United States: Antitrust Claims Against SESAC Copyright Licenses Permitted To Proceed

Last Updated: March 24 2014
Article by David A. Kluft

Performing rights organizations (PROs) are entities that issue licenses to, and collect royalties from, television stations and other parties who wish to perform or broadcast copyrighted musical compositions. There are three PROs in the United States, the largest of which are ASCAP and BMI. The other PRO, the Society of European Stage Authors and Composers (SESAC) has until recently been the Jan Brady of the bunch – born in the middle and often overlooked. Founded in 1930 to represent European composers, it later concentrated on the Christian music genre.

Because ASCAP and BMI are bigger, they are also better known, not only by licensees and composers, but also by antitrust regulators. Since the 1940's, BMI and ASCAP have been the target of numerous private antitrust lawsuits and government actions, and both have entered into consent decrees with the Department of Justice that place controls and restrictions on their licensing activities. SESAC, on the other hand, has largely flown under the antitrust radar.

However, in the early 1990's, SESAC began expanding its catalogue, which now includes more than 20,000 affiliated composers, including Bob Dylan and Neil Diamond, and other lucrative properties such as the music embedded in reruns of Seinfeld. In 2008, SESAC allegedly attempted to parlay this increased market share into more favorable licensing terms with television stations. The Meredith Corporation and other television companies filed suit in 2009, alleging that these new terms violated the Sherman Act. On March 3, 2014, Judge Paul Engelmayer of the Southern District of New York, in Meredith Corp. v. SESAC LLC, denied SESAC's motion for summary judgment and allowed most of these claims to move forward to trial.

SESAC's Television Licensing Terms

Almost every television program contains music, but the right to broadcast a program does not ordinarily include the right to broadcast the music embedded in it, which must be separately secured. As a practical matter, this puts television stations in a tough spot. They can't control which music is used in the programs they air (except for locally produced shows), and it would be darned impractical to try and license the music rights directly from every composer for each individual piece of music in every program. So, the stations have little choice but to take licenses from all three PROs.

The purported problem with this arrangement, from the perspective of licensees, is that PROs could take advantage of the situation and force television stations to accept expensive "blanket" licenses, in other words, an all-or-nothing deal that includes a PRO's entire catalogue, even if the licensee only ends up using a few songs. The BMI and ASCAP consent decrees address this concern by requiring the option of a "per-program" license (PPL), under which a station only pays for the music it uses. SESAC (even though unencumbered by the consent decrees) offers both blanket licenses and PPLs. However, the television station plaintiffs argued that what SESAC was offering nevertheless was unlawful in the following ways:

  • Although SESAC offered a PPL, the television stations claim that SESAC manipulated its terms, including by jacking up the administrative costs, so that it would always cost more than a blanket license and in effect elimiate the only economically viable alternative to the blanket license.
  • SESAC allegedly increased its blanket license fee 10% over the prior license period, despite a decline in demand for SESAC music. By contrast, under the BMI and ASCAP consent decrees, disputed licensing rates must be deemed "reasonable" by a third party Rate Court.
  • Most notably, SESAC allegedly entered into "supplemental affiliation agreements" with a few of its most popular composers. Under these agreements, the composers purportedly received more compensation up front from SESAC, and in return the composers agreed not to deal directly with the television stations (or at least to pay very steep fines if they did).

The Court's Antitrust Analysis

Section 1 of the Sherman Act outlaws "[e]very contract, combination . . . or conspiracy in restraint of trade or commerce." Judge Engelmayer wrote that, in order to make out a case under Section 1, a plaintiff must show both concerted action to accomplish an unlawful objective and an unreasonable restraint of trade. Under the "rule of reason" analysis applicable to most situations, a court determines whether an accused action is an unreasonable restraint of trade by considering, among other things, the definition of the relevant market, the defendant's market power and the pro-competitive effects of the challenged activity.

The court held that a jury could find that SESAC's activities satisfied the elements of a Section 1 violation. First, a jury could find concerted action among SESAC-affiliated composers, i.e., thatthey knew their rights would be bundled into a blanket license. Also, a jury could find that the small percentage of composers who agreed to "supplemental affiliation agreements" did so appreciating that they were unlawfully "choking off" any competition to SESAC's blanket license.

As to whether this activity was an "unreasonable restraint" on trade, the court engaged in a "rule of reason" analysis. The Court first explained that the relevant market was not the entire PRO industry (SESAC, ASCAP and BMI). Each PRO has entirely different catalogues, so a television station cannot substitute one license for another, but always had to deal with all three. Therefore, the relevant market in this case was SESAC's catalogue only. The Court held that, with that market definition in mind, a jury could find that the anticompetitive effects of the SESAC license terms (allegedly unrealistic pricing, restrictive supplemental affiliation agreements, etc.) outweighed any procompetitive benefits (which in this case would include giving stations the ability to acquire rights to many works at once and potentially lowering administrative costs).

The Court also refused to dismiss the television stations' claim under Section 2 of the Sherman Act, which alleged that SESAC was attempting to "maintain and fortify" a monopoly by eliminating all realistic competition. After issuing its order, the court temporarily stayed all pretrial deadlines to give the parties a "time out" to explore settlement. They have until April 11, 2014 to report to the court.

To view Foley Hoag's Trademark and Copyright Law Blog please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
17 Oct 2018, Webinar, Boston, United States

Due diligence is one of the most critical aspects of an acquisition or collaboration. Transactions in the life sciences industry are particularly complex because of the heavily-regulated nature of the industry.

7 Nov 2018, Other, Boston, United States

Please join us on Wednesday, November 7 at the Westin Waltham Hotel for our quarterly New England M&A Forum, which brings the latest in market trends and recent legal developments to the New England M&A professionals' community.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions