Radio Music License Comm., Inc. v. Sesac, Inc.

• Decision Date: 26 June 2014
• Docket Number: Civil Action No. 12–CV–5807–CDJ.
• Citation: 29 F.Supp.3d 487
• Parties: RADIO MUSIC LICENSE COMMITTEE, INC., Plaintiff, v. SESAC, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

29 F.Supp.3d 487

RADIO MUSIC LICENSE COMMITTEE, INC., Plaintiff,

v.SESAC, INC., et al., Defendants.

Civil Action No. 12–CV–5807–CDJ.

United States District Court, E.D. Pennsylvania.

Signed June 26, 2014.

Alan J. Devlin, Alfred C. Pfeiffer, Jr., Latham and Watkins, San Francisco, CA, Jennifer L. Giordano, Margaret M. Zwisler, Andrew J. Robinson, Latham & Watkins LLP, Washington, DC, Peter J. Mooney, White and Williams, Philadelphia, PA, for Plaintiff.

Joshua H. Rubin, Michael W. Ross, Susan J. Kohlmann, Jenner & Block, LLP, New York, NY, Joshua M. Segal, Matthew S. McKenzie, Jenner & Block, LLP, Washington, DC, Gary Allen Rosen, Law Offices of Gary A. Rosen, PC, Ardmore, PA, for Defendants.

MEMORANDUM

C. DARNELL JONES, II, District Judge.

Pending before the court is a motion to dismiss, (Doc. No. 23), filed by defendants SESAC Holdings Inc., SESAC Inc., and SESAC LLC, (collectively “SESAC”) seeking dismissal of Count I (Horizontal Price Fixing), Count II (Group Boycott/Refusal to Deal), and Count III (Monopolization) of the complaint on various grounds. First, defendant moves to dismiss Counts I and II on the ground that plaintiff failed to adequately allege that SESAC's purportedly anticompetitive conduct flowed from an agreement between SESAC and its affiliates. Defendant argues in the alternative that, even if the court does find an agreement between SESAC and its affiliates, the alleged conduct is not unlawful per se or under the rule of reason. Finally, defendant seeks dismissal of Count III on the ground that plaintiff failed to adequately plead exclusionary conduct or harm to competition. Plaintiff filed a response to the motion on February 8, 2013, (Doc. No. 26), defendant filed a reply on March 6, 2013, (Doc. No. 29), and the court heard oral argument on March 18, 2014. After a thorough review of the record, the court will GRANT the motion IN PART AND DENY IN PART.

BACKGROUND

This case arises out of SESAC's allegedly anticompetitive copyright licensing practices. SESAC is one of three performing rights organizations (“PROs”) that operate in the United States, the two others being the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc., (“BMI”). ¹ (Compl. at 6–7.) The three PROs serve an important role in the music industry by “acting as intermediaries between customers and [the holders of copyrights to musical works] and offering ‘one-stop-shop’ licenses for the public performance of works.” (Compl. at 5–6.) Their utility derives from federal copyright law, which prohibits the public performance of a copyrighted work without a license and punishes unauthorized performances by fine of $750 to $30,000 for each infringement and up to $150,000 for willful violations. 17 U.S.C. § 106(4) (bestowing upon copyright holder exclusive right to publicly perform musical work); 17 U.S.C. § 504(c) (setting statutory damages).² PROs provide two important services to the music industry: efficient licensing and effective oversight. By obtaining, cataloging, and (in many cases) bundling copyrights into composite licenses, they offer consumers the opportunity to purchase the rights to thousands of musical works without the costly and time consuming process of negotiating the terms and conditions of each individual performance. (Compl. at 5–6.) Furthermore, PROs police the music industry by investigating and prosecuting unauthorized users—those who publicly perform copyrighted works without a license—an otherwise costly prospect for copyright owners. Therefore, they provide valuable services to the music industry.

Plaintiff RMLC is a 501(c)(6) non-profit organization ³ that since 1935 has negotiated “public-performance-right licenses” on behalf of radio stations in the United States.⁴ (Compl. at 8, 24.) “RMLC seeks to obtain fair and reasonable license fees on behalf of radio stations, negotiates for per-program and blanket-license carve outs that allow stations to achieve further fee discounting, and aims to achieve the broadest possible licenses covering new-media applications, including HD multicasting and streaming.” (Compl. at 8.) Thousands of terrestrial radio stations partner with RMLC to obtain music licenses from ASCAP and BMI. (Compl. at 8.) SESAC, however, has refused to do business with RMLC, forcing RMLC member stations to obtain SESAC licenses on their own. (Compl. at 8.)

