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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------X MEREDITH CORPORATION, et al.,
Plaintiffs, - against - SESAC, LLC and JOHN DOES 1-50,
Defendants. ----------------------------------------X NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE
MEMORANDUM & ORDER 09 Civ. 9177 (NRB)
Plaintiffs Meredith Corporation, The E.W. Scripps Company,
Scripps Media, Inc., Hoak Media, LLC, Hoak Media of Nebraska,
LLC, and Hoak Media of Dakota, LLC (collectively “plaintiffs”),
owners of local commercial television broadcast stations (“local
stations”), bring this action on behalf of themselves and a
class of similarly situated local stations against defendant
SESAC, LLC (“SESAC”), a for-profit performing rights
organization (“PRO") that licenses rights under United States
copyright law to publicly perform the musical compositions of
its affiliated composers and music publishers (“SESAC
Rightsholders”). Am. Compl. at ¶ 1. The complaint also names a
number of composers and music publishers as “John Doe”
defendants. Id. at ¶ 61.
Plaintiffs allege that all defendants have entered into
unlawful agreements in restraint of trade in violation of
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 1 of 41
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Section One of the Sherman Act (id. at ¶¶ 77-82), that SESAC has
unlawfully monopolized the market for performance rights to
songs in the SESAC repertory (id. at ¶¶ 83-87), in violation of
Section Two of the Sherman Act, and that all defendants have
entered into a conspiracy to monopolize the market for
performance rights to songs in the SESAC repertory, also in
violation of Section Two of the Sherman Act (id. at ¶¶ 88-97).
Before the Court is SESAC’s motion to dismiss all three
counts of the complaint.1 For the reasons that follow, SESAC’s
motion to dismiss is denied.
BACKGROUND2
Nearly every television program includes music. There is
theme music at the beginning of a program, background music that
accompanies a program, transition music that leads into and out
of commercials, and music in commercials themselves. See id. at
¶ 2. Because the music used in local television programs is
almost always copyrighted, television networks must acquire
licenses to perform the music included in their programs. See
id.
1 Plaintiffs’ amended complaint was filed on March 18, 2010. Defendant SESAC filed its motion to dismiss on May 17, 2010. Plaintiffs filed an opposition brief on June 28, 2010, and SESAC filed a reply on July 19, 2010. Oral argument was held on January 24, 2011. 2 The facts below are drawn from the amended complaint. For purposes of reviewing this motion to dismiss, all nonconclusory allegations are accepted as true. See S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 100 (2d Cir. 2009).
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 2 of 41
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The performance rights to almost every copyrighted musical
composition in the United States are included in the repertories
of one of three Performing Rights Organizations: The American
Society of Composers, Authors and Publishers (“ASCAP”),
Broadcast Music, Inc. (“BMI”), and SESAC, LLC (“SESAC”). Id. at
¶ 10. All three PROs offer so-called “blanket licenses” which
charge a user a pre-determined fee for access to the PRO’s
entire repertory of music. Id. at ¶ 12. The licensing
practices of ASCAP and BMI, the two largest PROs, have been
subject to a number of antitrust challenges from television
networks over the past forty years. See Columbia Broadcasting
System, Inc. v. American Society of Composers, Authors and
Publishers (“CBS Remand”), 620 F.2d 930 (2d Cir. 1980); Buffalo
Broadcasting Co., Inc. v. American Society of Composers, Authors
and Publishers (“Buffalo Broadcasting”), 744 F.2d 917 (2d Cir.
1984); National Cable Television Ass’n, Inc. v. Broadcast Music,
Inc. (“NCTA”), 772 F.Supp. 614 (D.D.C. 1991). This is the first
such antitrust challenge to the licensing practices of SESAC.
A. PROs and Blanket Licenses
PROs are licensing entities that aggregate individual
copyrights from composers and music publishers and offer
licenses to users, such as local television stations. Id. at ¶
11. They were originally created to address the practical
difficulties facing individual copyright holders who sought to
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 3 of 41
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protect their copyrights and receive compensation for the use of
their music. As the Supreme Court has stated, “those who
performed copyrighted music for profit were so numerous and
widespread, and most performances so fleeting, that as a
practical matter it was impossible for the many individual
copyright owners to negotiate with and license the users and to
detect unauthorized uses.” Broadcast Music, Inc. v. Columbia
Broadcasting System, Inc. (“CBS”), 441 U.S. 1, 4-5 (1979).
A PRO’s blanket license charges a user a pre-determined fee
for access to a PRO’s entire repertory of music. Am. Compl. at
¶ 12. The fee for the blanket license does not vary based on
the amount of music actually used. Id.
