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Soundexchange, Inc. v. Muzak LLC

United States District Court, District of Columbia

August 22, 2018

SOUNDEXCHANGE, INC. Plaintiff
v.
MUZAK, LLC Defendant

          MEMORANDUM OPINION

          Royce C. Lamberth United States District Judge.

         Now before the Court is plaintiffs Motion for Summary Judgment as to Liability [ECF No. 35]. Upon consideration, plaintiffs motion is GRANTED IN PART and DENIED IN PART. The Court grants the motion as to the plaintiffs prima facie case, but believes a summary judgment ruling on defendant's affirmative defenses would be premature.

         I. BACKGROUND

         Muzak, LLC ("Muzak" or "defendant") is a provider of digital music that generates revenue by packaging sound recordings into channels and providing those channels to individuals who subscribe to cable and satellite television system operators. Previously, subscription services, such as Muzak, were not required to obtain a license to publicly perform sound recordings because copyright owners did not have an exclusive right to publicly perform their work.

         a. The Digital Performance Right in Sound Recordings Act

         In 1995, that changed when Congress passed the Digital Performance Right in Sound Recordings Act, giving copyright owners an exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." See Pub. L. No. 104-39, § 2, 109 Stat. 336, 336 (1995) (codified at 17 U.S.C. § 106(6)).

         While creating a new right and revenue stream for copyright owners, the law also created a compulsory statutory license regime for those wishing to transmit the copyrighted work. Under this framework, any non-interactive digital subscription service who wished to perform a sound recording publicly could do so without infringing by complying with notice requirements and by paying a royalty fee. See Pub. L. No. 104-39, amending 17 U.S.C. § 114(f)(5). The royalty rates were to be set every five years in adversarial rule-making proceedings held by the Copyright Royalty Board. See 17 U.S.C. § 114(f). The first of these proceedings began in 1996 and three subscription services-Muzak, Digital Cable Radio Associates (operating as "Music Choice"), and DMX Music, Inc.-participated. The resulting rates, some argued, favored the subscription service providers over the copyright holders.

         b. The Digital Millennium Copyright Act

         In 1998, Congress revisited the compulsory license system, in part, to make the royalty rate-setting more favorable to copyright holders. It passed the Digital Millennium Copyright Act (the "Act") which 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. The new standard for calculating royalty rates under the Act reflected 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 what it called a preexisting subscription service ("PSS"). 17 U.S.C. § 114(j)(l 1). A PSS was defined as a "service that performs sound recordings by means of noninteractive audio-only subscription digital audio transmissions, which was in existence and was making such transmissions to the public for a fee on or before July 31, 1998 ...." Id. The three subscription services that participated in the original rate-making proceedings, including Muzak, were grandfathered under this exception. A PSS is not subject to the "willing buyer/willing seller" standard, but instead enjoy generally more favorable royalty rates set according to the old method.

         c. Muzak and DMX

         At the time of the Act, Muzak provided its service of music channels only to customers of the satellite television provider the Dish Network ("Dish"). The service was branded to Dish customers as DishCD and Muzak has continued operating this service from the time of the Act through this litigation. Since the passage of the Act, Muzak has provided its service at the PSS rate without objection.

         In 2011, Mood Media Corporation ("Mood") purchased Muzak and began operating it as a wholly owned subsidiary. A year later, Mood acquired DMX, one of Muzak's competitors. Like Muzak, DMX provided music channels to customers of a satellite television provider-DirecTV. DMX's service provided to DirecTV was branded as SonicTap. Before Mood's acquisition of DMX, DMX was not entitled to, nor did it pay, the PSS rates for its SonicTap program.[1]

         Once Mood purchased DMX, it began to consolidate its assets, sunsetting the DMX service and assigning the DirecTV agreement and agreements with 15 other small cable affiliates and cooperatives from DMX to Muzak. In addition to putting DMX under the Muzak corporate roof, Muzak transitioned the SonicTap programming to be more like Muzak's offering through DishCD. By May 2014, SonicTap's channels and Muzak's channels were being programmed by Muzak. The result were program offerings that Muzak describes as "virtually identical." See Def.'s Resp. at30, ECFNo.45.

         d. SoundExchange Files Suit; this Court Dismisses; the ...


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