Court Opinion

ID: 2720886
Source: CourtListenerOpinion
Date Created: 2014-08-26 17:00:55.101718+00
Date Added: 2024-06-11T12:10:35.058744
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SOUNDEXCHANGE, INC.,

)
)
Plaintiff, )
)
v. ) Case N0. 1:13 cv 1290 (RJL)

)
SIRIUS XM RADIO INC., )

) F § L E D

D f d . ~.
e en ant 7&. AU\J 2 5 2014
MEMORANDUM OPINION Cse~.rk, u.S. District & Bankruptcy
(AuguStE 2014) [Dk{_ #]3] Gourtsfor the Districtuf Co|umhia

Plaintiff SoundExchange, lnc. ("SoundExchange") brings this action against
defendant Sirius Xl\/I Radio Inc. ("Sirius XM") in an effort to recover royalties
SoundF,xchange claims it is owed under the Copyright Act. See generally Compl. [Dl352 U.S. 59, 63-64 (1956). ln such instances, the court
may stay or dismiss without prejudice the case "pending referral of such issues to the
administrative body for its views.” Ia'. at 64.

"The primary jurisdiction doctrine rests both on a concern for uniform outcomes
. . . and on the advantages of allowing an agency to apply its expertjudgment[.j" Allnet

Comrnc’n Serv., Inc. v. Nat’l Exch. Carrz`er Ass’n, Inc., 965 F.2d 1 118, 1120 (D.C. Cir.

3 Courts generally do not actually send cases or issues to an agency for resolution pursuant to this
doctrine, but rather refrain from exercising theirjurisdiction to allow the parties to raise the dispute to the
agency. See Reiter v. Cc)oper, 507 U.S. 258, 268 n.3 (1993).

5

1992); see also W. Pac. R. Co., 352 U.S. at 64 ("ln the earlier cases emphasis was laid on
the desirable uniformity which would obtain ifinitially a specialized agency passed on
certain types of administrative questions. More recently the expert and specialized
knowledge of the agencies involved has been particularly stressed." (internal citation
omitted)). An agency’s expertise extends beyond technical issues "to the policy
judgments needed to implement [its] mandate." Allnez, 965 F.2d at 1120.

Courts appropriately employ the primary jurisdiction doctrine when an
administrative agency "is best suited to make the initial decision on the issues in dispute."
[a’. Administrative agencies may be "better equipped than courts by specialization, by
insight gained through experience, and by more flexible procedure" to "ascertain[] and
interpret[] the circumstances underlying legal issues." Far E. Conference v. United
Stales, 342 U.S. 570, 574-75 (1952). Ultimately, "[n]o fixed formula exists for applying
the doctrine of primaryjurisdiction.” W. Pac. R. Co., 352 U.S. at 64. The court must
determine on a case-by-case basis "whether the reasons for the existence of the doctrine
are present and whether the purpose it serves will be aided by its application." [d. Ifthe
court concludes the doctrine does apply, then the court may stay or dismiss without
prejudice the proceedings before it while the parties present the issue to the appropriate
administrative agency. See Reiler v. Cooper, 507 U.S. 258, 268-69 & n.3 (1993).

Sirius XM argues that the two primary disputes in this case are best suited to
resolution by the CRB in the first instance, rather than this Court, because both involve

interpreting and applying the CRB’s regulations on gross revenues. Def.’s Mem. at 1-2.

SoundExchange, not surprisingly, contends that neither CRB’s definition of"Gross

6

Revenues" nor the exclusions therefrom is ambiguous, and this Court is well-situated to
determine whether Sirius Xl\/1 breached the CRB’s clear terms without further referral to
the CRB. Pl.’s Opp’n at 8-14. For the following reasons, 1 agree with Sirius XM and
will stay these proceedings.

1n order to determine whether to apply the primary jurisdiction doctrine, 1 must
first consider what, precisely, the parties are contesting. Sirius XM is alleged to have
excluded from its gross revenue total the revenue it attributed to sound recordings made
prior to 1972. which are not subject to the federal statutory license. See Compl. 11 20.
SoundExchange contends that, because Sirius Xl\/l did not recognize revenue explicitly
from the pre-1972 recordings, but rather estimated it based on percentage of recordings
played. any exclusion Sirius XM purports to attribute to those recordings does not qualify
as an exclusion under 37 C.F.R. § 382.1 l(3)(vi)(D) for "[r]evenues recognized by
Licensee for the provision of . . . [c]hannels, programming, products and/or other services
for which the performance of sound recordings . . . is exempt from any license
requirement." Pl.`s Opp’n at 9; Compl. j 23.

