Six-year Digital Music Antitrust Litigation Refused Class Action Certification

In re Digital Music Antitrust Litig., 2017 US Dist LEXIS 111403 [SDNY July 18, 2017, No. 06-md-1780 (LAP)].

Judge Preska refused to certify as a class action a case alleging price fixing in the digital music industry.  Several individual plaintiffs sought to represent a nationwide class of Digital Music purchasers against defendants Sony BMG Music Entertainment, UMG Recordings, Inc., Warner Music Group Capitol Records, Inc., Capitol-EMI Music, Inc., EMI Group North America, Inc., and Virgin Records America, Inc. The Court found that the Plaintiffs failed to satisfy the typicality requirement and that widespread pirating would raise “unclean hand” defenses that could not be determined on a class-wide basis.

The decision arises out of an ongoing litigation where defendants allegedly control eighty percent of the market for Digital Music in the United States through production, licensing, and distribution of music online and on CDs. The plaintiffs allege that defendants have conspired to restrain trade in and fix prices of Digital Music in order to sell CDs at supra-competitive prices.

BMI Consent Decree Does Not Bar Fractional Licensing, Despite DOJ's Views

U.S. v. BMI, No. 64-3787 (S.D.N.Y. Sep. 16, 2016) [Doc. 100].

Judge Stanton of the Southern District of New York holds that the BMI Consent Decree neither bars fractional licensing nor requires full-work licensing, contrary to the Justice Department's recent statement that the PROs are required to offer full-work licenses.  BMI brought its application for construction of its Consent Decree based upon 8/4/16 of the Justice Department's statement, and the Court held that nothing in the Consent Decree supports the Justice Department's view that full-work licensing is required.  The Consent Decree "does not address the possibilities that BMI might license performances of a composition without sufficient legal right to do so, or under a worthless or invalid copyright, or users might perform a music composition licensed by fewer than all of its creators."  Continuing, Judge Stanton stated "The Consent Decree does not regulate the elements of the right to perform compositions. Performance of a composition under an ineffective license may infringe an author's rights under copyright, contract or other law, but it does not infringe the Consent Decree, which does not extend to matters such as the invalidity or value of copyrights of any of the compositions in BMI's repertory"

ASCAP & BMI Consent Decrees Will Not Be Modified; DOJ Antitrust Div.

Here is a copy of the Statement of the Department of Justice on the Closing of the Antitrust Division’s Review of the ASCAP and BMI Consent Decrees (Aug. 4, 2016).  In short:

... the consent decrees, which describe the PROs’ licenses as providing the ability to perform “works” or “compositions,” require ASCAP and BMI to offer full-work licenses. The Division reaches this determination based not only on the language of the consent decrees and its assessment of historical practices, but also because only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses that distinguish ASCAP’s and BMI’s activities from other agreements among competitors that present serious issues under the antitrust laws. Moreover, the Division has determined not to support modifying the consent decrees to allow ASCAP and BMI to offer “fractional” licenses that convey only rights to fractional shares and require additional licenses to perform works. Although stakeholders on all sides have raised some concerns with the status quo, the Division’s investigation confirmed that the current system has well served music creators and music users for decades and should remain intact. The Division’s confirmation that the consent decrees require full-work licensing is fully consistent with preserving the significant licensing and payment benefits that the PROs have provided music creators and music users for decades. 

First, the DOJ described the background of the consent decrees.  Thereafter, the DOJ found that there is broad consensus that ASCAP and BMI as currently constituted fill important and procompetitive roles in the music licensing industry; the consent decrees require full-work licensing; modification of the consent decrees to permit fractional licensing by ASCAP and BMI would not be in the public interest; and other modifications to the consent decrees would not be appropriate at this time (e.g., modified to allow PRO members to “partially withdraw” rights and thereby prevent the PROs from granting licenses that include those rights to certain users (in particular, digital music services) but not to other music users).  Further,  the DOJ stated that assuming ASCAP and BMI proceed in good faith, the Division will forbear for one year from any enforcement action based on any purported fractional licensing by ASCAP or BMI.  Also, the DOJ identified certain guidelines and practices that may be useful as the industry moves towards such a shared understanding on fullwork licensing.  Lastly, the DOJ concluded that the consent decrees remain vital to an industry that has grown up in reliance on them.  But the consent decrees are inherently limited in scope, and a more comprehensive legislative solution may be possible and preferable.

ASCAP Settles DOJ Action Concerning Exclusive Licensing Agreements

USA v. ASCAP, No. 41-1395 (S.D.N.Y. May 12, 2016) (Doc. 749).

The Dep't of Justice and ASCAP have settled a claim concerning approximately 150 ASCAP agreements that granted the performing rights organization exclusive licensing rights allegedly in violation of an earlier consent decree.  The settlement prohibits ASCAP form entering into any agreement under which a songwriter, composer, or music publisher grants ASCAP the exclusive right to license the right of public performance in musical works, and further limits the licensing activities of board members and music publishers.  Further, ASCAP agreed to pay $1.75 million.

