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From Antitrust Law Daily, June 27, 2014

Music industry trade association’s monopoly claims against licensing agency may proceed

By Linda O’Brien, J.D., LL.M.

In an action by a music industry trade association against a performance rights licensing agency for anticompetitive conduct in its blanket licensing policies, the federal district court in Philadelphia has refused to dismiss the association’s claims for monopolization. However, the licensing agency’s motion to dismiss the association’s claims of horizontal price fixing and group boycott/refusal to deal was granted (Radio Music License Committee, Inc. v. SESAC, Inc., June 26, 2014, Jones, C.).

SESAC, Inc. is one of the three largest performing rights organizations (PROs) that act as intermediaries between customers and holders of copyrighted music and offer licenses for the public performance of works. SESAC offers its repertory to customers exclusively in a blanket license format. Radio Music License Committee, Inc. (RMLC) is a trade association that negotiates public performance right licenses on behalf of radio stations. SESAC is the only PRO that is not subject to a consent decree in an antitrust action brought by the U.S. Department of Justice against ASCAP and BMI, alleging that blanket licenses were an illegal restraint of trade.

RMLC filed suit against SESAC, alleging horizontal price fixing, group boycott and refusal to deal, and monopolization in violation of Sections 1 and 1 of the Sherman Act. Specifically, RMLC alleged that SESAC’s licensing practices were anticompetitive and destroyed competition between SESAC and the other PROs. Since ASCAP and BMI are subject to consent decrees and must offer both blanket and per-program licenses, they cannot charge supra-competitive licensing fees. RMLCO also alleged that SESCAC was able to raise the price of a blanket license without enhancing the quality of its repertory. SESAC moved to dismiss the complaint.

Monopolization. RMLC alleged sufficient facts to plausibly infer that SESAC possessed monopoly power, according to the court. To state a claim for monopolization, a plaintiff must set forth the possession of monopoly power in the relevant market and the willful acquisition or maintenance of the power. RMLC contended that the relevant market was “licenses to the copyrighted musical compositions and performances in SESAC’s repertory” since SESAC had procured a critical mass of must-have works that radio stations could not avoid playing. RMLC’s allegations that SESAC profitability maintained exorbitant prices greater than those charged by ASCAP and BMI and raised prices without any contemporaneous increase in size of its repertory were sufficient to show monopoly power.

Additionally, RMLC adequately alleged that SESAC maintained its monopoly power by exclusionary conduct. In rejecting SESAC’s argument that the only excluded parties are its affiliates who are not direct competitors, the court noted that absent the licensing agreements, the affiliates would compete with SESAC with direct licensing. ASCAP and BMI, that provide similar services to the music industry, would potentially compete with SESAC absent its alleged monopolistic conduct. RMLC’s allegations that SESAC excludes competitors by obtaining a critical mass of must-have works, selling them exclusively in the blanket license format, discouraging direct licensing by refusing to offer carve-out rights, and obscuring the works in its repertory were sufficient to constitute exclusionary conduct when practiced by a monopolist, according to the court.

Price-fixing. However, the court found that the plaintiffs failed to sufficiently plead facts to plausibly infer there was a hub-and-spoke conspiracy among SESAC and its affiliates to fix prices or form a group boycott. Horizontal price fixing designates a price agreement between direct competitors and not successive entities in a supply chain. In this case, SESAC’s licensing agreements with its affiliates did not appear to be against the affiliates’ self-interest, since PRO licensing generally provided several economic benefits over direct licensing and SESAC offered higher profits and greater exclusivity than the affiliates could achieve through alternative forms of licensing.

Moreover, the licensing agreements did not preclude direct licensing by the affiliates. The notification provision in the agreements demonstrated that SESAC was unwilling to pay royalties to an affiliate that did not use its services. SESAC had a legitimate business interest in maintaining a viable business model that would be undermined if affiliates were able to directly license while simultaneously collecting a royalty payment from SESAC. Finally, RMLC failed to adequately plead that SESAC’s refusal to offer carve-out rights to radio stations for musical works obtained directly from affiliates was a product of the licensing agreements, the court concluded.

The case is No. 2:12-cv-05807-CDJ.

Attorneys: Alan J. Devlin (Latham and Watkins) and Peter J. Mooney (White and Williams) for Radio Music License Committee, Inc. Joshua H. Rubin (Jenner & Block LLP) for SESAC, Inc.

Companies: Radio Music License Committee, Inc.; SESAC, Inc.

MainStory: TopStory Antitrust PennsylvaniaNews

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