SoundExchange, Inc. v. Muzak, LLC

• Decision Date: 21 August 2018
• Docket Number: Case 15-CV-0476-RCL
• Citation: 322 F.Supp.3d 72
• Parties: SOUNDEXCHANGE, INC., Plaintiff v. MUZAK, LLC, Defendant
• Court: U.S. District Court — District of Columbia

322 F.Supp.3d 72

SOUNDEXCHANGE, INC., Plaintiff

v.MUZAK, LLC, Defendant

Case 15-CV-0476-RCL

United States District Court, District of Columbia.

Signed August 21, 2018

Filed August 22, 2018

David Andrew Handzo, Emily Lauren Chapuis, Joshua Morris Segal, Jenner & Block LLP, Michael Brian DeSanctis, Munger, Tolles & Olson LLP, Washington, DC, for Plaintiff.

Jeffrey Stuart Bucholtz, King & Spalding, LLP, Washington, DC, Joseph R. Wetzel, Pro Hac Vice, Katherine E. Merk, Pro Hac Vice, Kenneth L. Steinthal, Pro Hac Vice, King & Spalding, LLP, Michael R. Petrocelli, Pro Hac Vice, Wilson Sonsini Goodrich & Rosati, San Francisco, CA, Brian M. Willen, Wilson Sansini Goodrich & Rosati, New York, NY, for Defendant.

MEMORANDUM OPINION

Royce C. Lamberth, United States District Judge

Now before the Court is plaintiff's Motion for Summary Judgment as to Liability [ECF No. 35]. Upon consideration, plaintiff's motion is GRANTED IN PART and DENIED IN PART . The Court grants the motion as to the plaintiff's prima facie case, but believes a summary judgment ruling on defendant's affirmative defenses would be premature.

I. BACKGROUND

Muzak, LLC ("Muzak" or "defendant") is a provider of digital music that generates revenue by packaging sound recordings into channels and providing those channels to individuals who subscribe to cable and satellite television system operators. Previously, subscription services, such as Muzak, were not required to obtain a license to publicly perform sound recordings because copyright owners did not have an exclusive right to publicly perform their work.

a. The Digital Performance Right in Sound Recordings Act

In 1995, that changed when Congress passed the Digital Performance Right in Sound Recordings Act, giving copyright owners an exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." See Pub. L. No. 104-39, § 2, 109 Stat. 336, 336 (1995) (codified at 17 U.S.C. § 106(6) ).

While creating a new right and revenue stream for copyright owners, the law also created a compulsory statutory license regime for those wishing to transmit the copyrighted work. Under this framework, any non-interactive digital subscription service who wished to perform a sound recording publicly could do so without infringing by complying with notice requirements and by paying a royalty fee. See Pub. L. No. 104-39, amending 17 U.S.C. § 114(f)(5). The royalty rates were to be set every five years in adversarial rule-making proceedings held by the Copyright Royalty Board. See 17 U.S.C. § 114(f). The first of these proceedings began in 1996 and three subscription services—Muzak, Digital Cable Radio Associates (operating as "Music Choice"), and DMX Music, Inc.—participated. The resulting rates, some argued, favored the subscription service providers over the copyright holders.

b. The Digital Millennium Copyright Act

In 1998, Congress revisited the compulsory license system, in part, to make the royalty rate-setting more favorable to copyright holders. It passed the Digital Millennium Copyright Act (the "Act") which established a new statutory scheme to determine royalties under Title 17 of the United States Code. Pub. L. No. 105-304, 112 Stat. 2860 (Oct. 28, 1998); 17 U.S.C. §§ 101, et seq. The new standard for calculating royalty rates under the Act reflected what "would have been negotiated in the marketplace between a willing buyer and a willing seller." 17 U.S.C. § 114(f)(2)(B). This is referred to as the willing buyer/willing seller standard. While the DMCA established new standards for determining royalty rates, it also created an exception for what it called a preexisting subscription service ("PSS"). 17 U.S.C. § 114(j)(11). A PSS was defined as a "service that performs sound recordings by means of noninteractive audio-only subscription digital audio transmissions, which was in existence and was making such transmissions to the public for a fee on or before July 31, 1998 ...." Id. The three subscription services that participated in the original rate-making proceedings, including Muzak, were grandfathered under this exception. A PSS is not subject to the "willing buyer/willing seller" standard, but instead enjoy generally more favorable royalty rates set according to the old method.

c. Muzak and DMX

At the time of the Act, Muzak provided its service of music channels only to customers of the satellite television provider the Dish Network ("Dish"). The service was branded to Dish customers as DishCD and Muzak has continued operating this service from the time of the Act through this litigation. Since the passage of the Act, Muzak has provided its service at the PSS rate without objection.

