Court Opinion

ID: 3183414
Source: CourtListenerOpinion
Date Created: 2016-03-08 15:06:10.563171+00
Date Added: 2024-06-11T14:03:10.023648
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SOUNDEXCHANGE, INC. g
Plaintiff §
v. § Case 15-cv-0476-RCL

MUZAK, LLC §
Defendant §

)

MEMORANDUM OPINION

Now before the Court is defendant’s motion to dismiss, plaintiffs opposition, and
defendant’s reply. ECF Nos. 13, 18, & 2l. For the reasons stated below and by separate order
issued this date, defendant’s motion shall be GRANTED.

I. BACKGROUND

The facts set out herein are either undisputed, or are as alleged by plaintiff The Court, in
keeping with its responsibilities under Federal Rules of Civil Procedure l2(b)(6) accepts as true
all factual allegations set forth by plaintiff for purposes of this motion.

a. Plaintiff’s role in collecting royalties under the Copyright Act

Plaintiff is a nonprofit organization, with statutory authority under, inter alia, 17 U.S.C. §
ll4(g) and 37 C.F.R. §§ 370, 382, and 384, as designated by the Copyright Royalty Judges.
Compl., ECF No. l, at 3; 17 U.S.C. § 801. Plaintiff filed the complaint in this case as the "sole
entity designated by regulation" to "collect statutory license payments from copyright users and
to distribute those payments to performing artists and copyright owners." Compl. 2. Section 114

contains various provisions making plaintiff`, as the designated nonprofit agent, responsible for

administrating and distributing statutory royalties and enforcing statutory licenses. The
Copyright Act provides these statutory licenses as "an alternative to having every music service
negotiate separate licenses with every copyright owner," under § ll2(e) and (d)(Z). Compl. 4.
Those companies which make use of such statutory licenses pay royalties at rates set by
Copyright Royalty Judge under §§ ll2(e)(3) and ll4(f). Accordingly, defendant (as well as
other entities utilizing statutory licenses) are obligated to make payments to plaintiff under the
aforementioned statutory licenses. Compl. Z.
b. The Digital Millennium Copyright Act

The Digital Millennium Copyright Act ("DMCA") established a new statutory scheme to
determine royalties under Title 17 of the United States Code. Pub. L. No. 105-304, 1l2 Stat.
2860 (Oct. 28, l998); 17 U.S.C. §§ lOl, et seq.; Compl. l; Def.’s Mot. Dismiss 9-l l. The new
standard for calculating royalty rates under the DMCA should reflect what "would have been
negotiated in the marketplace between a willing buyer and a willing seller." 17 U.S.C. §
ll4(f)(2)(B). This is referred to as the willing buyer/willing seller standard. While the DMCA
established new standards for determining royalty rates, it also created an exception for
preexisting subscription services ("PSS" or "PES"). l7 U.S.C. § 114(])(11). Defendant and two
other entities were grandfathered under this exception. Compl. 6. PSS are not subject to the
"willing buyer/willing seller" standard, but instead enjoy generally favorable royalty rates.
Compl. 5-6. The lower PSS rates give the PSS a competitive advantage over non-PSS. Compl.

6; Pl.’s Opp. Def.’s Mot. Dismiss ll.

c. Muzak

Defendant is the provider of "a subscription-based digital music service for various
satellite and cable television providers." Def.’s Mot. Dismiss 6. Defendant provided digital
music service available to consumers as music channels transmitted with Dish satellite television
service ("Dish") packages under the name DishCD. Compl. l & 9. DishCD consists generally
of audio-only content transmitted on certain channels of Dish Network ("Dish"), a multichannel
video programming distributor ("MVPD") under 47 U.S.C. § 522(13). Compl. l-2. As such,
defendant was one of the first entities to utilize the statutory licensing scheme provided under §
ll4(d)(2). Compl. l. In 1998, under the DMCA, Congress revised the statutory licensing
provisions, granting several entities status as PSS. Pub. L. No. 105-304, 112 Stat. 2860 (Oct. 28,
1998). Defendant was specifically identified as a PSS in the legislative history of the DMCA,
and has continued to operate as such within the statutory definition of PSS. 17 U.S.C. §
l 14(})(11); H.R. Conf. Rep. 105-796, l05th Cong., Znd Sess., 657 (1998).

d. DMX

DMX, as "DMX (operated by TCI Music)" was also originally designated as a PSS in
]998. 17 U.S.C. § ll4(j)(l l); H.R. Conf. Rep. 105-796, l05th Cong., 2nd Sess., 657 (l998);
Compl. l0. By 2006, DMX business and offerings had been restructured and the resultant entity

no longer claimed the PSS rates. Compl. lO; Desz'gnation as a Preexz`stz'ng Subscription Service,
71 Fed. Reg. 64,639-1 (Nov. 3, 2006). After 2006, DMX, or the entities offering music services
under the DMX brand name, made statutory royalty payments to plaintiff under the new

subscription service rate. Compl. l0. DMX began offering a new brand, SonicTap, in 2010,

which provided subscription packages for DirecTV satellite television at the new subscription

service rates (the willing buyer/willing seller standard) rather than the PSS rates. 17 U.S.C. §
ll4(t)(2)(B); Compl. l0; Pl.’s Opp. Def.’s Mot. Dismiss 13-14.
e. Acquisition of Muzak and DMX