In Satellite 11. the CRB agreed with Sirius XM that "pre-1972 recordings are not
licensed under the statutory royalty regime and should not factor into determining the
statutory royalty obligation.” Satellite II, 78 Fed. Reg. at 23073. However, it also
determined that "the current Gross Revenues definition does not expressly recognize such
an exclusion" and that "revenue exclusion is not the proper means for addressing pre-
l972 recordings." Id. lnstead, it fashioned a "deduction" for such recordings. [d.

SoundExchange argues that this decision confirms that Sirius XM improperly excluded

7

revenue from 2007 through 2012. Pl.’s Opp’n at 9-10. Sirius XM contends it does no
such thing, but rather acknowledges that Sirius XM did not owe royalties for its
performance of pre-1972 recordings and prescribes a specific methodology for the
royalty calculation going forward. Def. Sirius XM Radio Inc.’s Reply Mem. of Law in
Further Support ofits l\/lot. to Dismiss at 4-5 ("Def."s Reply") [Dkt. #20].

The second issue involves the appropriate royalties owed on Sirius XM’s premium
subscription package, Sirius Xl\/1 Premier.3 During the relevant time period, Sirius XM
charged its subscribers $12.95/month for the basic package and $l6.99/inonth for Sirius
XM Premier, which includes the same channels provided in the basic package, as well as
additional talk channels. Compl. W 27-28. Sirius XM excluded from gross revenue the
additional revenue it received from subscriptions to Sirius XM Premier above what it
would have received if those subscriptions had been for the basic package.

SoundExchange complains that this was not a proper application of37 C.F.R.

§ 382.l l(3)(vi)(B)’s exclusion for "[c]hannels, programming, products and/or other
services offered for a separate charge where such channels use only incidental
performance of sound recordings" because a Sirius XM Premier subscriber pays a single
fee and does not pay for the additional talk channels with "a separate charge." Pl.’s
Opp`n at 9-10; Compl. 11 32. SoundExchange contends that this, too, was decided by the

Satellite 11 court when it stated in a footnote that "the exclusion is available only to the

" Sirius Xl\/l offers premier packages branded as Sirius Premier, Xl\/l Premier, and Sirius Xl\/l Premier.
Compl. ij 4 n.l. 1 use "Sirius Xl\/l Premier" to refer to all three packages.

8

extent that the channels, programming, products and/or other services are offered for a
separate charge." Satellite [], 78 Fed. Reg. at 23072 n.45. 1 disagree.

Unfortunately for SoundExchange, the gross revenue exclusions are ambiguous
and do not, on their face, make clear whether Sirius Xl\/I’s approaches were permissible
under the regulations. 1 agree with Sirius XM that these disputes are best suited to review
in the first instance by the CRB. Although uniformity is not a concern here-Sirius XM
and SoundExchange are the only two parties affected by the 2007-2012 SDARS rates-
the technical and policy expertise ofthe CRB makes referral to that body appropriate.
These are "issues which, under a regulatory scheme, have been placed within the special
competence of an administrative body." W. Pae. R. Co., 352 U.S. at 64.

1ndeed, the CRB was established in part for the purpose of determining
"reasonable rates and terms of royalty payments" between parties like SoundExchange
and Sirius Xl\/l. 17 U.S.C. § 114(f). lt is composed ofjudges with technical expertise in
copyright law and economics. See 17 U.S.C. § 802(a)(1) (requiring at least on CRJ to
have "significant knowledge of copyright law" and another to have "significant
knowledge of cconomics"). And the expertise relevant to a primary jurisdiction decision
"is not merely technical but extends to the policyjudgments needed to implement an
agency’s mandate." Allnet, 965 F.2d at 1 120. Our Circuit has recognized the difficult
and multifaceted decisions delegated to the policy judgment ofthe CRB:

First, the agency is required to estimate the effect of the
royalty rate on the future of the music industry, which
requires a forecast of the direction in which the future public

interest lies based on the expert knowledge of the agency.
Second, the agency has legislative discretion in determining

9

copyright policy in order to achieve an equitable division of

music industry profits between the copyright owners and

users. Finally, the statutory factors pull in opposing

directions, and reconciliation of these objectives is committed

to the agency as part of its mandate to determine reasonable

royalty rates
SoundExchange, 1nc. v. Lz'l)rarz`an ofCong., 571 F.3d 1220, 1223-24 (D.C. Cir. 2009)
(internal quotation marks, citations, and alterations omitted).