In 2011, Mood Media Corporation ("Mood") purchased Muzak and began operating it as a wholly owned subsidiary. A year later, Mood acquired DMX, one of Muzak's competitors. Like Muzak, DMX provided music channels to customers of a satellite television provider—DirecTV. DMX's service provided to DirecTV was branded as SonicTap. Before Mood's acquisition of DMX, DMX was not entitled to, nor did it pay, the PSS rates for its SonicTap program.¹

Once Mood purchased DMX, it began to consolidate its assets, sunsetting the DMX service and assigning the DirecTV agreement and agreements with 15 other small cable affiliates and cooperatives from DMX to Muzak. In addition to putting DMX under the Muzak corporate roof, Muzak transitioned the SonicTap programming to be more like Muzak's offering through DishCD. By May 2014, SonicTap's channels and Muzak's channels were being programmed by Muzak. The result were program offerings that Muzak describes as "virtually identical." See Def.'s Resp. at 30, ECF No. 45.

d. SoundExchange Files Suit; this Court Dismisses; the D.C. Circuit Reverses

SoundExchange, Inc. ("SoundExchange" or "plaintiff") is designated by regulation as the sole representative of the copyright holders under the compulsory statutory licensing scheme. It collects the royalties owed under the statutory licenses and distributes them to performing artists and copyright holders. Until Mood's acquisitions of Muzak and DMX, SoundExchange collected royalties from Muzak for its DishCD transmissions paid at the PSS rate and royalties from DMX for its SonicTap transmissions paid at the new willing buyer/seller rate. But once the full integration of DMX into Muzak was completed in May 2014, Muzak paid the PSS rate for all of its subscription service transmissions.

SoundExchange challenged payment of the PSS rate for non-Dish transmissions by filing suit in this Court. SoundExchange believes that the PSS exception does not extend to Muzak's transmissions made to SonicTap subscribers. This Court initially dismissed the suit for failure to state a claim, holding that the word "service" in "preexisting subscription service" referred to the entity, Muzak. And therefore, Muzak, the business entity, was entitled to the PSS rate for all of its offerings. SoundExchange, Inc. v. Muzak, LLC , 167 F.Supp.3d 147, 151-52 (D.D.C. 2016).

On appeal, the D.C. Circuit disagreed with the Court's interpretation and reversed that decision. See SoundExchange, Inc. v. Muzak LLC , 854 F.3d 713, 719 (D.C. Cir. 2017). The Circuit held that "the better interpretation of the statute is that the term ‘service’ contemplates a double limitation; both the business and the program offering must qualify before the transmissions are eligible for the favorable rate." Id.

II. ANALYSIS

Plaintiff now moves for summary judgment as to liability prior to the completion of discovery. Essentially, plaintiff argues that: (1) the D.C. Circuit's decision precludes any argument that Muzak may permissibly pay PSS rates for non-Dish transmissions; and (2) any discovery on defendant's affirmative defenses would be futile, as they fail as a matter of law. For the reasons set forth below, the Court agrees as to the former, but feels any ruling on the latter would be premature.

a. Legal Standard

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and [thus] the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). "A fact is material if it ‘might affect the outcome of the suit under the governing law,’ and a dispute about a material fact is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " Steele v. Schafer , 535 F.3d 689, 692 (D.C. Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). In making its determination, the Court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences accordingly. Salazar v. Washington Metro. Area Transit Auth. , 401 F.3d 504, 507 (D.C. Cir. 2005).

Courts generally consider "summary judgment [to be] premature unless all parties have had a full opportunity to conduct discovery." Convertino v. United States DOJ , 684 F.3d 93, 99 (D.C. Cir. 2012) (quotations omitted); see also U.S. ex rel. Folliard v. Gov't Acquisitions, Inc. , 880 F.Supp.2d 36, 42 (D.D.C. 2012) ("Pre-discovery summary judgment motions are usually premature and hence disfavored."). Federal Rule of Civil Procedure 56(d) allows a court to deny a motion for summary judgment or defer deciding the motion if the nonmoving party shows that it cannot present facts essential to justify its opposition. McWay v. LaHood , 269 F.R.D. 35, 38 (D.D.C. 2010). The D.C. Circuit has instructed that a party's request for additional discovery in response to a motion for summary judgment should be granted almost as a matter of course. Convertino , 684 F.3d at 99.

b. Muzak may not pay PSS Rates for its Non-Dish Transmissions

SoundExchange's prima facie case depends on the resolution of a single issue: whether Muzak could permissibly pay the PSS rate on its programming provided to SonicTap subscribers. SoundExchange argues that the D.C. Circuit's opinion mandates that this...