Mood Media Corporation ("Mood") acquired Muzak in 2011. Compl. 9. In 2012, Mood
also acquired DMX Holdings, Inc., which was the provider of DMX services (specifically,
SonicTap on DirecTV). Compl. 10. When Mood acquired DMX, SonicTap was making royalty
payments at the new subscription service rate. Compl. 10. Defendant acquired the right to
provide audio-only channels to DMX’s previous customers effective May l, 2014. Compl. l0;
Pl.’s Opp, Def.’s Mot. Dimiss l4. Defendant notified plaintiff of the acquisition and intent to
utilize the PSS rate, then continued to make royalty payments for the services that were
previously provided by DMX, specifically the SonicTap services, at the PSS rate. Compl. IO-l l.
Plaintiff asked defendant for clarification as to why defendant believed that these services
qualified for the PSS royalty rates, to which defendant replied it was "eligible to pay royalties as
a [PSS] for all of its activities..." Compl. ll. In May 2014, DMX ceased independently making
royalty payments to plaintiff; at the same time defendant began making royalty payments at a
higher rate. Compl. ll. Presumably, the higher payment reflects defendant making royalty
payments for providing the services it began making that were previously made by DMX.

II. ANALYSIS

The parties dispute whether defendant is entitled to utilize the PSS royalty rate for certain
services it provides to customers previously served by DMX Holdings, Inc.’s SonicTap. The
parties do not appear to dispute the material fact recited herein. Instead, the issue appears to be

one of statutory interpretation

a. Jurisdiction and Venue

Jurisdiction is appropriate under the Copyright Act and Title 28 of the U.S. Code. l7
U.S.C. § l0l, et seq.; 28 U.S.C. § l33l; 28 U.S.C. § l338(a). The Court accepts, for the
purposes of this motion, plaintiffs undisputed factual allegations that venue is proper due to
defendant’s sufficient contacts with the district, as well as the allegation that a substantial part of
the events giving rise to the dispute occurred within the district. Compl. 2; 28 U.S.C. §
l39l(b)(l) & (b)(2).

b. Standard of Review~ Motion to Dismiss under Fed. R. Civ. P. 12(b)(6)

Defendant moves to dismiss for failure to state a claim upon which relief can be granted
under Fed. R. Civ. P. l2(b)(6). In order to withstand a motion to dismiss for failure to state a
claim, the complaint must contain "a short and plain statement of the claim showing that the
pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and
the grounds upon which it rests." Bell All. Corp. v Twombly, 550 U.S. 544, 555 (2007) (internal
quotations marks and citations omitted). Further, in ruling on a motion to dismiss, the D.C.
Circuit notes that the court will generally, "accept as true all of the factual allegations contained
in the complaint." Atherton v. Dist. ofColumbia, 567 F.3d 672, 681 (D.C. Cir. 2009). This does
not mean that the court must accept "threadbare recitals of a cause of action’s elements,

supported by mere conclusory statements." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citing
BellAtl, Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

¢. DMCA, § 114(,')(11)

The parties disagree on whether defendant can continue to utilize the PSS royalty rate
with regard to the portion of services transferred from DMX (primarily SonicTap). Compl. 9-1 l;
Def.’s Mot. Dismiss 10.

The DMCA provides the following definition of PSS:

A "preexisting subscription service" is a service that performs sound recordings

by means of noninteractive audio-only subscription digital audio transmissions,

which was in existence and was making such transmissions to the public for a fee

on or before July 3l, l998, and may include a limited number of sample channels

representative of the subscription service that are made available on a
nonsubscription basis in order to promote the subscription service.

l7 U.S.C. § 114(])(11) (2015). There are two relevant clauses in § 114(1)(11). First, "a
service that performs sounds recordings by means of noninteractive audio-only
subscription digital audio transmissions." The next clause that is relevant is the language,
"which was in existence and was making such transmissions to the public for a fee on or
before July 3l, 1998." § 114(1)(11).
d. Statutory Interpretation

The parties differ in their interpretation of how § 114(])(11) applies the
grandfathering provision. Defendant contends that the plain text of the statute yields a
two-part analysis to determine whether status as a PSS is granted under the DMCA; first,
that the service provides sound recordings by "noninteractive audio-only" means, and
second, that it has been providing "such transmissions" since July 31, 1998. Def.’s Mot.
Dismiss 16 (citing § 114(])(11)). Defendant argues that this is a disjunctive test and
therefore that it can meet each criteria separately to qualify for PSS rates. Def.’s Mot.
Dismiss at ll-l2. Defendant argues that a plain reading of the statute reveals that the

language "such transmissions" means the type of transmissions laid out in the beginning

of that sentence, or "noninteractive audio-only subscription digital audio transmissions,"
regardless of whether provided to the same customers, or a different group of customers.
Def.’s Reply Pl.’s Opp. Def.’s Mot. Dismiss 6-8 (citing 17 U.S.C. § 114@)(11)(2015)).

