Sirius XM Files Antitrust Suit Against SoundExchange, Seeks Dissolution

Sirius XM has filed an antitrust suit against SoundEx­change and the Amer­i­can Asso­ci­a­tion of Inde­pen­dent Music, alleg­ing that these enti­ties have been col­lud­ing with the major and cer­tain inde­pen­dent record labels to pre­vent Sir­ius XM from direct licens­ing the sound record­ing copy­rights it needs to pro­vide its var­i­ous services.

For those unfa­mil­iar with the arcane world of com­pul­sory licens­ing for sound record­ing per­for­mance rights, the Copy­right Act con­tains var­i­ous com­pul­sory licenses that allow cer­tain kinds of dig­i­tal music ser­vices to pub­licly per­form sound record­ings, and make ephemeral copies for the pur­pose of oper­at­ing such ser­vices.  SoundEx­change used to be a divi­sion of the RIAA, but is now tech­ni­cally (but not really func­tion­ally) an inde­pen­dent cor­po­ra­tion that col­lects roy­alty pay­ments for these com­pul­sory licenses, and dis­trib­utes the roy­al­ties to the record labels that own the copy­rights and the record­ing artists fea­tured on the record­ings.  SoundEx­change oper­ates under a lim­ited antitrust exemp­tion, which allows it to nego­ti­ate rates col­lec­tively on behalf of its mem­ber record labels and to lit­i­gate rate pro­ceed­ings before the Copy­right Roy­alty Board when such nego­ti­a­tions do not yield a rate agree­ment.  Hav­ing endured sev­eral of these “nego­ti­a­tions’ and rate pro­ceed­ings against SoundEx­change, I could write a book about the inequities and prob­lems inher­ent in that sys­tem.  But I digress.

Sir­ius XM is, of course, a com­pany that pro­vides satel­lite radio and other types of dig­i­tal music ser­vices that use var­i­ous of the com­pul­sory licenses dis­cussed above.  Notably, noth­ing in the Copy­right Act requires a dig­i­tal music ser­vice to avail itself of the com­pul­sory licenses if they are will­ing and able to obtain direct licenses from the own­ers of the sound record­ings it wishes to play on its ser­vice.  Rather the com­pul­sory licenses were meant to 1) ensure that record labels, well known for mak­ing stu­pid busi­ness deci­sions based on spite and a desire for total con­trol, could not refuse to license non-interactive dig­i­tal music ser­vices and 2) allow music ser­vices to avoid the has­sle of obtain­ing sep­a­rate licenses from all of the thou­sands of record labels.

In 2010, Sir­ius XM began a pro­gram of seek­ing direct licenses from record labels.  This made sense for var­i­ous busi­ness rea­sons explained in the com­plaint.  There are also rea­sons why an inde­pen­dent record label might want to grant a direct license, even if the license is at a lower rate than the com­pul­sory license rate set by the Copy­right Roy­alty Board.  For exam­ple, SoundEx­change deducts its admin­is­tra­tive costs, includ­ing mas­sive lit­i­ga­tion costs for CRB rate pro­ceed­ings, from the roy­alty pool before dis­trib­ut­ing the remain­der to record labels and artists.  No such costs would be deducted from the direct license roy­alty stream.  Also, SoundEx­change is not exactly known for mak­ing prompt or trans­par­ent pay­ments to copy­right owners.

Accord­ing to the com­plaint, SoundEx­change, RIAA and other trade orga­ni­za­tions appar­ently viewed this as a direct attack on their abil­ity to apply monop­oly power in rate nego­ti­a­tions and promptly began col­lud­ing with the major record labels to apply pres­sure on inde­pen­dent record labels and dis­cour­age them from enter­ing into direct license deals with Sir­ius XM.  The var­i­ous detailed alle­ga­tions of anti-competitive con­duct by SoundEx­change and the major record labels are fas­ci­nat­ing if you are at all inter­ested in the music busi­ness or com­pul­sory licensing.

In addi­tion to var­i­ous injunc­tive and mon­e­tary relief, Sir­ius XM is ask­ing the Court to “order SoundEx­change to be dis­solved and unwound on an orderly basis or, alter­na­tively, order that an inde­pen­dent mon­i­tor be appointed to over­see SoundExchange’s com­pli­ance with the antitrust laws, at SoundExchange’s expense, for a period of ten years or other amount of time to be deter­mined by the Court.”

Here is a copy of the com­plaint, which is rec­om­mended reading:

photo by: pennstate­live

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  1. […] mail­ings and other post­ings. And, on the other hand, Sir­ius may be going to far in its law­suit, in which it calls for the dis­so­lu­tion of Sound […]

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