SESAC is the only PRO in the United States that is not subject to a consent decree concerning its licensing practices. (Compl. at 8.) In 1941, the Department of Justice (DOJ) brought an antitrust claim against ASCAP, alleging that its blanket license was an illegal restraint of trade under § 1 of the Sherman Act. See Meredith Corp. v. SESAC LLC, 1 F.Supp.3d 180, 196–97, 2014 WL 812795, *11 (S.D.N.Y. March 3, 2014) (recounting DOJ claims in United States v. ASCAP, 13–CV–95 (S.D.N.Y.1941)). In 1966, the DOJ brought similar claims against BMI “alleg[ing] that BMI constituted a combination both to restrain trade and to monopolize, and was thereby able to artificially depress rates and coerce composers to join BMI, harming competition.” See id. at 198, at *13 (summarizing DOJ claims in United States v. BMI, 1966 Trade Cases ¶ 71,941 (S.D.N.Y.1966)). ASCAP and BMI ultimately settled their claims with the DOJ by signing consent decrees, which mandate that they:

(i) must accept all qualified music composers and producers as affiliates; (ii) must not enter into exclusive contracts with their affiliates; ⁵ (iii) must not insist that consumers take a blanket license; (iv) must offer consumers a genuine economic choice between a per-program license and a blanket license; ⁶ (v) must offer consumers who apply in writing for licenses access to their repertories without exposure to copyright infringement, even in the absence of agreement on the license fees; and (vi) must accept the district court's determination of a reasonable fee in the event that they cannot agree upon a fee within 60 days.

(Compl. at 9.)

Because SESAC is not subject to a consent decree or other licensing regulation, plaintiff avers that it has a competitive advantage in the music licensing industry and has engaged in unlawful, anticompetitive licensing practices. First, it offers its repertory to customers exclusively in blanket license format and allegedly “refuses to offer any viable alternative to its blanket license.” (Compl. at 20.) Moreover, SESAC obscures the works in its repertory, thereby making it impossible for radio stations to determine whether the music they air is part of SESAC's license. (Compl. at 11.) Although SESAC's website contains a list of its works, it disclaims “SESAC, Inc. makes no representations and/or warranties with respect to the accuracy or completeness of the information,” and plaintiff alleges that the database “is updated regularly and may change on a daily basis.” (Compl. at 11–12.) Moreover, the search feature does not scan for “advertising jingles (e.g., the five-note McDonald's advertising jingle), all of which effectively renders the search feature useless.” (Compl. at 11, 12.) Even if the list were accurate, plaintiff points out, SESAC only allows “search[es] for one work at a time and requires the user to know the precise name of the song, writer, publisher, or artist for a given work.” (Compl. at 11.) “Entering the name of a single writer or publisher, for example, can return numerous results and require further review of multiple levels of data and/or numerous additional confirmatory searchers to find a specific work or to attempt to determine that it is not listed.” (Compl. at 11.)

Plaintiff also alleges that SESAC has compiled a critical mass of must-have, copyrighted works that radio stations cannotavoid broadcasting as a practical matter, so radio stations are forced to purchase the blanket license, regardless of price.⁷ (Compl. at 1–2, 7, 10–12, 13, 16, 21.) The obscurity of SESAC's repertory combined with large copyright infringement fines, up to $150,000, and radio stations' lack of control over what music they air makes the SESAC license a virtual necessity for most stations. Finally, RMLC alleges that SESAC has entered into unlawful de facto exclusive licensing agreements ⁸ with its affiliates by refusing to offer its customers carve-out rights ⁹ and refusing to pay royalties to affiliates who directly license musical works to radio stations.¹⁰ (Compl. at 10, 13, 15, 18, 19, 20.) In other words, SESAC will not discount the price of its blanket license for radio stations that have otherwise legally obtained a copyright license that is part of SESAC's repertory.

Plaintiff contends that SESAC's licensing practices are anticompetitive in a number of ways. First, SESAC's strategy of bundling together must-have works makes the SESAC license indispensable. Its blanket license has allegedly generated monopolistic synergy: the blanket license is more indispensable to customers than the sum of its parts. Plaintiff argues that SESAC's affiliates are unwilling to directly license to stations because they can earn a greater profit by licensing through SESAC. Moreover, SESAC's reliance on de facto exclusive dealing arrangements all but ensures that its affiliates will continue to license exclusively through SESAC. Therefore, SESAC's actions allegedly destroy competition between SESAC and its affiliates.

RMLC also alleges that SESAC's licensing policies destroy competition between SESAC and other PROs. (Compl. at 14.) Because BMI and ASCAP are subject to consent decrees, they “must accept all qualified music composers and producers as affiliates” and must offer consumers a genuine choice between a blanket license and a per-program license. (Compl. at 9.) Most importantly, BMI and ASCAP are subject to rate regulation and, unlike SESAC, cannot charge supracompetitive licensing fees. Therefore, they cannot match SESAC's high royalty rates and are unable to compete for SESAC's affiliates. (Comp...