SiriusXM Files Antitrust Claims Against SoundExchange and A2IM

May 2012

Record labels, broadcasting

In a curious move, Satellite and internet radio station Sirius XM Radio has filed a complaint against US collection society SoundExchange, Inc. and the American Association of Independent Music (“A2IM”) saying both organisations unlawfully interfered in SiriusXM’s efforts to secure, through a competitive market, the use of sound recordings critical to its business.  The complaint contends that the conduct violates federal antitrust, as well as New York state law, in particular violating Section 1 of the Sherman Act by interfering with the satellite channel’s efforts to obtain cheaper direct licenses that pay royalty rates of 5% to 7%, instead of the 8% statutory rate for master rights owners. SoundExchange is the non-profit performance rights organization that collects statutory royalties from satellite radio (such as SIRIUS XM), internet radio, cable TV music channels and similar platforms for streaming sound recordings.  The Copyright Royalty Board, which is appointed by The U.S. Library of Congress, has entrusted SoundExchange as the sole entity in the United States to collect and distribute these digital performance royalties on behalf of featured recording artists, master rights owners (like record labels), and independent artists who record and own their masters.

SiriusXM is seeking injunctive relief to stop SoundExchange and A2IM from impeding its efforts to directly obtain the licenses it wants to operate its business by direct dealings with record companies instead of relying exclusively on licenses either negotiated with SoundExchange acting as the record industry’s collective or on the outcome of regulatory rate-making proceedings. SoundExchange collected $292 million in royalties for 2011, up from $20 million in 2005.

The most significant redress SiriusXM asks for is for SoundExchange to be dissolved and unwound on an orderly basis, or alternatively the appointment of an independent monitor to oversee SoundExchange’s compliance with antitrust laws for a period of 10 years.

The complaint also asks the defendants to pay its legal fee and whatever economic damages the court determines SiriusXM has suffered.

The complaint charges that, although SiriusXM has the legal right to negotiate with individual record companies for such licenses, SoundExchange, in collaboration with other record industry organizations, has orchestrated an illegal boycott designed to choke off such competition and have eliminated price competition in, among others, the market for digital transmissions of sound recordings licensable under the statutory licensing provisions of Section 114 of the Copyright Act of 1976.

The complaint was filed in the United States District Court for the Southern District of New York and it will be interesting to see the American court’s take on the position of clearly monopolistic collection societies. In the UK both the recorded music sector and the music publishing sectors were subject to regulatory scrutiny in the late eighties and early nineties with investigations by the Mergers & Monopolies Commission (now Competition Commission) with three enquiries into Phonographic Performance Limited (1988), the Supply of Recorded Music (1994) and the Administration of Performing Rights (1996). More recently attention has focussed on Europe and the tensions between the need to find a pan-European solution to the licensing of on-line music rights with the provisions of competition law. At the recent IP and Media in the Digital Age Conference in London (March 23rd, Lexus Nexus) Stephen Hornsby (Davenport Lyons) pointed to the potential conflict between the mission statement of the EU Commission to establish a single market (and recent decisions such as the ECJ with MPS v Murphy and FAPL v QC Leisure supporting this) and the territorial based national collection societies with their cross border reciprocal representation contracts. In 2005 the European Commission somewhat fudged an answer to the tension in Europe, offering three alternatives: (1) Do nothing (2) Somehow allow every collection society to offer EU wide licensing or (3) allow rights owners to appoint one on-line manager for the whole EU. Whilst the CISAC (Confédération Internationale des Sociétés d’Auteurs et Compositeurs) and GEMA decisions opened up cross border membership opportunities, they have done little to change exclusive territorial licensing. Despite the European Commission adopting an antitrust decision prohibiting the then 24 European collecting societies from restricting competition by limiting their ability to offer their services to authors and commercial users outside their domestic territory no financial penalties were imposed and the collective management organisations CMOs could retain their bilateral treaty arrangements whilst subjected to a 120 day period to submit revised practices to the EC – and this was then appealed in the ECJ in 2008, resulting in the October 2011 hearing. Stephen explained that after oral hearings in the ECJ, one judge was replaced and became a minister in Italy’s new government so no decision is expected before October 2012.

Interestingly in the 1989 case Ministère Public v Jean-Louis Tournier the Advocate General of the ECJ looked towards US law to find a solution where it had been established that a “rule of reason rather than a per se approach should be taken to global licensing so that a balance could be struck between the effective management of copyright on one hand, and the prevention of the abuse of companies of a monopoly undertaking on the other hand could be achieved”.

The CISAC case: COMP/C2/38.698 CISAC and CISAC v. Commission; Case T442/08 and see

Ministere Public v Jean-Louis Tournier (1989) Case 395/87

GEMA v Commission (1979) Case C 125-78

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