B. ASCAP and BMI Consent Decrees
As a result of civil and criminal antitrust actions filed
by the United States Department of Justice (“DOJ”) against
ASCAP, and a civil action filed by the DOJ against BMI, both
ASCAP and BMI have operated under consent decrees for the past
sixty years. See id. at ¶ 19. According to plaintiffs, the
consent decrees limit the anticompetitive effects of ASCAP’s and
BMI’s market power by requiring that both PROs: (1) refrain from
obtaining exclusive licenses that would prevent users (such as
local stations) from acquiring performance rights directly from
individual composers and music publishers; (2) offer broadcast
licensees economically viable alternatives to the “all or
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 4 of 41
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nothing” blanket license; (3) refrain from withholding access to
their repertories in the event of a fee negotiation impasse; and
(4) offer licenses at reasonable rates subject to judicial
review. Am. Compl. at ¶ 21.
Of the three PROs, only SESAC does not operate under a
consent decree with the DOJ. Id. at ¶ 22.
C. Local Station Programming
The plaintiffs in this action are local commercial
television broadcast stations. Local station programming can
broadly be divided into two categories. First, local stations
broadcast some of their own programming (“locally produced
programming”), most notably local news programs. Id. at ¶ 3.
Second, local stations broadcast programs produced by third
parties (“third-party programming”). These programs, which
include commercials and public service announcements, come to
local stations already “in the can,” i.e. “with music and other
creative elements already irrevocably embedded.” Id.
There are two main kinds of third-party programming.
First, local stations that are affiliated with a broadcast
network receive programming from that network. The ABC, CBS,
and NBC television networks secure music performance rights for
their programs on behalf of their local station affiliates.3 Id.
3 As a result, the licensing of music performance rights for these programs is not at issue in this case.
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 5 of 41
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at ¶ 4. However, other networks, such as Fox and the CW
Network, do not secure music performance rights for the
programming provided to their local affiliates. Id.
Second, “virtually every local station broadcasts
syndicated programming produced and distributed by third parties
and sold market-by-market to local stations.” Id. at ¶ 5.
Syndicated programming includes both “first run” programs, such
as The Ellen DeGeneres Show, and “off-network” re-runs of
network programs, such as Seinfeld. Id.4
D. SESAC’s Alleged Anticompetitive Conduct
Plaintiffs’ complaint centers on how local stations acquire
the music performance rights for songs included in their third-
party programming. Plaintiffs allege that “[l]ocal stations do
not control the selection of any of the creative elements
contained in the third-party-produced programming or commercial
announcements they broadcast,” and that they “typically are
contractually prohibited from altering or removing the music or
other elements selected by the original producer and embedded in
the third-party programming.” Id. at ¶ 6. Furthermore, when
local stations contract with producers of syndicated
programming, they receive all copyright and other rights
necessary for broadcast except for the music performance rights.
4 The remainder of third-party programming consists of movies, sports, religious programming, and infomercials. Am. Compl. at ¶ 5.
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Id. at ¶ 7. Because of what plaintiffs describe as this
“longstanding industry practice,” (id. at ¶ 8) local stations
must independently obtain the performance rights for all of the
songs in the third-party programming they seek to broadcast.
The essence of plaintiffs’ complaint is that SESAC, and
its Rightsholders, violate the Sherman Act by making the “all or
nothing” blanket license the only viable option for obtaining
the performance rights to SESAC-represented songs, (see id. at
¶¶ 24-28) and that, as a result, SESAC is able to charge
supracompetitive prices.5 Id. at ¶ 34.
Specifically, plaintiffs allege that because the price of
the blanket license bears no relation to a local station’s
actual usage of compositions in the SESAC repertory, it
discourages stations from seeking alternative sources of
performance rights. Plaintiffs allege that they have no
incentive to seek alternatives because “SESAC’s all-or-nothing
blanket license affords no fee credit for those musical
compositions already otherwise licensed in separate transactions
with the copyright owner.” Id. at ¶ 24 (emphasis in original).
As a result, plaintiffs contend that even if they did acquire
alternatives to the blanket license, they would have to pay
twice for the same performance rights. Id.
5 We note that the complaint contains no numerical comparison of prices.
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Plaintiffs further allege that SESAC has threatened to
withhold access to its entire repertory as a means of extracting
supracompetitive fees. Id. at ¶ 29. In contrast, ASCAP and BMI
are, pursuant to their consent decrees, required to issue
licenses promptly upon request and at a “reasonable” rate
subject to judicial review. Id.
Plaintiffs’ antitrust claims are premised on their
underlying allegation that, as a practical matter, they cannot
avoid songs in the SESAC repertory. Even though SESAC
undoubtedly has far fewer musical compositions in its repertory
than do BMI or ASCAP,6 plaintiffs allege that they are “compelled
to deal with SESAC” (Am. Compl. at ¶ 32) because: (1) SESAC has
“strategically raided” ASCAP and BMI to entice certain composers
whose compositions are essentially impossible for SESAC to avoid
(id. at ¶ 30)7 and (2) SESAC refuses to disclose the full
contents of its repertory. Id. at ¶ 32.
