SoundExchange Royalties Case Against Muzak Reinstated By Appellate Court

SoundExchange v. Muzak, No. 16-7041 (D.C. Cir. Apr. 25, 2017).

The D.C. Court of Appeals reversed the dismissal of SoundExchange's complaint against Muzak, which alleges that Muzak underpaid royalties.  SoundExchange is a nonprofit entity charged with the responsibility of collecting royalties for performing artists and copyright owners of music; Muzak is a company that supplies digital music channels to satellite television networks who, in turn, sell to subscribers.  Muzak argued that it was permitted to pay lower, "grandfathered," rates that had been set by a copyright royalties board even after certain corporate changes.  There had been a statutory change in the 1990s as part of the DMCA-compromise, and the case turned on the statutory definition of a "preexisting subscription service."  The Court concluded:

The grandfather provisions were intended to protect prior investments the three business entities had made during a more favorable pre-1998 rate-setting regulatory climate. “Muzak was [a] pioneer music service that incurred both the benefits and risks that came with its investment,” specifically its investment in DishCD. 71 Fed. Reg. at 64,646. But when Muzak expands its operations and provides additional transmissions to subscribers to a different “service,” (i.e., SonicTap), this is an entirely new investment. * * * We conclude, therefore, 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.

New Service Grandfathered For Pre-1998 Royalty Rates

SoundExchange v. Muzak, No. 15-cv-476 (D.D.C. filed Mar. 8, 2016).

The Court held that Muzak, a grandfathered "preexisting subscription service" under 17 USC 114, enjoyed a favorable royalty rate -- not subject to the  "willing buyer/willing seller" standard -- for its SonicTap service even though that service was not offered at the relevant statutory date.  Interpreting the statute, the Court found that Congress intended to permit preeexisting subscription services to expand their offerings.  This ruling was also consistend with the legislative history and findings by the Register of Copyrights.

Copyright Royalty Board Royalty Rates For Performance Of Sound Recordings Affirmed

Music Choice v. Copyright Royalty Board, No. 13-1174/13-1183 (D.C. Cir. Dec. 19, 2014).

In 2013, the Judges of the Copyright Royalty Board (CRB) issued a determination setting royalty rates and defining terms for statutorily defined satellite digital audio radio services and preexisting subscription services.  SoundExchange, which collects and distributes royalties, argued that the CRB arbitrarily set rates too low and that the CRB erred in defining "Gross Revenue" and eligible deductions.  Music Choice, which provides music-only television channels, also appealed arguing that the Judges set the rates too high.

The Court of Appeals held that the CRB acted within its broad discretion to set rates for compulsory licenses of the digital performance of sound recordings, and therefore affirmed the determination of royalty rates.  The appellate court found that the CRB did not exercise its broad discretion in an arbitrary or capricious manner when setting royalty rates for satellite digital audio radio services and preexisting subscription services.

For satellite digital audio radio services, the rate was set at 11%; in order to avoid disruption, the CRB adopted a staggered schedule beginning at 9% in 2013 and increasing by 0.5% annually until achievement of 11% in 2017.

For preexisting subscription services, the rate was set at 8.5% with an upward adjustment for Music Choice's planned channel expansion.  The rate would start at 8% in 2013 and increase to 8.5% for 2014 through 2017.

SoundExchange/Sirius Royalty Dispute Belongs Before Copyright Royalty Board, Not Federal Court

SoundExchange, Inc. v. Sirius XM Radio, Inc., No. 1:13-cv-1290 (D.D.C. filed August 26, 2014).

Pursuant to the "primary jurisdiction" doctrine, a federal district court judge stayed a royalties dispute between SoundExchange and Sirius, saying that the dispute belongs before the Copyright Royalty Board.  The parties already had met before the CRB in two prior proceedings, setting royalty rates for the digital broadcast of sound recordings on satellite radio  SoundExchange brought an action in federal court alleging that Sirius underpaid royalties owed from 2007-2012 (the subject of the first CRB proceeding).  The instant dispute centered on the meaning of the term "Gross Revenues" (a percentage of which are the royalties owed SoundExchange), and Sirius's alleged reductions/exclusions therefrom based on pre-72 recordings and Sirius' premiere subscriber package.  The Court agreed with Sirius that the disputes "are best suited to review in the first instance by the CRB. ... [T]he technical and policy expertise of the CRB makes referral to that body appropriate."  Because neither party was asking for a change in the royalty rates, only a clarification, the CRB was found to have continuing jurisdiction.

Satellite Radio Royalty Rate Hike Reported

Sirius XM reports in an EDGAR filing:


"On December 14, 2012, the Copyright Royalty Board, or CRB, of the Library of Congress issued its determination regarding the royalty rate payable by us under the statutory license covering the performance of sound recordings over our satellite digital audio radio service, and the making of ephemeral (server) copies in support of such performances, for the five-year period starting January 1, 2013 and ending on
December 31, 2017. Under the terms of the CRB’s decision, we will pay a royalty of 9.0% of gross revenues, subject to certain exclusions, for 2013, 9.5% for 2014, 10.0% for 2015, 10.5% for 2016, and 11% for 2017. The rate for 2012 is 8.0%."

Copyright Royalty Board Final Rule

37 CFR Part 380: Digital Performance Right in Sound Recordings and Ephemeral Recordings;

Final Rule. The Copyright Royalty Judges announced their final determination of the rates and terms for two statutory licenses, permitting certain digital performances of sound recordings and the making of ephemeral recordings, for the period beginning January 1, 2011, and ending on December 31, 2015. (Effective Date March 9, 2011).

For example, a Commercial Webcaster will pay a royalty of: $0.0019 per performance for 2011; $0.0021 per performance for 2012; $0.0021 per performance for 2013; $0.0023 per performance for 2014; and $0.0023 per performance for 2015. Depending on the number of "tuning hours," a Noncommercial Webcaster will pay an annual per channel or per station performance royalty of $500 in 2011, 2012, 2013, 2014, and 2015; or, $0.0019 per performance for 2011; $0.0021 per performance for 2012; $0.0021 per performance for 2013; $0.0023 per performance for 2014; and $0.0023 per performance for 2015. (Section 380.3).

Ringtone Royalty Rate Approved By DC Circuit

RIAA v. Librarian of Congress, No. 09-1075 (D.C. Cir. decided June 22, 2010).

Rebuking a challenge by the Recording Industry Association of America, the DC District Court upheld a decision by the Copyright Royalty Board setting the ringtone "penny-rate" royalty rate at $0.24. The court also upheld a new late fee, 1.5%, for overdue royalty payments.

The Board's decision was "reasonable and reasonably explained."

Webcasting Not 'Interactive Service' Required to Pay License Fees

A webcasting service, Launch, that provides users with individualized Internet radio stations is not required to pay licensing fees to copyright holders of the songs the service plays. The service, which provides the stations by which content is affected by customers' ratings of titles, artists and albums, is not "interactive" as a matter of law. Therefore it is not required to pay individual license fees to the copyright holders; instead, it is only required to pay a statutory licensing fee as set by the Copyright Royalty Board.

Arista Records, LLC v. Launch Media, Inc., no. 07-civ-2567 (2d Cir. Aug. 21, 2009).

Arista v Launch