Antitrust lawsuit looks to bring SESAC under federal court supervision, like ASCAP and BMI.

The Radio Music License Committee (RMLC) has sued SESAC in an effort to bring SESAC within the same general judicial constraints as the other two major performance rights organizations (PROs), ASCAP and BMI. According to the RMLC, SESAC (initially founded as the “Society of European Stage Authors and Composers”, but since officially shortened to just “SESAC”) is violating a number of antitrust laws.

The case pits two somewhat misunderstood organizations against each other. 

SESAC, of course, is a PRO, i.e., an organization which represents song composers and to which broadcasters must pay royalties for the right to perform the musical works of SESAC-affiliated composers over the air and online.  (In fact, unlike ASCAP and BMI, which are not-for-profit entities, SESAC is a for-profit PRO).  Comments I’ve received about SESAC from a number of broadcasters have tended to be negative, if not flat-out vitriolic. That may be because of significant royalty rate hikes in recent years, or possibly SESAC’s perceived reluctance to negotiate or otherwise deal with broadcasters when problems arise. Or maybe it’s the fact that SESAC requires radio broadcasters to get a separate license when engaged in webcasting (ASCAP and BMI incorporate webcasting into the existing radio license).

The RMLC, on the other hand, seems to suffer from a lack of familiarity about its work among those it seeks to help. The RMLC represents radio broadcasters’ interests time and again in major copyright fights in court and before the Copyright Royalty Board, and they do it in the face of some confusion and even criticism as to its activities. But I am still the recipient of not-infrequent calls from clients asking why they are being billed for RMLC services when they’re not even an RMLC member. (Answer: it’s required by law that RMLC gets a cut of the royalties the entire broadcasting industry ultimately pays after it negotiates on the industry’s behalf.) 

{Blogger aside: As far as general perceptions of both SESAC and RMLC go, stick with the basic principle that you should not believe everything you hear – as well as the journalistic corollary that, if your mother says she loves you, check it out. A healthy dose of skepticism is always a good thing, even (especially) when the general consensus runs one way.  For example, I’ve had several good experiences with individuals at SESAC, especially when working with me on new media issues. And as for RMLC, I’ve spoken favorably about Bill Velez and his crew on several occasions and I still can’t say enough good things about them.   And you can’t argue with the RMLC’s results, which – at least in their recent negotiations with ASCAP and BMI – garners radio stations savings far in excess of the miniscule amount they’re required to pay to RMLC. And any of you who have met Bill Velez know that he is one of the nicest people you’ll ever meet in broadcasting or any other industry, always quick to return a call or help you out when you’re in a jam.)

Whatever the public impression of the players, we’re now looking at RMLC v. SESAC, a court fight initiated by RMLC earlier this month in the U.S. District Court for the Eastern District of Pennsylvania (located in Philadelphia).

The lawsuit alleges multiple violations by SESAC of Sections 1 and 2 of the Sherman Antitrust Act , including horizontal price fixing, a group boycott/refusal to deal, and monopolization. RMLC is asking for a judicial declaration that SESAC’s activities violate the Sherman Act. RMLC is also looking for the court to impose on SESAC the same court-overseen-and-approved ratemaking process that has applied to ASCAP and BMI for more than 70 years. (Historical background: ASCAP and BMI were hauled into court in 1941 by the Department of Justice, which claimed that their operations violated the Sherman Act. ASCAP and BMI both entered into consent decrees subjecting them to significant restrictions in their activities and ongoing oversight by the courts. Those consent decrees remain in effect today. SESAC, which was rather small potatoes at the time and thus not considered much of an antitrust threat, was not sued, and has operated free of those restrictions – that’s what RMLC is looking to change.) 

RMLC is also asking that (a) SESAC be enjoined from entering de facto exclusive contracts with copyright owners; (b) SESAC be required to make available economically viable alternatives to its license; and (c) the RMLC be awarded legal and other fees. 

The RMLC alleges the following:

SESAC has handpicked the composers it will represent so that radio stations must obtain a SESAC license. One relatively unknown aspect of the licensing process is that any individual copyright owner can license use of that work. So, if multiple songwriters own the copyright to a particular composition and one decides to be represented by ASCAP, another by BMI and another by SESAC, a radio station would need only a license from ASCAP, or BMI, or SESAC to play that song. According to the RMLC, SESAC goes out of its way to represent copyright owners whose works don’t run across multiple PROs – thereby forcing a radio station to get a SESAC license to play that particular song. 

SESAC intentionally obfuscates ownership information on its own site to create a sense of paranoia among radio broadcasters who, absent clear confirmation that a song they are playing is not part of the SESAC repertoire, feel compelled to get a SESAC license just to be safe.  [Pop quiz: who holds the rights to “Silent Night”? “Joy to the World”? “Grandma Got Run Over By a Reindeer”? You may be surprised to learn that, in a 2002 lawsuit, a couple of radio stations were held liable to SESAC for more than $1 million for the unlicensed broadcast of those and a number of other, non-seasonal songs controlled by SESAC.]

SESAC ups the pressure on radio stations by actively and aggressively threatening stations with hefty copyright infringement fines for broadcasting SESAC-represented works without a SESAC license.

SESAC limits the types of licenses it offers. For instance, ASCAP and BMI offer stations that play only a minimal amount of music a more accurate, and economically advantageous, “per program” license as an alternative to the “blanket” license.  By contrast, SESAC doesn’t offer that choice. To the contrary, SESAC requires an entirely separate license for webcasting (and for every separate HD side channel).   This problem becomes even more significant when one notices that SESAC has, on several occasions, raised the price of each of these licenses by between 5 and 10 percent.

The RMLC complaint helpfully summarizes its take on SESAC’s strategy:

SESAC ensures that it has exclusive rights to a critical mass of ‘must have’ works so that entitles like RMLC’s members cannot avoid taking a SESAC license, but SESAC carefully restricts its choices to those affiliates who will generate the highest profits for the company.

As the RMLC sees it, the fact that SESAC has raised its rates significantly works to reinforce the illegal activities: with increased revenues squeezed out of broadcasters, SESAC can entice more copyright owners to switch from ASCAP or BMI to SESAC (or at least not leave SESAC for ASCAP or BMI) by offering those copyright owners more royalty revenue.

In the RMLC’s words:

SESAC is a cartel that has illegally monopolized an essential repertory of copyrighted music, that has quashed all competition with and among its 23,000 copyright holding affiliates, and that uses its monopoly to coerce the U.S. radio industry and other consumers into paying SESAC supracompetitive prices.

That’s a pretty strong and inflammatory accusation. But some numbers seem to support the RMLC’s claims. In just ten years prior to March 31, 2012 the number of composers represented by SESAC has increased from 8,000 to 23,000, and SESAC’s adjusted revenue has almost tripled, from $49 million to $144 million. 

Is this growth down to simple good business practices or illegal business practices? Remember that the complaint puts forth the plaintiff’s absolutely best case argument. We will continue to follow this and will report back as developments warrant.