In their complaint, plaintiffs indentify three kinds of
alternative licensing that they allege SESAC’s blanket license
forecloses: per-program licensing, direct licensing, and source
licensing. 6 Plaintiffs never actually identify what percentage of all copyrighted musical compositions are in the SESAC repertory. 7 These include composers who have compositions that are either (i) “embedded in established syndicated and unlicensed network programming to which [p]laintiffs have made substantial and irreversible commitments,” (ii) incorporated in plaintiffs’ locally produced programs, or (iii) included in commercials. Syndicated programs containing SESAC songs include Seinfeld, Two & A Half Men, Will & Grace, Wheel of Fortune, Jeopardy!, Entertainment Tonight, Dr. Oz, Dr. Phil, and The Ellen DeGeneres Show. Id. at ¶ 30.
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1. Per-program Licensing
Like a blanket license, a per-program license enables a
user to perform all of the compositions in a PRO’s repertory.
The per-program license fee, however, is determined “based only
on those programs broadcast during the license period containing
otherwise unlicensed repertory music.” Id. at ¶ 25. The music
that is embedded in a particular program is determined by
reference to lists prepared by program producers of music cues
in a program. Id. at ¶ 42. Plaintiffs allege that they do not
have access to these lists (known as “cue sheets”) for some
third-party programming, and thus that per-program fees are
partially determined based on cue sheet information maintained
by PROs. Id. For other programming, such as commercials,
neither the station nor the producer has access to a cue sheet.
Id. Thus, in order to provide stations with the copyright
protection afforded by the “all or nothing” blanket license, the
per-program license includes a “default assumption” about the
music content of programs for which there is no cue sheet. Id.
It is this “default assumption” that, plaintiffs allege, plays a
major role in rendering the terms of SESAC’s per-program license
“so egregious that the offer is in name only.” Id. at ¶ 26.
Between 2005 and 2007, a panel of arbitrators set a default
presumption that, except for a list of programs recognized as
regularly including SESAC music, five percent of third-party
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programming for which neither SESAC nor the station had a cue
sheet would be considered to contain SESAC music. Id. at ¶ 42.
Since then, SESAC has increased the default assumption tenfold
to fifty percent, an assumption that plaintiffs allege is “way
beyond any reasonable expectation based on SESAC’s share of
compositions,” and that has effectively rendered the per-program
license unusable. Id. at ¶¶ 42-45. Furthermore, plaintiffs
allege that they lack any effective means to dispute whether a
program contains SESAC music, thus “leaving SESAC as the
ultimate arbiter of what fees the per program license would
generate.” Id. at ¶ 44.
Plaintiffs allege that ASCAP and BMI, both of whom are
required to offer economically viable alternatives to their
blanket licenses, offer viable per-program licenses that allow
local stations to reduce their fees by considering the programs
they wish to air based on the content of each PRO’s embedded
music and/or by obtaining the performance rights needed for
particular locally produced programs directly from copyright
owners. Id. at ¶ 25. Hundreds of stations utilize the ASCAP
and BMI per-program licenses. Id. at ¶ 45. Similarly, prior to
the expiration of the arbitrators’ authority to set the price of
the SESAC per-program license (and SESAC’s subsequent increase
in the default assumption), more than 250 local stations
operated under the SESAC per-program license. Id. at ¶ 46.
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2. Direct Licensing
A direct license is a license obtained directly from an
individual copyright holder. Plaintiffs allege that SESAC has
foreclosed the option of direct licensing by imposing terms in
its contracts with Rightsholders which ensure “that any direct
licenses can be offered on terms no more favorable than the
terms offered by SESAC.” Id. at ¶ 28. These include terms
that: (1) require Rightsholders to first refer any request for a
direct license to SESAC; (2) limit any direct license to 12
months; (3) require Rightsholders to charge a rate equal to or
greater than SESAC’s equivalent rate; and (4) impose conditions
that reduce Rightsholders’ income as a result of direct
licensing. Id. In sum, plaintiffs allege that SESAC’s blanket
license serves “de facto or de jure, as the exclusive licensing
agent for its Rightsholders for many compositions in its
repertory” by discouraging any individual Rightsholder from
direct licensing. Id.
3. Source Licensing
A source license is a license obtained from a program
producer. Plaintiffs allege that “[a]s a practical matter, it
is not commercially feasible for local stations to obtain the
necessary performance rights from producers.” Id. at ¶ 9.
Plaintiffs argue that “[g]iven the pricing structure of the
SESAC blanket license, it is obvious that programming producers
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 11 of 41
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have no incentive to negotiate with rightsholders for music
rights on the stations’ behalf. For even if the producer of a
program incurred the expense of negotiating and securing such
rights, the local station still would need a SESAC blanket
license at an undiminished fee for the remainder of its
programming.” Pl.’s Mem. in Opp’n to Def.’s Mot. To Dismiss
(“Pl. Mem.”) at 10.