1n its two prior relevant rate-setting proceedings, the CRB has heard weeks of
testimony and reviewed scores of exhibits submitted by these two parties and others in
their industry. See Satellite 1, 73 Fed. Reg. at 4081; Satellite 11, 78 Fed. Reg. at 23054.
Therefore, the CRJs are "especially familiar with the customs and practices ofthe
industry and of the unique market-place involved in this case." Rz`ccz` v. Chz'cago
Mercantz`le Exclz., 409 U.S. 289, 305 (1973). When determining and implementing the
SDARS statutory royalty rates, the CRB sought to achieve the four policy goals
delineated in the Copyright Act at 17 U.S.C. § 801(b)(1) Whether it set the rates
intending the types of revenue at issue to be included in or excluded from the gross
revenue calculation is a question best posed to the CRB itself. To be sure, the issues
here involve "the Commission’s interpretation ofits own regulations, on which it is owed
great deference." Allnet, 965 F.2d at 1122.
Soundl§xchange argues that the CRB already definitively construed both

provisions at issue in SoundExchange’s favor in the Satellite 11 proceeding. Pl.’s Opp’n

at 9-1 l, 13. But the construction and application of the Satellite 1 rates were not before

the CRB in the Satellite 11 proceedings, which were prospective only. lt is true that the

10

Satellite 11 panel set forth a different mechanism for dealing with pre-1972 sound
recordings than Sirius XM had used previously, but whether Sirius Xl\/l’s approach was
improper such that it owes SoundExchange additional fees for times past is an open
question ofinterpretation and policy. And Satellite 11 did nothing to clarify whether the
CRB considers the additional talk channels on Sirius XM Premier to be "offered for a
separate charge." These questions remain open.

SoundExchange also questions whether the CRB is authorized to hear the claims
at issue. Pl.`s Opp`n at 16. Under the Copyright Act, the CRB has "continuing
jurisdiction" to "issue an amendment to a written determination to correct any technical
or clerical errors in the determination or to modify the terms, but not the rates, of royalty
payments in response to unforeseen circumstances that would frustrate the proper
implementation of such determination." 17 U.S.C. § 803(c)(4). Neither party is asking
for a change to rates; only a clarification ofthe terms. This is within the CRB’s
continuingjurisdiction. Ifthe CRB judges Sirius XM’s gross revenue calculations to
have been improper, SoundExchange can seek damages in this court. 4

CONCLUSION
Our Circuit has opined that, "[i]n general, when primaryjurisdiction lies with an

administrative agency, the district court should stay the proceedings in front ofit, not

4 Sirius Xl\/l addresses Counts 3 and 4 of the Complaint only in passing, describing them as "small in size
compared with" the other claims Def.’s Mem. at 9 n.4. lt argues that "to the extent the doctrine of
primaryjurisdiction counsels this Court’s deference to the CRB on the principal issues in this case, it
counsels deference on these less significant issues as well." Id. On the pleadings, 1 cannot discern
whether these are issues that would invoke the CRB’s technical expertise or policyjudgments They will
be stayed while the case as a whole is stayed, and 1 leave it up to the parties to determine whether to
present the issues underlying Counts 3 and 4 to the CRB.

ll

dismiss the suit." Arn. Ass ’n ofCruz`se Passengers v. Cunarcl Line, Ltcl., 31 F.3d 1184,

1 187 (D.C. Cir. 1994). Thus, in the absence of any strong argument to dismiss the case
without prejudice and for all the foregoing reasons, defendant’s motion to stay the action
[Dkt. #13] is GRANTED. The case shall be STAYED pending a decision by the

Copyright Review Board. An appropriate order shall accompany this Memorandum

%`..tsi..t/

RICHAR§CL_LECN

United States District Judge

()pinion.

12