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 ...