DISCUSSION
A. Motion to Dismiss Standard
When deciding a motion to dismiss for failure to state a
claim pursuant to Federal Rule 12(b)(6), the Court must accept
as true all well-pleaded facts alleged in the complaint and draw
all reasonable inferences in plaintiffs’ favor. Kassner v. 2nd
Ave. Delicatessen, Inc., 496 F.3d 229, 237 (2d Cir. 2007). A
complaint must include “enough facts to state a claim for relief
that is plausible on its face.” Bell Atlantic Corp. v. Twombly,
550 U.S. 554, 570 (2007). Where a plaintiff has not “nudged
[its] claims across the line from conceivable to plausible,
[its] complaint must be dismissed.” Id.
B. Relevant Market
We begin with an analysis of the plaintiffs’ alleged
relevant market -- the market for performance rights to the
copyrighted material in the SESAC repertory. Am. Compl. at ¶
64. “In order to survive a motion to dismiss, a claim under
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Sections 1 and 2 of the Sherman Act must allege a relevant
geographic and product market in which trade was unreasonably
restrained or monopolized.” Xerox Corp. v. Media Sciences
Intern., Inc., 511 F.Supp.2d 372, 382-83 (S.D.N.Y. 2007)
(internal quotation marks omitted).8 Furthermore, an alleged
product market must bear a “rational relation to the methodology
courts prescribe to define a market for antitrust purposes —
analysis of the interchangeability of use or the cross-
elasticity of demand.” Todd v. Exxon Corp., 275 F.3d 191, 200
(2d Cir. 2001) (internal quotation marks omitted). “Because
market definition is a deeply fact-intensive inquiry, courts
hesitate to grant motions to dismiss for failure to plead a
relevant product market.” Id. at 199-200. However, there is
“no absolute rule against the dismissal of antitrust claims for
failure to allege a relevant product market.” Id. at 200
(internal citation omitted). “Cases in which dismissal on the
pleadings is appropriate frequently involve either (1) failed
attempts to limit a product market to a single brand, franchise,
institution or comparable entity that competes with potential
substitutes, or (2) failure even to attempt a plausible
explanation as to why a market should be limited in a particular
way.” Id.
8 SESAC does not dispute that the relevant geographic market is the United States and its territories. Thus, we limit our analysis to the relevant product market.
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 13 of 41
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1. Contract Power vs. Market Power
SESAC contends that plaintiffs have failed to allege a
plausible relevant market because plaintiffs’ proposed market
“is based entirely on their own voluntary acceptance of
contractual constraints.” Reply Mem. in Support of Def. SESAC
LLC’s Mot. to Dismiss All Counts of the Compl. (“Def. Reply
Mem.”) at 10. SESAC argues that “[a]ccording to the Amended
Complaint, the only reason why ‘performance rights to [SESAC]
songs’ are not freely interchangeable with rights to ASCAP and
BMI songs is that local stations have agreed not to remove or
alter the music embedded in the programs whose broadcast rights
they purchase.” Id. at 9-10. SESAC argues that a relevant
market cannot be defined based on a plaintiff’s own voluntary
contractual obligations, and thus plaintiffs’ proposed market
definition fails as a matter of law.
SESAC’s “contract power” argument relies on the Third
Circuit’s decision in Queen City Pizza, Inc. v. Domino’s Pizza,
Inc., 124 F.3d 430 (3d Cir. 1997), and its progeny. In Queen
City Pizza, a group of Domino’s Pizza (“Domino’s”) franchisees
brought an antitrust complaint against Domino’s. As part of its
standard agreement with franchisees, Domino’s required that all
franchisees use only Domino’s-approved ingredients, beverages,
and packaging materials, and further provided that Domino’s may
require that these inputs “be purchased exclusively from
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 14 of 41
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[Domino’s] or from approved suppliers or distributors.” Id. at
433. The franchisees sued Domino’s for violations of both
Sections One and Two of the Sherman Act, alleging that the
“relevant market” was the market for Domino’s-approved
ingredients and supplies used by Domino’s Pizza franchisees.
Id. at 435. The Third Circuit held that the proposed market
failed as a matter of law:
A court making a relevant market determination looks not to the contractual restraints assumed by a particular plaintiff when determining whether a product is interchangeable, but to the uses to which the product is put by consumers in general. Thus, the relevant inquiry here is not whether a Domino’s franchisee may reasonably use both approved or non-approved products interchangeably without triggering liability for breach of contract, but whether pizza makers in general might use such products interchangeably. Clearly, they could. Id. at 438.
The Second Circuit has also considered the interplay
between contractual obligations and market definitions. In Hack
v. President and Fellows of Yale College, 237 F.3d 81 (2d Cir.
