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Soundexchange, Inc. v. Muzak, LLC

United States District Court, District of Columbia

August 23, 2019

SOUNDEXCHANGE, INC., Plaintiff,
v.
MUZAK, LLC, Defendant.

          MEMORANDUM OPINION

          ROYCE C. LAMBERTH UNITED STATES DISTRICT JUDGE

         Before the Court is Muzak's motion to compel discovery of documents and communications related to its unclean hands affirmative defense. In its August 21, 2018 memorandum opinion, the Court granted summary judgment as to SoundExchange's prima facie case, but it denied the motion in relation to Muzak's affirmative defense. The Court concluded that it would be premature and unjust to consider a motion for summary judgment on Muzak's remaining affirmative defense when the discovery process might yield additional facts that would guide the Court's decision as to the merits of the affirmative defense.[1]

         In the months that followed, the parties continued the discovery process until they hit the present roadblock. Muzak sought-and continues to seek-any documents related to Music Choice's total royalties paid to SoundExchange, the possible discontinuation of any entity's payments of preexisting subscription service ("PSS") rates, and SoundExchange's audits of Music Choice, as well as other pre-2014 documents. For the reasons that follow, the Court will grant in part and deny in part Muzak's motion to compel discovery.

         Also before the Court is SoundExchange's motion for summary judgment. Because the Court will compel additional discovery related to Muzak's affirmative defense, SoundExchange's motion is not yet ripe. Accordingly, the Court will deny the motion for summary judgment without prejudice.

         I. Confidential Royalty Payment Documents

         Muzak argues that documents related to Music Choice's royalty payments to SoundExchange are both relevant and not protected from disclosure by federal regulations. Def.'s Am. Mot. 7-8, ECF No. 61-1. Muzak's unclean hands affirmative defense "turns on SoundExchange's treatment of Music Choice," so' Muzak believes that these documents could provide evidence of favorable treatment of Music Choice. Id. at 7. Specifically, Muzak seeks this information to determine whether SoundExchange was aware of any changes to Music Choice's services that would have made Music Choice ineligible to keep paying PSS royalty rates. Def.'s Reply 9, ECF No. 65.

         SoundExchange argues that Music Choice's royalty payment documentation and the documentation related to Music Choice's PSS rates are confidential and protected by 37 C.F.R. §§ 370.3(g) and 382.6(b)-(c). Pl.'s Mem. Opp. 15, ECF No. 79. SoundExchange also expresses concern that Muzak is abusing the discovery process to bypass regulatory restrictions and improperly gain access to a competitor's confidential information. Id. at 16. With respect to relevance, SoundExchange argues that Music Choice's royalty payment documentation will not produce information relevant to Muzak's defense because SoundExchange does not collect information on royalties broken down by a distribution system, as sought by Muzak. Id. at 13 n.14. Furthermore, SoundExchange argues that this request would be overly burdensome, disproportionate to the needs of the case, and is not likely to yield helpful results. Id. at 14.

         Turning to the regulations first, 37 C.F.R. § 370.3(g) states that a Collective, such as SoundExchange, "shall not disseminate information in the Reports of Use to any persons not entitled to it, nor utilize the information for purposes other than royalty collection and distribution, and determining compliance with statutory license requirements, without express consent of the preexisting subscription service providing the Report of Use." SoundExchange reads the regulation to lack any exception for parties seeking documents through discovery. Pl.'s Mem. Opp. 15. Muzak denies that it is a "person[] not entitled to [the documents]" under the regulation because being an adverse party in litigation entitles it to those documents by virtue of the discovery process' demands on the parties involved. Def's'Am. Mot. 8. The Court disagrees with Muzak's reading of the regulation because 37 C.F.R. § 382.6(c) provides further support for SoundExchange's reading of it.

         SoundExchange first cites 37 C.F.R. § 382.6(b) in support of its argument against disclosure. Pl.'s Mem. Opp. 15. The regulation prohibits SoundExchange from "us[ing] any Confidential Information for any purpose other than royalty collection and distribution and activities related directly thereto."[2] Id. § 382.6(b). But the dispute here is not over SoundExchange's use of the royalty documents-rather, the issue is whether the regulations permit SoundExchange to disseminate the royalty documents without Music Choice's consent to an adverse party seeking discovery.

         SoundExchange also cites § 382.6(c), which deals with disclosure of confidential information, in support of its argument. SoundExchange reads § 382.6(c) to mean that "access to information in Statements of Account is limited to SoundExchange, independent auditors who are authorized to act on behalf of copyright owners, and the copyright owners and performers whose works have been used." Pl.'s Mem. Opp. 15 n.17. SoundExchange's reading of the regulation omits any mention of subsection (c)(4), which states that a Collective may also disclose confidential information to "[a]ttorneys and other authorized agents of parties to proceedings under 17 U.S.C. 112 or 114, acting under an appropriate protective order." 37 C.F.R. § 382.6(c)(4). Although the present case contemplates issues stemming from 17 U.S.C. § 114, it is not a "proceeding" within the meaning of the regulation.[3] As such, § 382.6(c) restricts SoundExchange's ability to disclose royalty payment documents to Muzak's outside counsel,' regardless of whether a protective order shields the documents.

         Reading 37 C.F.R. §§ 370.3(g) and 382.6(c) together, the Court holds that Muzak is not entitled to SoundExchange's royalty payment documents.[4] Accordingly, the Court need not evaluate their relevance and will deny Muzak's motion to compel all documents showing Music Choice's total royalty payments to SoundExchange.

         II. Audit Documents

         Muzak also seeks SoundExchange's audits of Music Choice's royalty payments because the audits relate to SoundExchange's treatment of Music Choice, the very center of Muzak's unclean hands affirmative defense. Def.'s Am. Mot. 6. Before considering the parties' arguments concerning relevance, need, and privilege, the Court can deny Muzak's motion to compel the audit documents for the reasons stated in the previous section.

         As SoundExchange notes, the purpose of an audit is to "examine the licensee's records to verify the information reported on its Statements of Account." Pl.'s Mem. Opp. 17. These records, and the resulting analyses of them, fall under the 37 C.F.R. § 382.6(a) definition of "Confidential Information." That definition not only includes all information contained in the Statements of Account, but also "any information pertaining to the Statements of Account reasonably designated as confidential by the party submitting the statement." Id. The audit documents, which directly pertain to the Statements of Account, would reveal even more confidential information about Music Choice's royalty payments ...


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