SESAC Antitrust Settlement Submitted For Approval In Class Action

Meredith Corp. et al. v. SESAC, 1:09-cv-09177-PAE (S.D.N.Y. filed 10/15/14) [Doc. 174].

Plaintiffs filed an unopposed motion for approval of the parties' settlement of the class action antitrust claims.  In their motion, Plaintiffs summarize the first prong of the settlement as: "under the contemplated settlement, SESAC will be bound through 2035 by some of the same core conduct restrictions that constrain the anti-competitive potential, at least as it relates to their dealings with local stations, of the other two U.S. performance rights organizations ('PROs'), ASCAP and BMI, in their consent decrees with the Antitrust Division of the Department of Justice."  Notably, rather than a "rate court", the settlement provides that disputes should be submitted for binding arbitration.

Plaintiffs further summarize the second prong of the settlement as follows: "the proposed settlement will provide significant monetary relief to local stations.  SESAC has agreed to pay $58.5 million into a settlement fund. Those monies will be used to reimburse local stations for the claimed inflated license fees they have paid since 2008 as a result of the alleged anti-competitive conduct that was the subject of this lawsuit."  In addition, the monies will be used to reimburse for legal fees and costs.

Beatles Rights Holders Did Not Interfere With Film's Release By Asserting Copyright Claims

Ace Arts, LLC v. Sony/ATV Music Publishing, No. 13-cv-7307-AJN (S.D.N.Y. filed Sep. 26, 2014).

This action arises from the use of eight Beatles songs in a documentary film, "The Lost Concert."  Plaintiff alleges that defendants (publisher and record label) interfered with the US distribution of the film by asserting copyright claims regarding those songs.  According to the allegations in the complaint and certain judicially noticeable documents (e.g., copyright registrations), the Beatles first performance in the US took place in 1964, twelve songs were played, and defendant had copyright registrations for 8 of the songs.  The concert was preserved on a certain video tape.  In 2009, a production company acquired the video tape and produced The Lost Concert film, which consists of the concert footage and other sequences and interviews.  Plaintiff was granted distribution rights by the producers.  In 2009, the producers approached Sony ATV for a synch license.  Plaintiff's allege that at Apple's request, Sony refused to grant the producers a synch license, and instead Sony granted Apple an exclusive synch license for Apple's distribution of certain Beatles material on iTunes.  Nonetheless, the producers and distributor believed that there was no legal obstacle to distributing the film and arranged for a premier and distribution in the USA and UK.  Sony ATV sought an injunction against the producers in the UK alleging that the film would infringe Sony's copyrights.  The US premier was then cancelled after Sony ATV made a claim to the distributor's partner.  Eventually, the plaintiff commenced the action seeking a declaration, inter alia, that neither Sony ATV nor Apple has rights that would be infringed by exploitation of the film in the USA, and that Sony ATV "misused its copyrights."

First the Court denied the defendants' request to stay the US federal action pending resolution of the UK action.  The Court found no exceptional circumstances to justify abstention.

Second, the Court found that the controversy was ripe for a declaratory judgment claim.

Third, the Court analyzed plaintiff's anti-trust claim under Section 1 of the Sherman Act.  The Court found that, as alleged, the agreements between Sony ATV and Apple -- in particular their efforts to enforce Apple's exclusive synch license by preventing the US distribution of the film -- did not constitute horizontal restraints on trade that are a per se violation of the Sherman Act.  Nor was there an anti-trust violation under the "rule of reason" because the allegations concerned a routine dispute between business competitors that is not cognizable under the Sherman Act.

Fourth, the Court considered the tortious interference with contract and economic relations claims, which was based on the allegation that Sony ATV and Applied conspired to interfere with the distribution contract by stating that the film infringed on Sony ATV's copyrights.  The Court found that plaintiff failed to adequately plead breach of the contract because it was possible that the distribution contract was lawfully terminated.  The complaint did not identify which section of the contract was breached, "a particularly damaging omission in light of the provisions in the contract suggesting that [the distribution partner] had the right to suspend working on, distributing or exhibiting all or any portion of the film for which the partner received a demand or claim.  Further, plaintiff failed to allege the use of "wrongful means."  Sony ATV steadfastly  maintained that it owns the rights to the song, and it did not assert copyright claims in bad faith.  The bare legal conclusions of malice were insufficient.

Fifth, the Court considered plaintiff's unfair competition claim under New York common law.  The Court rejected an extension of the common law claim (which has two theories: for palming off and misappropriation) to include "commercial immorality."

