Am. Soc'y of Composers v. Mobitv, Inc.

• Decision Date: 22 May 2012
• Docket Number: Docket Nos. 10–3161–cv(L), 10–3310–cv(CON).
• Citation: 681 F.3d 76,56 Communications Reg. (P&F) 72,2012 Copr.L.Dec. P 30264,102 U.S.P.Q.2d 1872
• Parties: AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, Defendant–Appellant, v. MOBITV, INCORPORATION, f/k/a/ Idetic, Incorporation, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

681 F.3d 76

2012 Copr.L.Dec. P 30,264

102 U.S.P.Q.2d 1872

56 Communications Reg. (P&F) 72

AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, Defendant–Appellant,

v.MOBITV, INCORPORATION, f/k/a/ Idetic, Incorporation, Appellee.

Docket Nos. 10–3161–cv(L), 10–3310–cv(CON).

United States Court of Appeals, Second Circuit.

Heard: Oct. 11, 2011.

Decided: May 22, 2012.

Ira M. Feinberg, Hogan Lovells U.S. LLP, New York, N.Y. (Eleanor M. Lackman, Chava Brandriss, Hogan Lovells U.S. LLP, New York, N.Y.; Catherine E. Stetson, Hogan Lovells U.S. LLP, Washington, D.C.; Joan M. McGivern, Richard H. Reimer, Christine A. Pepe, ASCAP, New York, N.Y.; David Leichtman, Hillel I. Parness, Bryan J. Vogel, Oren D. Langer, Robins, Kaplan, Miller & Ciresi L.L.P., New York, N.Y., on the brief), for Defendant–Appellant.

Kenneth L. Steinthal, Greenberg Traurig, LLP, San Francisco, Cal. (Joseph R. Wetzel, Harris L. Cohen, Matthew L. Reagan, Greenberg Traurig, LLP, San Francisco, Cal., on the brief), for Appellee.

(Michael E. Salzman, Hughes Hubbard & Reed LLP, New York, N.Y.; Marvin L. Berenson, John Coletta, Joseph J. DiMona, Broadcast Music, Inc., New York, N.Y., for amicus curiae Broadcast Music, Inc., in support of Defendant–Appellant.).

(Bruce G. Joseph, Andrew G. McBride, Wiley Rein LLP, Washington, D.C., for amicus curiae Cellco Partnership d/b/a Verizon Wireless, in support of Appellee.).

Before: NEWMAN and LYNCH, Circuit Judges, and RESTANI,^* Judge, U.S. Court of International Trade.

JON O. NEWMAN, Circuit Judge.

This appeal concerns determination of the proper royalty the Defendant–Appellant American Society of Composers, Authors and Publishers (“ASCAP”) is entitled to receive for a blanket public performance license for music in the ASCAP repertory that is embodied in television and radio content to be delivered to viewers and listeners using mobile telephones (sometimes called “handsets”). The applicant for the license is Plaintiff–Appellee MobiTV, Inc. (“Mobi”), which purchases programming from cable television networks and transmits it to the wireless carriers to which consumers subscribe to obtain wireless service on their handsets. When the parties could not agree on a price for the performance rights to the music component of Mobi's offerings, ASCAP sought a reasonable rate in the District Court for the Southern District of New York, acting as a rate court pursuant to a consent decree. Following a bench trial, the District Court (Denise Cote, District Judge) issued a judgment on July 7, 2010, establishing various royalty rates, depending on the nature of the programming, and designating the revenue bases to which those rates apply. See In re Application of MobiTV, Inc., 712 F.Supp.2d 206 (S.D.N.Y.2010) ( “MobiTV ”). ASCAP appeals, contending that the District Court's rate formulation should have been based on the retail revenues received by the wireless carriers from sales to their customers, rather than the content providers' wholesale revenues paid by Mobi. We affirm.

Background

A. ASCAP

ASCAP represents about half of the nation's composers and music publishers. These composers grant to ASCAP the non-exclusive right to license public performances of their music.¹ ASCAP has an estimated 8.5 million musical works in its repertoire. Because of concerns that ASCAP's size grants it monopoly power in the performance-rights market, it is subject to a judicially-administered consent decree, the most recent version of which was entered into on June 11, 2001.²United States v. ASCAP, No. 41–1395, 2001 WL 1589999, at *1 (S.D.N.Y. June 11, 2001). Under this Second Amended Final Judgment (“AFJ2”), ASCAP is required to issue a “Through–to–the–Audience” (“TTTA”) license to any operator “that transmits content to other music users with whom it has an economic relationship relating to that content.” AFJ2 § V. A TTTA license effectively allows the licensee to pay a single fee in exchange for the right of the licensee, as well as any of its downstream partners, to perform any of the music in ASCAP's repertoire. Thus, for example, a radio broadcaster that transmits music to various independent stations around the country could request a TTTA license to cover the performances of any of the stations receiving and playing its programming. The consent decree provides that “[t]he fee for a [TTTA] license shall take into account the value of all performances made pursuant to the license.” Id.

