SESAC dodges injunction, can raise rates for 2014 – but Magistrate Judge’s decision bodes well for RMLC’s odds on the merits of its antitrust case

The New Year.

A time for reflection and looking forward. When some give thanks for the blessings they have been given and others look to make a clean start. 

In the world of contracts, it’s an important time, as many annual agreements renew, often with previously-specified modifications automatically kicking in.

Which brings us to the Radio Music License Committee (RMLC) and its effort to stop SESAC from jacking up its 2014 royalty rates for radio licensees. While, as we shall see, that effort was unsuccessful (at least for the time being), there is some cause for optimism with respect to RMLC’s long-term chances of bringing SESAC under the same type of judicial control as ASCAP and BMI are subject to.

SESAC, ASCAP and BMI, of course, are the three major performing rights organizations (PROs), i.e., organizations which represent 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 late 2012 the RMLC sued SESAC, alleging violations of federal antitrust laws. I wrote about the lawsuit when it was filed. The RMLC asking the court to rein in SESAC under a consent decree – similar to decrees to which ASCAP and BMI are already subject – which would require SESAC’s activities to be reviewed and approved by a federal court.

As litigation often does, RMLC’s lawsuit has ground on at a seeming snail’s pace. But as 2014 approached and an anticipated increase in SESAC’s rates loomed, RMLC sought a preliminary injunction barring such an increase until the suit was resolved. In a December 23 report and recommendation, U.S. Magistrate Judge Lynne Sitarski rebuffed RMLC, but in so doing also gave it hope that, even though RMLC may have lost this battle, it stands a reasonable chance of winning the war.

Anyone who has read our coverage of the Aereo litigation knows that a party seeking a preliminary injunction must demonstrate, among other things, that (a) there is a likelihood that it will succeed on the merits of its underlying lawsuit and (b) it will suffer irreparable harm if the injunction is not imposed. Judge Sitarski concluded that RMLC fell short on the “irreparable harm” element, so she recommended against enjoining SESAC . . . BUT – and this is a potentially big “but” – she also found that there is a likelihood that RMLC could ultimately prevail on the merits of its substantive antitrust claims. 

The “irreparable harm” aspect of her decision isn’t surprising. Generally, if the harm being claimed can be compensated by an award of money damages, it’s not “irreparable”. This makes perfect sense here: if SESAC is ultimately found to be violating antitrust laws and told to reduce its rates, it can refund overpayments to radio broadcasters, just like ASCAP and BMI did after they recently reached new rate deals with the RMLC.

What’s getting most press attention, though, is the “likelihood of success” component of Sitarski’s decision.

Her analysis of the substantive antitrust issues is extensive and detailed, leading her to the conclusion that SESAC’s practice of offering only blanket licenses with no alternatives for more limited, direct licensees “shifts the balance too far” in the direction of impermissible anticompetitive behavior. That’s the gist of most broadcasters’ unhappiness with SESAC, and the core of RMLC’s case. 

As she sees it, radio broadcasters are often compelled by circumstances beyond their control to play various songs. For instance, a license is required to perform music that is contained in a commercial (but let’s be very clear: your ASCAP, BMI and SESAC licenses do not give you the right to utilize any song into a commercial you may be producing – please contact me for clarification on that important issue). So if an advertiser insists on airing a spot with SESAC-licensed music in the background, the station’s got to have a SESAC license. Similarly, a station may carry a live event with “ambient music” in the background (such as the marching band at a high school football game); that requires a license as well.

As a result, in order to protect themselves from inadvertently airing a song for which they have no license, broadcasters are forced to deal with SESAC. But SESAC offers only blanket licenses for all the works it represents, preventing broadcasters from picking and choosing the songs they can license.

Further, even if a station were inclined to try to avoid airing SESAC-licensed songs, SESAC is, um, rather opaque with regard to its music library, making it extremely difficult to know what songs to avoid. While SESAC does claim to provide an online searchable database of its repertory, Sitarski found that SESAC “expressly disclaims that its repertory database is accurate”. And SESAC apparently isn’t even clear how many songs it represents: its CEO could provide only an incredibly imprecise range of 250,000-400,000 songs.

So stations find themselves in a “take it or leave it situation” that, according to Sitarski, was no accident: SESAC engaged in concerted action to create that situation. And that concerted action, while containing some benefits (mainly the reduction of transaction costs and increased efficiency in the music licensing industry), is ultimately anti-competitive because: “SESAC’s blanket license is the user’s only choice.”

This, obviously, can be read as an excellent omen for RMLC’s ultimate prospects, putting SESAC on its back foot. But let’s not go popping the champagne just yet. 

Sitarski’s decision is only a recommendation made to the U.S. District Judge presiding over the case – so it isn’t necessarily the final word as to the injunction.

Also, as Sitarski repeatedly emphasizes in her decision, the “likelihood of success” standard measures only whether RMLC could win, not whether it will win. In this context, “likelihood” means a “reasonable probability of success” on the merits; in Sitarski’s words, it does not rise to the level of “more likely than not”.   After all, the evidentiary record – witness testimony, documents, etc. – compiled in the preliminary injunction process may not, and often does not, include all the evidence that will eventually come to the surface in the full trial phase of the litigation. Plenty of information could still emerge that could change the overall picture entirely. Sitarski herself mentioned the long evidentiary road ahead when she cautioned that, while the RMLC had established a likelihood of success, its showing “certainly was not ‘overwhelming’”.

In the meantime, since Sitarski has recommended against RMLC’s request for a preliminary injunction, SESAC will be able to increase the rates it imposes on radio broadcasters (which are calculated via the use of a matrix that applies a particular rate based on a combination of a station’s population coverage area and highest one minute spot rate).

So while broadcasters and the RMLC clearly have cause for optimism, any optimism must be greatly tempered: there’s still a long way to go before we can put wraps on this case.  At the very least, we could be discussing this case again at the beginning of 2015. Maybe even 2016 and beyond.