2000), abrogated on other grounds by Swierkiewicz v. Sorema
N.A., 534 U.S. 506 (2002), a group of Yale College students
alleged that Yale’s requirement that freshmen and sophomores
reside in campus dormitories was an attempt to monopolize the
New Haven student housing market, in violation of § 2 of the
Sherman Act, and an illegal arrangement tying a Yale education
to the purchase of unrelated housing services, in violation of §
1. The Second Circuit held that the Yale students failed to
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allege a relevant market “because it is clear that their focus
is upon a contractually created class of consumers: unmarried
freshmen and sophomores below the age of 21.” Id. at 85.
Citing the Third Circuit’s decision in Queen City Pizza, the
Second Circuit stated that “[e]conomic power derived from
contractual arrangements affecting a distinct class of consumers
cannot serve as a basis for a monopolization claim.” Id.
For the following reasons, we find that Queen City Pizza,
Hack, and the other “contract power” cases cited by SESAC are
distinguishable from the facts alleged here and do not render
plaintiffs’ alleged relevant market deficient as a matter of law
at the motion to dismiss stage. First, the contracts in all of
the cases cited by SESAC were between plaintiffs and defendants.
In Queen City Pizza, the Domino’s franchisees (plaintiffs)
entered into contracts with Domino’s (defendant), voluntarily
providing Domino’s with the authority to require them to both
purchase certain pizza inputs and to purchase them from Domino’s
(or Domino’s-approved suppliers). In Hack, the class of Yale
students (plaintiffs) entered into contracts with Yale College
(defendant), voluntarily providing Yale with the authority to
require them to both purchase housing and to purchase it in the
form of campus dormitories.9
9 Similarly, in Maris Distributing Co. v. Anheuser-Busch, Inc., 302 F.3d 1207, 1209-10 (11th Cir. 2002), a beer distributor (plaintiff) entered into a
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While it is certainly true that local television stations
voluntarily enter into contracts with producers that prohibit
the stations from removing embedded music, the contracts do not
address how, or from whom, local stations must acquire the
performance rights necessary to broadcast their programs.
Plaintiffs do not allege (and SESAC does not contend) that the
contracts between local stations and producers require that
performance rights to music in the SESAC repertory be purchased
through a SESAC blanket license (as opposed to through a direct
license, a source license, a per-program license, or some other
means).
Second, in all of the Queen City Pizza “contract power”
cases cited by SESAC, the antitrust defendant’s alleged market
power arose solely from contractual rights provided to them by
plaintiffs. See Newcal Indus. Inc. v. Ikon Office Solution, 513
F.3d 1038, 1048 (9th Cir. 2008) (reviewing the Queen City Pizza
line of cases and stating that “the law prohibits an antitrust
claimant from resting on market power that arises solely from
contractual rights that consumers knowingly and voluntarily gave
to the defendant (as in Queen City Pizza . . . ) (emphasis in
contract with Anheuser-Busch, Inc. (defendant), voluntarily relinquishing the distributor’s ability to be owned, in whole or in part, by the public. See also United Farmers Agents Ass’n, Inc. v. Farmers Ins. Exchange, 89 F.3d 233 (5th Cir. 1996) (insurance agents (plaintiffs) entered into contracts with insurer (defendant), voluntarily providing the insurer with authority to require the agents to purchase a certain computer from the insurer, or to use another agent’s computer purchased from the insurer).
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 17 of 41
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original)).” Thus, in Queen City Pizza, but for the contract
between Domino’s franchisees and Domino’s, the franchisees could
have purchased tomato sauce from any seller in the tomato sauce
market. In Hack, but for the contract between Yale students and
Yale College, the students could have purchased housing from any
seller in the New Haven housing market. In United Farmers, but
for the contract between the insurance agents and the insurer,
the agents could have purchased computer equipment from any
seller in the market for computers. And in Maris, but for the
contract between the beer distributors and the manufacturer, the
distributors could have opened themselves up to public
ownership. This type of contractual relationship -- in which an
antitrust defendant’s alleged market power arises solely from a
contractual provision limiting a plaintiff’s ability to purchase
a product in what would otherwise be a competitive market –- is
not present based on the facts alleged in the complaint. As
stated above, plaintiffs have not “knowingly and voluntarily”
given rights “to the defendant” (Newcal, 513 F.3d at 1048
(emphasis added)) by entering into contracts with producers.
The contracts do not require plaintiffs to purchase performance
rights through SESAC’s blanket license. Furthermore, unlike in
the cases discussed above, here plaintiffs’ complaint states a
claim that SESAC’s market power arises from factors other than
the fact that local stations are locked-in to purchasing
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 18 of 41
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performance rights for SESAC songs. Rather, plaintiffs allege
that SESAC’s conduct has made the blanket license the only
viable option for acquiring performance rights to songs in the
SESAC repertory.