Finally, the Court considered Plaintiff's claim under NY GBL sec. 349.  The Court found that defendants' alleged conduct was not consumer-oriented.  It was not a standard-issue consumer oriented transaction that section 349 was designed to protect.

Monopolization Claim Against SESAC Not Subject To Dismissal

Radio Music License Committee, Inc. v. SESAC, Inc. , No. 2:12-cv-5807 (E.D. Pa. June 26, 2014).

Plaintiff sued the public performance rights organization SESAC, seeking declaratory and injunctive relief on behalf of its member radio stations under §1 and §2 of the Sherman Antitrust Act (15 U.S.C. §§1 & 2) and §16 of the Clayton Act (15 U.S.C. §26).  Plaintiff alleged three counts: horizontal price fixing, group boycott/refusal to deal, and monopolization.  The Court granted SESAC's motion to dismiss the price fixing and refusal to deal claims, but denied the motion as to plaintiff's monopolization claim.  With respect to monopolization, the Court found: "The hallmark of anticompetitive conduct is harm to competition, but the danger of anticompetitive conduct is harm to the consumer.  The most common characteristics of unlawful monopolies are price increases, output decreases, and a deterioration in quality and service, all of which the antitrust laws seek to minimize.  That is precisely what plaintiff has alleged here. SESAC’s anticompetitive conduct has driven up the price of copyright licenses and deteriorated the quality of service insofar as customers only have the option of purchasing a blanket license. The court believes that plaintiff has alleged a plausible claim for which relief can be granted under §2 of the Sherman Act."

SESAC Can't Escape Antitrust Claims

Meredith Corp. v. SESAC LLC, No. 09 Civ. 9177 (PAE)., 2014 BL 57263 (S.D.N.Y. Mar. 03, 2014).


The issue in this putative class action is whether SESAC's licensing practices since 2008 have violated federal antitrust law. Plaintiffs are groups of local television stations.  They sue SESAC aand allege that, in practice, they must obtain licenses for some music in SESAC's repertory. That is because SESAC's repertory is large and includes works so ubiquitous that some are inevitably embedded in shows that the stations acquire and wish to air.  Plaintiffs contend that, since 2008, SESAC, with its affiliates' assent, has taken steps to make illusory any alternative to the blanket license it sells, which conveys the right to play the music of all SESAC affiliates.  Having insulated this product from competition and forced local television stations to acquire it, plaintiffs allege, SESAC has set an exorbitant price for that "all or nothing" license, even though stations have no interest in buying the rights to the entirety of SESAC's repertory. Plaintiffs assert that SESAC and its affiliates have thereby violated § 1 of the Sherman Act, 15 U.S.C. § 1, by combining to unlawfully restrain trade; and § 2 of the same Act, 15 U.S.C. § 2, by conspiring to monopolize the market for the performance rights to the musical works within SESAC's repertory.  Plaintiffs also assert a monopolization claim against SESAC under § 2.

SESAC moved for summary judgment. The Court denied the motion as to all three counts, except that on the § 1 claim, the Court granted summary judgment to defendants in two ways that narrowed that claim. Specifically, the Court rejected plaintiffs' (1) per se theory of liability; and (2) claim of an agreement to restrain trade among all 20,000-plus SESAC affiliates, as opposed to among only the far smaller subset (under 1%) of affiliates who were party to a supplemental affiliation agreement with SESAC.

The Court first reviewed the history of antitrust litigation involving the PROs' licensing practices. The Court then considered the § 1 claim, assessing whether (1) the conduct plaintiffs assail is amenable to per se condemnation; (2) there is adequate evidence of concerted action among SESAC's affiliates to restrain trade; and (3) the evidence would support a conclusion that the anti-competitive effects of SESAC's conduct outweighed its pro-competitive tendencies, i.e., whether a jury could find harm to competition. The Court then considered the § 2 claims, addressing first the monopolization claim and then the claim of a conspiracy to monopolize.

Suit Filed Over Beatles Movie

Ace Arts LLC v. Sony/ATV Music Publishing LLC et al.; No. 13-cv-7307 (S.D.N.Y. filed Oct. 16, 2013).

The Beatles' music publisher and record company were sued in connection with plaintiff's contract to distribute a film, The Beatles: The Lost Concert, which documents the impact the Beatles had in the USA and their first concert in Washington DC in 1964.  Plaintiff claims $100 million in damages for alleged violation of the Sherman Act, tortious interference with contract, interference with prospective economic relations, unfair competition, and violation of the N.Y. General Business Law.

Pre-1972 Recordings Subject To DMCA

UMG Recordings, Inc. v. Escape Media Group, Inc., No. 100152/2010 (Sup. Ct., N.Y. Co. July 10, 2012) (Kapnick, J.S.C.).

New York State Court holds that the "safe harbor" provisions of the DMCA extend to common law copyright claims relating to pre-1972 recordings.

