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From Antitrust Law Daily, March 4, 2014

Television stations’ antitrust claims against performance rights licensing agency may proceed

By Linda O’Brien, J.D., LL.M.

The federal district court in New York City has refused to grant summary judgment on antitrust claims by a group of television stations against a performance rights licensing agency for unlawful restraint of trade and conspiring to monopolize its repertory of copyrighted music (Meredith Corporation v. SESAC LLC, March 3, 2014, Engelmayer, P.).

SESAC LLC is one of the three largest performing rights organizations (PROs) that issue blanket licenses to the rights to perform the copyrighted music of its members or affiliates. Prior to 2008, SESAC’s ability to set the terms of music licenses was limited by agreements negotiated with the television broadcast industry and a contractual duty to arbitrate disputes with licensee stations. Since 2008, SESAC has been able to unilaterally set the terms on which it will issue licenses to perform the music of its more than 20,000 affiliated composers. Almost all television programs contain music, most of which is copyrighted under federal copyright law. Television stations seeking to broadcast programs containing copyrighted music must first obtain a license from the copyright holder to publicly perform it. For many years, television stations have obtained performance licenses from PROs for most music that is broadcast.

Local television stations—Meredith Corporation, The E.W. Scripps Company, Scripps Media, Inc., Hoak Media, LLC, Hoak Media of Nebraska LLC, and Hoak Media of Dakota, LLC—filed a class action suit against SESAC, alleging that SESAC’s licensing practices unlawfully restrain trade and that SESAC has conspired to monopolize the market for the performance rights to musical works within its repertory in violation of Sections 1 and 2 of the Sherman Act. Specifically, the plaintiffs contend that SESAC has set exorbitant prices for its “all or nothing” license, even though the stations have no interest in buying the rights to the entire SESAC repertory and the prices are unrelated to the stations’ actual usage of the music compositions. SESAC has also taken steps to make illusory any alternative to the blanket license it sells, which convey the right to play the music of all SESAC affiliates. Upon completion of discovery, SESAC moved for summary judgment.

Restraint of trade claims. The court found that the plaintiffs sufficiently established a monopoly and conspiracy to monopolize by SESAC’s offer of a blanket license to the music of its affiliates. To establish a violation of the Sherman Act, there must be a joint or concerted action in restraint of trade or commerce among several states. In rejecting the plaintiffs’ contention that SESAC’s offer of a blanket license to the music of its affiliates was unlawful per se, the court found such liability inapplicable to concerted action consisting of an offer by a PRO of a blanket license aggregating its affiliates’ performance rights under the Supreme Court’s decision in BMI v. CBS, 441 U.S. 1 (1979).

However, applying the rule of reason, the court determined was sufficient evidence to infer the affiliation agreements were designed to harm competition with the blanket license. The plaintiffs’ evidence demonstrated that SESAC engaged in an overall course of conduct to eliminate competition to its blanket license once the contractual restrictions ceased in 2008. The agreements between SESAC and their affiliates, in which the affiliates ceded all licensing authority to SESAC, effectively eliminated direct licensing as a means by which stations could license the affiliates’ music by imposing prohibitively high penalties on key affiliates who directly license their work. Although the court rejected the plaintiffs’ claim of a broad conspiracy to restrain trade among all of SESAC’s affiliates, the evidence supported a finding of a narrower conspiracy among SESAC and a subset of key affiliates who executed supplemental affiliation agreements that contained the penalty provisions for new direct licensing. A finder of fact could reasonably conclude that the affiliates entered into these agreements with SESAC to insulate SESAC’s blanket licenses from competition, according to the court.

The court also determined that the evidence was sufficient to show that SESAC and its affiliates entered into the agreements with the intention to harm competition. The plaintiffs alleged that, in 2008, SESAC effectively eliminated any alternative means of licensing its affiliates’ performance rights by increasing its per-program licenses (PPLs). There was abundant evidence, established by plaintiffs’ expert testimony, that there was no economically feasible alternative to SESAC’s blanket license after SESAC changed the formula to calculate its PPLs in 2008. Thus, a finder of fact could find that SESAC’s practices qualified as an unlawful restraint of trade.

Additionally, there was sufficient evidence on which a finder of fact could find that the anti-competitive impact of SESAC’s licensing practices outweighed any pro-competitive benefits. First, the stations established that the relevant market was fairly defined for performance licenses of the music in SESAC’s repertory. Virtually all composers affiliate with only one of three PROs, all local stations have licenses from all three PROs, and local stations have not responded to SESAC’s price increases by replacing SESAC licenses with alternative licenses. Second, the stations sufficiently showed that SESAC’s conduct harmed competition and this harm outweighed any pro-competitive benefits within the relevant market. Since 2008, there were fewer licensing options realistically available to stations, and the stations had to pay supra-competitive prices for the one license available—SESAC’s blanket license. The issue of whether the harm to competition outweighs any pro-competitive benefits—such as the integration of sales, monitoring, and enforcement against unauthorized copyright use—is properly determined at trial.

Monopoly claims. Finally, the court found there was sufficient evidence to show that SESAC possessed monopoly power in the market for performance rights to the works in its repertory. It was undisputed that SESAC held 100 percent of the relevant market and controlled the prices over the market was currently structured. A finder of fact could infer that SESAC’s actions to eliminate licensing alternatives and penalize direct licensing constitute grounds for exclusionary conduct, the court concluded.

The case is No. 09 Civ. 9177-PAE.

Attorneys: Bruce Alan Colbath (Weil, Gotshal & Manges LLP ) for Meredith Corp., The E.W. Scripps Comp., Hoak Media, LLC, and Scripps Media, LLC. David Andrew Handzo (Jenner & Block, LLP ) for SESAC, LLC.

Companies: Meredith Corporation; The E.W. Scripps Company; Scripps Media, Inc.; Hoak Media, LLC; Hoak Media of Nebraska LLC; Hoak Media of Dakota, LLC; SESAC LLC

MainStory: TopStory Antitrust NewYorkNews

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