.S.C. § 114(g)(2)(A)-(D). Compl. ¶¶ 10, 15.

The “reasonable rates and terms of royalty payments” SDARS like Sirius XM owe are set by the Copyright Royalty Board, which is comprised of three Copyright Royalty Judges (“CRJs”). 17 U.S.C. §§ 114(f)(1), 801(a) -(b). These CRJs must be experienced attorneys, and at least one judge must have significant knowledge of copyright law and another must have significant knowledge of economics. 17 U.S.C. § 802(a)(1). The Copyright Act directs that the SDARS royalty rates set by the CRB

be calculated to achieve the following objectives:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

17 U.S.C. § 801(b)(1). To fulfill its statutory mandate, the CRB presides over extensive administrative proceedings, which can involve scores of witnesses and voluminous documents, before issuing its determinations and promulgating regulations. See generally 17 U.S.C. § 803.

Sirius XM¹ and SoundExchange already have met in two such proceedings before the CRB. In the first, the CRB heard twenty-six days of testimony and admitted more than 230 exhibits before issuing its final determination regarding the royalty rates owed by SDARS from January 2007 through December 2012. Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services, 73 Fed.Reg. 4080, 4080–81 (Jan 24, 2008) (“Satellite I ”). The CRB considered the four statutory factors laid out in 17 U.S.C. § 801(b)(1) and set the SDARS royalty fee as a percentage of gross revenues escalating from 6% in 2007 to 8% in 2012. Id. at 4084. The CRB further defined “Gross Revenues” as including subscription revenue and advertising revenue attributable to advertisements on channels that do more than “use only incidental performances of sound recordings,” but excluding other specific sources of revenue. Id. at 4102 ; 37 C.F.R. § 382.11(1)(i)-(ii) (2008). Most relevant here, the CRB explicitly excluded revenue recognized from “[c]hannels, programming, products and/or other services offered for a separate charge where such channels use only incidental performance of sound recordings” and from “[c]hannels, programming, products and/or other services for which the performance of sound recordings ... is exempt from any license requirement or is separately licensed.” Satellite I, 73 Fed.Reg. at 4102 ; 37 C.F.R. § 382.11(3)(vi)(B), (D) (2008).

Around five years later, the parties met again in a contested proceeding to determine the SDARS royalty rate for the period from 2013 through 2017. Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services, 78 Fed.Reg. 23054 (April 17, 2013) (“Satellite II ”). There, the parties proposed rates and also disputed the revenue base to which the adopted royalty rates would apply—SoundExchange argued to expand the revenue base, and Sirius XM argued to maintain it. Id. at 23072. Ultimately, the CRB determined that royalty rates would start at 9% of gross revenues in 2013 and rise to 11% by 2017, id. at 23071, and was “satisfied that the exclusions permitted in the Gross Revenues definition remain proper,” id. at 23072. However, the CRB prescribed a methodology it described as a “deduction” rather than a “revenue exclusion” to handle royalties attributable to pre–1972 recordings. Id. at 23073.

SoundExchange now brings this action alleging that Sirius XM underpaid royalties owed from 2007 through 2012 (the subject of Satellite I ). See generally Compl. SoundExchange alleges that Sirius XM “devised its own definition of Gross Revenues—a definition that substantially reduced its royalty payments to SoundExchange.” Compl. ¶ 4. Specifically, SoundExchange complains that Sirius XM improperly (1) reduced Gross Revenues by an amount it estimated was attributable to pre–1972 sound recordings; (2) excluded from Gross Revenues the revenue received from the price difference between its standard package and its premier package, the latter of which includes additional talk channels, but no additional music channels; and (3) excluded revenue derived from its Family Friendly and Mostly Music packages. Id. SoundExchange also alleges that Sirius XM failed to make late payment fees required pursuant to 37 C.F.R. § 382.13(d) and related regulations. Compl. ¶¶ 60–63.

Sirius XM argues that the doctrine of primary jurisdiction counsels that the CRB should resolve these issues in the first instance, and, accordingly, moves to dismiss the Complaint, or, in the alternative, stay this action. Def.'s Mot.; Def.'s Mem.

ANALYSIS

The doctrine of primary jurisdiction allows a court to refer to an administrative agency certain issues within that agency's area of expertise.² Primary jurisdiction “is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties.... [It] comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.” United States v. W. Pac. R. Co., 352 U.S. 59, 63–64, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956). In such instances, the court may stay or dismiss without prejudice the case “pending referral of such issues to the administrative body for its views.” Id. at 64, 77 S.Ct. 161.

“The primary jurisdiction doctrine rests both on a concern for uniform outcomes ... and on the advantages of allowing an agency to apply its expert judgment[.]” Allnet Commc'n Serv., Inc. v. Nat'l Exch. Carrier Ass'n, Inc., 965 F.2d 1118, 1120 (D.C.Cir.1992) ; see also W. Pac. R. Co., 352 U.S. at 64, 77 S.Ct. 161 (“In the earlier cases emphasis was laid on the desirable uniformity which would obtain if initially a specialized agency passed on certain types of administrative questions. More recently the expert and specialized knowledge of the agencies involved has been particularly stressed.” (internal citation omitted)). An agency's expertise extends beyond technical issues “to the policy judgments needed to implement [its] mandate.” Allnet, 965 F.2d at 1120.

Courts appropriately employ the primary jurisdiction doctrine when an administrative agency “is best suited to make the initial decision on the issues in dispute.” Id. Administrative agencies may be “better equipped than courts by specialization, by insight gained through experience, and by more flexible procedure” to “ascertain[ ] and interpret[ ] the circumstances underlying legal issues.” Far E. Conference v. United States, 342 U.S. 570, 574–75, 72 S.Ct. 492, 96 L.Ed. 576 (1952). Ultimately, “[n]o fixed formula exists for applying the doctrine of primary jurisdiction.” W. Pac. R. Co., 352 U.S. at 64, 77 S.Ct. 161. The court must determine on a case-by-case basis “whether the reasons for the existence of the doctrine are present and whether the purpose it serves will be aided by its application.” Id. If the court concludes the doctrine does apply, then the court may stay or dismiss without prejudice the proceedings before it while the parties present the issue to the appropriate administrative agency. See Reiter v. Cooper, 507 U.S. 258, 268–69 & n. 3, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993).

Sirius XM argues that the two primary disputes in this case are best suited...