Third, in Queen City Pizza, the Third Circuit found it
significant that there was competition in the market for
restaurant franchise opportunities. Noting that there are
thousands of franchise opportunities available for investors,
the Third Circuit stated that if plaintiffs found the
contractual provisions in the Domino’s franchise agreement to be
too restrictive they could have pursued other franchise
opportunities. Queen City Pizza, 124 F.3d at 441. Similarly,
the Second Circuit in Hack rejected plaintiffs § 1 tying claim
on the grounds that the plaintiffs’ proposed relevant market –-
the market for a Yale education -- failed as a matter of law
because a Yale education is not a unique product. See Hack, 237
F.3d at 86 (“[T]here are many institutions of higher learning
providing superb educational opportunities.”)
Here, in contrast, SESAC does not contend that local
stations choose to enter into contracts with certain producers
who prohibit the removal of embedded music instead of, for
example, contracting with other producers who permit the removal
of music. Rather, plaintiffs allege that, as a matter of
entrenched industry practice, virtually all contracts prohibit
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 19 of 41
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the removal of songs and other creative elements that are
already “in the can.” Thus, to the extent that the Queen City
Pizza line of cases rely on the existence of a primary market in
which there is competition between products that include
particular contractual provisions and those that do not, that
form of competition does not appear to exist in the market for
broadcast rights.
Fourth, Queen City Pizza emphasized that there was no
question as to the foreseeability of the defendant’s alleged
market power because that power “was spelled out in detail in .
. . the standard franchise agreement.” Queen City Pizza, 124
F.3d at 440. The Third Circuit stated that the Domino’s
franchisees “knew that Domino’s Pizza retained significant power
over their ability to purchase cheaper supplies from alternative
sources.” Id. See also Hack, 237 F.3d at 87 (“Yale’s housing
policies were fully disclosed long before plaintiffs applied for
admission.”) SESAC suggests that this case is similar to Hack
because plaintiffs do not “allege that the requirement that they
separately purchase performance rights for music embedded in
third-party programming is less than transparent.” Mem. of Law
in Support of Def. SESAC LLC’s Mot. to Dismiss All Counts of the
Compl. (“Def. Mem.”) at 23-24, n.14. But, again, while the
practical consequence of the contracts with producers is that
local networks must purchase performance rights separately, the
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contracts do not require that the rights be purchased in any
particular way or from any particular entity.
In this limited respect, the market for performance rights
to songs in the SESAC repertory is actually more like the
aftermarket for Kodak camera parts and services, which the
Supreme Court, in Eastman Kodak Co. v. Image Technical Services,
Inc., 504 U.S. 451 (1992), held constituted a separate
submarket. In that case, plaintiffs alleged that Kodak was
illegally preventing independent service companies from
competing with Kodak in the aftermarket for parts and services
of Kodak-brand equipment. As the Ninth Circuit noted in Newcal,
“[t]he critical distinction between Eastman Kodak and [Queen
City Pizza] was that the Kodak customers did not knowingly enter
a contract that gave Kodak the exclusive right to provide parts
and services for the life of the equipment. In other words, the
simple purchase of Kodak-brand equipment (unlike the signing of
a Domino’s franchise agreement . . .) did not constitute a
binding contractual agreement to consume Kodak parts and
services in the aftermarket.” 513 F.3d at 1048. Here, the
purchase of television programs that include SESAC-music does
not constitute a binding contractual agreement to purchase a
SESAC blanket license (albeit it is an agreement to obtain
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 21 of 41
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permission for SESAC copyrights if a station wants to justify
its purchase).10
2. The Relevant Product
Much of SESAC’s “market definition” argument appears to
rely on the premise that the “products” at issue in the
complaint are the underlying songs for which local stations must
acquire performance rights. Thus, SESAC argues that plaintiffs’
proposed relevant market excludes the “obvious substitutes” of
“works in the BMI and ASCAP repertories.” Def. Mem. at 19.
SESAC notes that the complaint does “not allege that any
particular quality or characteristic distinguishes SESAC-
represented works, or deny that similar works are found in the
ASCAP or BMI repertories.” Id. at 20. SESAC thus argues that
“under plaintiffs’ proposed market definition, Bob Dylan’s
‘Tangled Up in Blue,’ is reasonably interchangeable with ‘The
10 Furthermore, we note that the industry practice of music being “in the can” (i.e., irrevocably embedded) when television stations acquire programs from producers was established prior to earlier (post-consent decree) challenges to both the ASCAP and BMI licenses. See, e.g., National Cable Television Ass’n, Inc. v. Broadcast Music, Inc. (“NCTA”), 772 F.Supp. 614, 620-21 (D.D.C. 1991) (“[W]hen the syndicated program is sold or licensed to the cable program services, the music is ‘in the can,’ i.e. indelibly part of the program. That means that cable program services do not play any role in the selection of or negotiation over the bundle of music rights . . . concerning syndicated programming.”) Even though television stations were contractually prohibited from removing embedded music, the NCTA court still considered -- after a trial -- whether other methods of obtaining performance rights were available. See, e.g., id. at 634 (“In sum, cable program services do have realistically available alternatives to the BMI blanket license and, therefore, the latter does not constitute a restraint of trade within the meaning of § 1 of the Sherman Act.”). The court found that source licensing, direct licensing, and per-program licensing were all realistically available alternatives to the BMI blanket license.