The AFJ2 obliges ASCAP to issue a TTTA license to any qualified applicant seeking to perform ASCAP music within the United States. Id. Upon request, ASCAP must quote a reasonable price for such a license and enter into negotiations with the applicant. AFJ2 § IX(A). If, following a predetermined negotiation period, the parties are unable to reach agreement, either one may request the District Court for the Southern District of New York, acting as “the rate court,” to determine a reasonable rate.

B. Mobi

Mobi acts as a middleman between “content providers”—television networks, record labels, and radio broadcasters—and wireless phone carriers. To do that, Mobi aggregates content—television programs, music videos, and the like—into a number of “channels” (with themes such as “news,” “music,” and “comedy”) that wireless carriers then offer to their customers as part of their phone subscription plans. In addition to aggregating content, Mobi also provides the technology infrastructure for delivering this content directly to viewers.³

Mobi's primary offerings may be roughly divided into three types: television channels, radio channels, and music video channels.⁴ Television channels consist of programs and clips acquired directly from the networks. Radio channels are acquired from audio-only content providers, such as National Public Radio, ESPN Radio,or DMX, Inc (“DMX”). Music video channels feature music videos that Mobi acquires from various record labels. In the case of television and radio channels, Mobi has little control over the content that is ultimately placed into the channel by the content provider. In the case of music videos, Mobi acts as a content provider itself by acquiring and assembling individual music videos into themed channels designed and marketed by Mobi.

Payments to Mobi from the wireless carriers. Television, radio, and music video content may be packaged for consumption in one of two ways. First, groups of channels may be packaged for “à la carte” selection, for which wireless phone customers pay a monthly fee, usually around $10. Second, content may be “bundled” with other types of non-Mobi products and services and sold to the customer as part of a larger offering. When Mobi's products are sold as part of a bundle, it receives a flat dollar figure per subscriber per month based on the relative value of the Mobi service to the bundle. In the latter case, Mobi does not know how much the carrier received for the sale. In both types of packaging, payments are not affected by whether subscribers actually use any of Mobi's content.⁵

In addition to the revenue from carriers for packaged content, Mobi also earns a small amount of income from advertising that it inserts into its channels. This revenue may be retained solely by Mobi or shared with the wireless carriers pursuant to license agreements.

Payments from Mobi to content providers. For the right to distribute content to the wireless carriers, Mobi generally pays the networks and other content providers a per-subscriber fee. The size of the fee, which Mobi negotiates with each content provider, depends on the popularity of the channel. Although Mobi's revenue-to-cost ratio had been improving steadily in 2008, as of 2008 it had never made a profit.

C. Procedural History

In November 2003, Mobi applied to ASCAP for a TTTA license for a “service that allows mobile handset users to access television and other content by aggregating television and other audio-visual content for transmission over telecommunications networks.” Failing to reach agreement over an appropriate rate, ASCAP applied to the District Court in May 2008 for “a reasonable fee retroactive to the date of the written request for a license.”

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. ⁶ Mobi contended that it owed only $301,257.99 for the period from November 2003 to July 2009.

When a party applies to the District Court to set a reasonable rate for an ASCAP license, the AFJ2 requires that court to first assess the reasonableness of the fee quoted by ASCAP. AFJ2 § IX(B), (D). During this phase of the proceedings, ASCAP bears the burden of establishing the reasonableness of its proposed fee. Id. If ASCAP fails to meet its burden, the District Court must “determine a reasonable fee based upon all the evidence.” AFJ2 § IX(D).

The District Court's rejection of ASCAP's fee proposals. Pursuant to the AFJ2, the District Court first considered, and rejected, ASCAP's fee proposals.⁷ ASCAP had proposed a fee formula that used as a starting point the revenues wireless carriers received from their customers. In a thorough review, MobiTV, 712 F.Supp.2d at 236–244, the District Court identified a number of errors and deficiencies in that methodology. Among these were the unrealistic size of ASCAP's starting revenue base ($54 billion), id. at 239, the inclusion in that figure of large sums of revenues unrelated to the value of Mobi's products, including the revenues earned by the wireless carriers on their primary services of telephonic communications and Internet access, id. at 240–41, the use of faulty calculations, id. at 240–41, the use of a high royalty rate (2.5 percent) based on an non-analogous benchmark, id. at 242, and the large size of the resulting fee, id. Notably, the District Court implicitly rejected the proposition that wireless carrier retail revenues from their customers could be used as a base for a rate...