Conversely, plaintiff comprehends § ll4(j)(l 1) to impose a conjunctive two-part
requirement. Pl.’s Opp. Def.’s Mot. Dismiss, 7-8. Specifically, plaintiff alleges that the
PSS royalty only applies to PSS at the time of the DMCA’s enactment and only for their
services provided at that same time that qualified for the PSS royalty rate. Id. In other
words, "[t]o benefit from PSS rates . . . a licensee had to be the same business entity that
secured the statutory license prior to July 31, 1998. . . ." Pl.’s Opp. Def.’s Mot. Dismiss
l2. When it comes to "such transmissions," plaintiff interprets this phrase as requiring
the PSS to be making exactly the same transmissions as it was on July 3l, 1998. Pl.’s
Opp. Def.’s Mot Dismiss l7. Put another way, plaintiff is interpreting the word "such" to
mean "the same" or "identical" transmissions to the same set of customers, la'.

The "first step in interpreting a statute is to determine whether the language at
issue has a plain and unambiguous meaning with regard to the particular dispute in the
case." Robinson v. Shell Oil C0., 519 U.S. 337, 340 (1997). The Robinson court noted

that "[o]ur inquiry must cease if the statutory language is unambiguous . . . ." Id. The
difference between the parties comes down to whether the entity which qualified as a PSS
can make the same type of transmissions contemplated by § 114(])(1 l) to new customers
and retain the PSS royalty rate for the additional transmissions. To determine whether
Congress intended for the PSS rate to apply in this manner, the Court examines the rest of

the statute.

There are other provisions in the statute that make clear Congress’s intent for PSS
to be able to expand their businesses in certain ways yet remain under the PSS royalty
scheme. In § ll4(f)(l)(C), the statute provides that a copyright owner or PSS can initiate
procedures under § ll4(f)(l)(A) or (B) "indicating that a new type of subscription digital
audio transmission service on which sound recordings are performed is or is about to
become operational . . ." in order to determine whether such service should fall under the
PSS royalty rates as established by the Copyright Royalty Judges pursuant to §
ll4(f)(l)(A) or (B). Subsection ll4(f)(l) thus provides a mechanism for the PSS to
notify the appropriate authority that there is a new type of service and essentially obtain a
ruling about whether transmissions on this new type of service may also fall under the
PSS rate. This provision, therefore, is clear evidence that Congress did at least intend for
a PSS to be able to provide the some "new type" of service and still utilize the PSS
royalty rate.

e. Legislative History and the 2006 Decision

Though the Court need rely on the legislative history of § ll4, nor look to the Register of
Copyrights’ 2006 decision, it sees its ruling today as consistent with the Register’s analysis as
well as § ll4’s legislative history. H.R. Conf. Rep. 105-796, lO5th Cong., Znd Sess. (1998); U.S.
Copyright Office, Designalion as a Preexz`sting Subscription Servz`ce, 71 Fed. Reg. 64,639~l
(Nov. 3, 2006). To wit, the conference report describes a PSS as "making transmissions to the
public on or before July 3l, l998, and which is making transmissions similar in character to
such transmissions made on or before July 31, l998." H.R. Conf. Rep. 105-796 at 89 (l998)

(emphasis added). Next, the report notes:

. . . the conferee's objective was to limit the grandfather to their existing services
in the same transmission medium and to any new services in a new transmission
medium where only transmissions similar to their existing service are provided.
Thus, if a cable subscription music service making transmissions on July 3l,
l998, were to offer the same music service through the Internet, then such
Internet service would be considered part of a preexisting subscription service.

ld. The operative language here is "to any new services in a new transmission medium where
only transmissions similar to their existing service are provided." Id. immediately following
that, the report provides:
If, however, a subscription service making transmissions on July 31, ]998, were
to offer a new service either in the same or new transmission medium by taking
advantages of the capabilities of that medium, such new service would not qualify
as a preexisting subscription service. For example, a service that offers video
programming, such as advertising or other content, would not qualify as a
preexisting service, provided that the video programming is not merely
information about the service itself, the sound recordings being transmitted, the
featured artists, composers or songwriters, or an advertisement to purchase the
sound recording transmitted.
Id. The operative language in this portion of the report appears to be "new service
either in the same or new transmission medium by taking advantages of the capabilities
ofthat medium, . . ." Id.
Likewise, in 2006, the Register of Copyrights reached a decision in which
it concluded the tenn "preexisting subscription service" is best understood as "referring
to the business entity identified as the [PSS]," rather than the program offerings made on
a subscription basis to the public. 71 Fed. Reg. at 64646. Although the Register’s

decision also relies upon principles of statutory construction not indulged here, the

Register’s principle reasoning remains in accordance with this opinion.

III. CONCLUSION
ln light of the Court’s analysis defendant’s motion shall be GRANTED by a separate
Order issued this date.

Signed by Royce C. Lamberth, United States District Judge, March 7, 20l6.

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