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Teapot Song’ (because these two SESAC-represented songs are,
according to [p]laintiffs, in the same antitrust market) but not
reasonably interchangeable with a song by an ASCAP-affiliated
Dylan contemporary like Neil Young.” Id. at 20-21.
However, plaintiffs do not allege that Bob Dylan songs are
not interchangeable with Neil Young songs (although it is
certainly possible that, depending on the circumstance, they are
not); rather, they allege that the performance rights to Bob
Dylan songs are not interchangeable with the performance rights
to Neil Young songs because, like all copyright holders, Dylan
and Young only affiliate with one of the three PROs.
The implication of SESAC’s argument that the relevant
market should include the performance rights to songs in the
repertories of all three PROs is that, because SESAC maintains a
relatively small percentage of all copyrighted music, local
stations could avoid SESAC music altogether if they did not lock
themselves in. While there appears to be no question that there
are far more songs in the ASCAP and BMI repertories than there
are in the SESAC repertory, plaintiffs have plausibly alleged
that, because of the existence of SESAC songs in critical shows
and commercials (as well the alleged difficulty in determining
the full contents of the SESAC repertory), they cannot avoid
music in the SESAC repertory. Indeed, under SESAC’s “default
assumption” of the percentage of programs without a cue sheet
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 23 of 41
24
that include SESAC songs, presumably it could be argued that
fifty percent of programming includes at least one SESAC song.
As SESAC stated at oral argument, a program need only include
one song from the SESAC repertory in order to qualify as a
“SESAC show.” Thus, a program with twenty-five ASCAP songs,
twenty-five BMI songs, and one SESAC song is still a “SESAC
show.” See Jan. 24, 2011 Oral Argument, Tr. (“Tr.”) at 18:25-
19:6. Ultimately, these are factual inquiries that cannot be
decided at the motion to dismiss stage. We note, however, that
when the court in NCTA considered BMI’s arguments that there
were alternatives to the blanket license, it rejected the option
of avoiding BMI music altogether as “patently unrealistic in
view of the quantity of programming carried.” NCTA, 772 F.Supp.
at 635 n.55.
SESAC points to plaintiffs’ argument that SESAC’s alleged
conduct prohibits composers from competing to have their works
included in programming at “the time such programming is created
and its music is selected” (Pl. Mem. at 2) as evidence that the
relevant market must be broader than that which plaintiffs
allege, because “at that time . . . composers from all three
PROs self-evidently compete with each other, and plaintiffs do
not attempt to assert otherwise.” Def. Reply Mem. at 10. It
may be true that, at the initial stage at which producers are
choosing songs, a song in the SESAC repertory is interchangeable
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25
with a similar song in the ASCAP or BMI repertories. However,
plaintiffs have plausibly alleged that, because of SESAC’s
pricing structure and alleged anticompetitive conduct, producers
have no incentive to purchase the performance rights to SESAC
songs because local stations, allegedly forced into purchasing
the SESAC blanket license, have no reason to pay producers for a
performance right when, as a practical reality, they need to
purchase the blanket license in any event. If local stations
were to pay producers for a performance right, they would
effectively be “double paying.”
The plausibility of plaintiffs’ relevant market is further
supported by their claim that, in spite of SESAC’s increase in
fees, virtually all local stations in the country still have a
SESAC blanket license. See Pl. Mem. at 17. Where (1) virtually
all composers affiliate with only one of the three PROs (Am.
Compl. at ¶ 11), (2) almost all stations have licenses from all
three PROs (id. at ¶ 13), and (3) local stations have not
reacted to SESAC’s price increases by replacing SESAC licenses
with alternative licenses (see id. at ¶ 34), plaintiffs have
adequately alleged that performance rights to songs in the SESAC
repertory are not interchangeable with performance rights to
songs in the repertories of the other PROs.11
11 SESAC’s other arguments concerning the relevant market do not affect our conclusion. First, SESAC’s argument that the market definition must be based
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26
Having found that plaintiffs have adequately pled a
relevant product market at this stage, we now turn to whether
plaintiffs have adequately pled violations of Sections 1 and 2
of the Sherman Act.
C. Sherman Act Section 1 Claim
Under Section 1 of the Sherman Act, “[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal.” 15 U.S.C. § 1. In
spite of this language, the Supreme Court has “never taken a
literal approach” and has instead stated that § 1 only prohibits
“unreasonable restraints.” Leegin Creative Leather Prods. v.