Plaintiff moved to dismiss defendant's "safe harbor" affirmative defense under the DMCA [17 U.S.C. 512(c)(1)].  Section 301(c) of the Copyright Act makes clear that the copyrights of pre-1972 recordings are not protected by the federal Copyright Act, and the Court analyzed whether the DMCA may provide a defense or "safe harbor" to internet service providers facing New York State common law copyright infringement claims (as opposed to claims under the federal act).  The Court observed that only one court has considered the issue (Capitol Records, Inc. v. MP3Tunes, 821 F. Supp.2d 627, 640 (SDNY 2011), and concluded that "there is no indication in the text of the DMCA that Congress intended to limit the reach of the safe harbors provided by the statute to just post-1972 recordings."  In response to a report by the Register of Copyrights that "it is for the Courts to interpret the applicable statute and decide the issues raise by this motion.  This Court is not attempting to extend the Copyright Act to pre-1972 recordings, but, nonetheless, does find, based on the relevant language of the statutes...that the safe harbor provisions codified by section 512(c)(1) of the DMCA is applicable to pre-1972 recordings."  Accordingly, plaintiff's motion to dismiss the DMCA affirmative defense was denied.

However, the Court did dismiss defendant's affirmative defense based on the Communications Decency Act of 1996 (the "CDA") [47 U.S.C. 230].  Lastly, the Court dismissed defendant's counter-claim for violation of a New York State anti-trust statute, the "Donnelly Act" (NY General Business Law 340), but denied plaintiff's motion to dismiss the counter-claims for tortious interference with contract and business relations.

2d Cir Finds Antitrust Suit Stated Against Record Labels For Online Sales

The United States Circuit Court, Second Circuit, holds that plaintiffs' antitrust complaint alleging a conspiracy by major record labels to fix the prices and terms under which their music would be sold over the Internet states a claim for violation of Section 1 of the Sherman Act under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The amended complaint contains "enough factual matter (taken as true) to suggest that an agreement was made," id. at 555, and therefore states a claim.

"The present complaint succeeds where Twombly's failed because the complaint alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among defendants," Judge Katzmann said.

The defendants "agreed to launch MusicNet and pressplay, both of which charged unreasonably high prices and contained similar DRMs", and the entities did not "dramatically" drop "their prices for Internet Music (as compared to CDs), despite the fact that all defendants experienced dramatic cost reductions in producing Internet Music."

Starr v. Sony BMG, No. 08-5637-cv, NYLJ 1/14/2010 "Decision of the Day" (2d Cir. decided Jan. 13, 2010).

Antitrust Claims Against Majors Dismissed

In re Digital Music Antitrust Litigation, No. 06 MDL 1780, 10/17/08 N.Y.L.J. "Decision of Interest" (S.D.N.Y. decided Oct. 9, 2008) (Preska, J.)

Plaintiffs sought to represent a nation-wide class of buyers of "digital music" on claims that defendant recording companies conspired to artificially fix prices on digital music (both CDs and Internet music). Defendants, the major record labels (EMI, SonyBMG, UMG, anmd Warner) allegedly fixed a high price for, and restrained availability of Internet music - by imposing the same price and use restrictions (i.e., DRM) on their sale thereof - which "buoyed" the price of CDs.

Plaintiffs' second consolidated amended complaint dismissed under the pleading standards of Bell Atlantic v. Twombly. Plaintiffs' first claim was for violation of section 1 of the Sherman Antitrust Act. The court concluded it was unreasonable to infer that defendants' adoption of DRM and parallel price arose from their membership in joint ventures that were created to distribute Internet Music. Other circumstantial evidence also did not justify an inference that defendants' parallel conduct resulted from an illegal agreement under the Sherman Act. For example, the court found there was no "antitrust record" based on investigation by government agencies, including the NY Attorney General. Nor would"mere participation in an industry trade association" yield an inference of improper inter-firm communication.

Similarly dismissed as predicated on the same allegations were state antitrust claims, consumer protection claims, and the unjust enrichment count.

Accross the Pond, EU Takes Bite into Apple

Item 1: The European Union closed its anti-trust investigation into Apple iTunes operation. However, "some copyright issues remain". Notably, the European Commission refused to address other copyright restrictions in place, i.e., DRM.

Item 2: Apple will eliminate its price discrimination across the EU. Users of iTunes in Britain are charged approximately 9 cents more per download than users in other EU nations that use the Euro currency. In the coming months, users across the EU will be charged a uniform "pan-EU" price per download. However, what this means if the record labels fail to get on board and lower their wholesale prices to Apple is yet to be seen? It seems unlikely that the majors will forfeit the huge market iTunes provides by playing hard-ball and not lowering their prices. Similarly, small and indie labels will likely adjust their prices to maintain their access to their product via a mass-distributor like iTunes.

...so what does this mean to Apple? Are they no longer a "Standard Oil"?