Antitrust Claims Against SESAC Copyright Licenses Permitted To Proceed

by Foley Hoag LLP - Trademark, Copyright & Unfair Competition
Contact

Performing rights organizations (PROs) are entities that issue licenses to, and collect royalties from, television stations and other parties who wish to perform or dylanbroadcast copyrighted musical compositions. There are three PROs in the United States, the largest of which are ASCAP and BMI. The other PRO, the Society of European Stage Authors and Composers (SESAC) has until recently been the Jan Brady of the bunch – born in the middle and often overlooked. Founded in 1930 to represent European composers, it later concentrated on the Christian music genre.

Because ASCAP and BMI are bigger, they are also better known, not only by licensees and composers, but also by antitrust regulators. Since the 1940’s, BMI and ASCAP have been the target of numerous private antitrust lawsuits and government actions, and both have entered into consent decrees with the Department of Justice that place controls and restrictions on their licensing activities. SESAC, on the other hand, has largely flown under the antitrust radar.

However, in the early 1990’s, SESAC began expanding its catalogue, which now includes more than 20,000 affiliated composers, including Bob Dylan and Neil Diamond, and other lucrative properties such as the music embedded in reruns of Seinfeld. In 2008, SESAC allegedly attempted to parlay this increased market share into more favorable licensing terms with television stations.  The Meredith Corporation and other television companies filed suit in 2009, alleging that these new terms violated the Sherman Act. On March 3, 2014, Judge Paul Engelmayer of the Southern District of New York, in Meredith Corp. v. SESAC LLC, denied SESAC’s motion for summary judgment and allowed most of these claims to move forward to trial.

SESAC’s Television Licensing Terms

Almost every television program contains music, but the right to broadcast a program does not ordinarily include the right to broadcast the music embedded in it, which must be separately secured. As a practical matter, this puts television stations in a tough spot. They can’t control which music is used in the programs they air (except for locally produced shows), and it would be darned impractical to try and license the music rights directly from every composer for each individual piece of music in every program. So, the stations have little choice but to take licenses from all three PROs.

The purported problem with this arrangement, from the perspective of licensees, is that PROs could take advantage of the situation and force television stations to accept expensive “blanket” licenses, in other words, an all-or-nothing deal that includes a PRO’s entire catalogue, even if the licensee only ends up using a few songs. The BMI and ASCAP consent decrees address this concern by requiring the option of a “per-program” license (PPL), under which a station only pays for the music it uses. SESAC (even though unencumbered by the consent decrees) offers both blanket licenses and PPLs.  However, the television station plaintiffs argued that what SESAC was offering nevertheless was unlawful in the following ways:

  • Although SESAC offered a PPL, the television stations claim that SESAC manipulated its terms, including by jacking up the administrative costs, so that it would always cost more than a blanket license and in effect elimiate the only economically viable alternative to the blanket license.
  • SESAC allegedly increased its blanket license fee 10% over the prior license period, despite a decline in demand for SESAC music. By contrast, under the BMI and ASCAP consent decrees, disputed licensing rates must be deemed “reasonable” by a third party Rate Court.
  • Most notably, SESAC allegedly entered into “supplemental affiliation agreements” with a few of its most popular composers. Under these agreements, the composers purportedly received more compensation up front from SESAC, and in return the composers agreed not to deal directly with the television stations (or at least to pay very steep fines if they did).

The Court’s Antitrust Analysis

Section 1 of the Sherman Act outlaws “[e]very contract, combination . . . or conspiracy in restraint of trade or commerce.”  Judge Engelmayer wrote that, in order to make out a case under Section 1, a plaintiff must show both concerted action to accomplish an unlawful objective and an unreasonable restraint of trade. Under the “rule of reason” analysis applicable to most situations, a court determines whether an accused action is an unreasonable restraint of trade by considering, among other things, the definition of the relevant market, the defendant’s market power and the pro-competitive effects of the challenged activity.

The court held that a jury could find that SESAC’s activities satisfied the elements of a Section 1 violation. First, a jury could find concerted action among SESAC-affiliated composers, i.e., that they knew their rights would be bundled into a blanket license.  Also, a jury could find that the small percentage of composers who agreed to “supplemental affiliation agreements” did so appreciating that they were unlawfully “choking off” any competition to SESAC’s blanket license.

As to whether this activity was an “unreasonable restraint” on trade, the court engaged in a “rule of reason” analysis. The Court first explained that the relevant market was not the entire PRO industry (SESAC, ASCAP and BMI). Each PRO has entirely different catalogues, so a television station cannot substitute one license for another, but always had to deal with all three. Therefore, the relevant market in this case was SESAC’s catalogue only. The Court held that, with that market definition in mind, a jury could find that the anticompetitive effects of the SESAC license terms (allegedly unrealistic pricing, restrictive supplemental affiliation agreements, etc.) outweighed any procompetitive benefits (which in this case would include giving stations the ability to acquire rights to many works at once and potentially lowering administrative costs).

The Court also refused to dismiss the television stations’ claim under Section 2 of the Sherman Act, which alleged that SESAC was attempting to “maintain and fortify” a monopoly by eliminating all realistic competition. After issuing its order, the court temporarily stayed all pretrial deadlines to give the parties a “time out” to explore settlement. They have until April 11, 2014 to report to the court.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley Hoag LLP - Trademark, Copyright & Unfair Competition | Attorney Advertising

Written by:

Foley Hoag LLP - Trademark, Copyright & Unfair Competition
Contact
more
less

Foley Hoag LLP - Trademark, Copyright & Unfair Competition on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.