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Soundexchange, Inc. v. Muzak LLC

United States District Court, District of Columbia

March 7, 2016

SOUNDEXCHANGE, INC. Plaintiff
v.
MUZAK, LLC Defendant

MEMORANDUM OPINION

Royce C. Lamberth, United States District Judge

Now before the Court is defendant's motion to dismiss, plaintiffs opposition, and defendant's reply. ECF Nos. 13, 18, & 21. For the reasons stated below and by separate order issued this date, defendant's motion shall be GRANTED.

I. BACKGROUND

The facts set out herein are either undisputed, or are as alleged by plaintiff. The Court, in keeping with its responsibilities under Federal Rules of Civil Procedure 12(b)(6) accepts as true all factual allegations set forth by plaintiff for purposes of this motion.

a. Plaintiffs role in collecting royalties under the Copyright Act

Plaintiff is a nonprofit organization, with statutory authority under, inter alia, 17 U.S.C. § 114(g) and 37 C.F.R. §§ 370, 382, and 384, as designated by the Copyright Royalty Judges. Compl., ECF No. 1, at 3; 17 U.S.C. § 801. Plaintiff filed the complaint in this case as the "sole entity designated by regulation" to "collect statutory license payments from copyright users and to distribute those payments to performing artists and copyright owners." Compl. 2. Section 114 contains various provisions making plaintiff, as the designated nonprofit agent, responsible for administrating and distributing statutory royalties and enforcing statutory licenses. The Copyright Act provides these statutory licenses as "an alternative to having every music service negotiate separate licenses with every copyright owner, " under § 112(e) and (d)(2). Compl. 4. Those companies which make use of such statutory licenses pay royalties at rates set by Copyright Royalty Judge under §§ 112(e)(3) and 114(f). Accordingly, defendant (as well as other entities utilizing statutory licenses) are obligated to make payments to plaintiff under the aforementioned statutory licenses. Compl. 2.

b. The Digital Millennium Copyright Act

The Digital Millennium Copyright Act ("DMCA") established a new statutory scheme to determine royalties under Title 17 of the United States Code. Pub. L. No. 105-304, 112 Stat. 2860 (Oct. 28, 1998); 17 U.S.C. §§ 101, et seq.; Compl. 1; Def.'s Mot. Dismiss 9-11. The new standard for calculating royalty rates under the DMCA should reflect what "would have been negotiated in the marketplace between a willing buyer and a willing seller." 17 U.S.C. § 114(f)(2)(B). This is referred to as the willing buyer/willing seller standard. While the DMCA established new standards for determining royalty rates, it also created an exception for preexisting subscription services ("PSS" or "PES"). 17 U.S.C. § 114(j)(l 1). Defendant and two other entities were grandfathered under this exception. Compl. 6. PSS are not subject to the "willing buyer/willing seller" standard, but instead enjoy generally favorable royalty rates. Compl. 5-6. The lower PSS rates give the PSS a competitive advantage over non-PSS. Compl. 6; Pl'.sOpp. Def.'s Mot. Dismiss 11.

c. Muzak

Defendant is the provider of "a subscription-based digital music service for various satellite and cable television providers." Def.'s Mot. Dismiss 6. Defendant provided digital music service available to consumers as music channels transmitted with Dish satellite television service ("Dish") packages under the name DishCD. Compl. 1 & 9. DishCD consists generally of audio-only content transmitted on certain channels of Dish Network ("Dish"), a multichannel video programming distributor ("MVPD") under 47 U.S.C. § 522(13). Compl. 1-2. As such, defendant was one of the first entities to utilize the statutory licensing scheme provided under § 114(d)(2). Compl. 1. In 1998, under the DMCA, Congress revised the statutory licensing provisions, granting several entities status as PSS. Pub. L. No. 105-304, 112 Stat. 2860 (Oct. 28, 1998). Defendant was specifically identified as a PSS in the legislative history of the DMCA, and has continued to operate as such within the statutory definition of PSS. 17 U.S.C. § 1140)(11); H.R. Conf. Rep. 105-796, 105th Cong., 2nd Sess., 657 (1998).

d. DMX

DMX, as "DMX (operated by TCI Music)" was also originally designated as a PSS in 1998. 17 U.S.C. § 1140X11); H.R. Conf. Rep. 105-796, 105th Cong., 2nd Sess., 657 (1998); Compl. 10. By 2006, DMX business and offerings had been restructured and the resultant entity no longer claimed the PSS rates. Compl. 10; Designation as a Preexisting Subscription Service, 71 Fed. Reg. 64, 639-1 (Nov. 3, 2006). After 2006, DMX, or the entities offering music services under the DMX brand name, made statutory royalty payments to plaintiff under the new subscription service rate. Compl. 10. DMX began offering a new brand, SonicTap, in 2010, which provided subscription packages for DirecTV satellite television at the new subscription service rates (the willing buyer/willing seller standard) rather than the PSS rates. 17 U.S.C. § 114(f)(2)(B); Compl. 10; Pl'.sOpp. Def.'s Mot. Dismiss 13-14.

e. Acquisition of Muzak and DMX

Mood Media Corporation ("Mood") acquired Muzak in 2011. Compl. 9. In 2012, Mood also acquired DMX Holdings, Inc., which was the provider of DMX services (specifically, SonicTap on DirecTV). Compl. 10. When Mood acquired DMX, SonicTap was making royalty payments at the new subscription service rate. Compl. 10. Defendant acquired the right to provide audio-only channels to DMX's previous customers effective May 1, 2014. Compl. 10; Pl'.sOpp. Def.'s Mot. Dimiss 14. Defendant notified plaintiff of the acquisition and intent to utilize the PSS rate, then continued to make royalty payments for the services that were previously provided by DMX, specifically the SonicTap services, at the PSS rate. Compl. 10-11. Plaintiff asked defendant for clarification as to why defendant believed that these services qualified for the PSS royalty rates, to which defendant replied it was "eligible to pay royalties as a [PSS] for all of its activities..." Compl. 11. In May 2014, DMX ceased independently making royalty ...


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