PSKS, Inc., 551, U.S. 877, 885 (2007) (internal quotation marks
omitted). In order to prove a violation of § 1, plaintiffs must
show (1) an agreement, combination, or some form of concerted
action between at least two legally distinct economic entities,
on a consideration of whether products are interchangeable for consumers in general (e.g. radio stations and other users of performance rights), and not just plaintiffs (Def. Mem. at 23), is belied by the long history of challenges brought by television networks to the ASCAP and BMI licenses (a history upon which SESAC relies), as well as the antitrust principle that “a core group of particularly dedicated distinct customers paying distinct prices may constitute a recognizable submarket, whether they are dedicated because they need a complete cluster of products, because their particular circumstances dictate that a product is the only realistic choice, or because they find a particular product uniquely attractive.” FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1039 (D.C. Cir. 2008) (internal quotation marks and citations omitted). Second, the market for performance rights to SESAC songs is not a market defined by a single “brand” in the traditional sense of the term. The product (or “brand”) of the SESAC blanket license is not the product that defines the alleged market. In any event, a relevant market can, in some circumstances, be defined by a single product or brand. See Eastman Kodak, 504 U.S. at 477-82; Newcal Indus., 514 F.3d at 1048.
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that (2) unreasonably restrains trade under a per se or rule of
reason analysis. Geneva Pharms. Tech. Corp. v. Barr Labs, Inc.,
386 F.3d 486, 506 (2d Cir. 2004).
“The rule of reason is the accepted standard for testing
whether a practice restrains trade in violation of § 1.”
Leegin, 551 U.S. at 885. It requires courts to determine
whether an agreement “is on balance an unreasonable restraint of
trade, that is, whether its anti-competitive effects outweigh
its pro-competitive effects.” CBS Remand, 620 F.2d at 934 (2d
Cir. 1980). However, the rule of reason does not govern all
restraints. Restraints are per se illegal if they are within
the “narrow range of behavior that is considered so plainly
anti-competitive and so lacking in redeeming pro-competitive
value that it is presumed illegal without further examination.”
Geneva Pharms. Tech. Corp., 386 F.3d at 506 (internal quotation
marks and citation omitted). “Per se rules are invoked when
surrounding circumstances make the likelihood of anticompetitive
conduct so great as to render unjustified further examination of
the challenged conduct.” National Collegiate Athletics Ass’n v.
Board of Regents of Regents of Univ. of Oklahoma, 468 U.S. 85,
103-04 (1984). The per se rule “eliminates the need to study
the reasonableness of an individual restraint in light of the
real market forces at work. . . . Restraints that are per se
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unlawful include horizontal agreements among competitors to fix
prices.” Leegin, 551 U.S. at 886.
In CBS, the Supreme Court held that the ASCAP and BMI
blanket licenses should not “automatically be declared illegal
in all of its many manifestations. Rather, when attacked,
[they] should be subjected to a more discriminating examination
under the rule of reason.” CBS, 441 U.S. at 24. In spite of
the Supreme Court’s holding in CBS, plaintiffs allege that the
defendants’ conduct constitutes per se unlawful price fixing
agreements (Am. Compl. at ¶ 81), primarily because “[t]he
absence of decree constraints on SESAC places it in a posture
parallel to that in which ASCAP and BMI found themselves prior
to their consent decrees, where courts found those joint
ventures’ to be per se illegal.” Pl. Mem. at 8.
While the Supreme Court certainly considered the role of
ASCAP and BMI’s consent decrees when determining that the
blanket license should be judged under the rule of reason
standard, its holding that the blanket license “should [not]
automatically be declared illegal in all of its many
manifestations” requires that SESAC’s blanket license –- a
different “manifestation” of the blanket license –- should be
subject to the more discriminating analysis of the rule of
reason. The Supreme Court’s findings that (1) the blanket
license was not a “naked restrain[t] of trade with no purpose
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except stifling of competition” (CBS, 441 U.S. at 20)(internal
quotation marks omitted), (2) “the blanket license cannot be
wholly equated with a simple horizontal arrangement among
competitors” (id. at 23), and (3) the “license is quite
different from anything any individual owner could issue” (id.)
all directly apply to SESAC’s blanket license, as alleged in the
complaint.12
Indeed, plaintiffs’ arguments for certain changes to the
blanket license (for example, the addition of “fee credits” and
the possibility of obtaining an interim license in the event of
an impasse in fee negotiations) and the addition of a viable
per-program option provide further support for the application
of the more discriminating rule of reason analysis. As the
Supreme Court stated in CBS, the possibility that the blanket
license might, in some form, survive antitrust inquiry
demonstrates that the license is not per se illegal. See id. at
17, n.27.13
12 Plaintiffs argue that SESAC “brings no new marketplace efficiencies” because ASCAP and BMI already exist to offer a product that individual composers could not offer on their own. See Pl. Mem. at 6, n.4. While it is obviously true that ASCAP and BMI already exist (and can provides individual copyright holders with the benefits of membership), it does not follow that SESAC should simply cease to exist, or that SESAC does not provide its Rightsholders with the same benefits that ASCAP and BMI provide. 13 In addition, we note that plaintiffs have not suggested that they do not have to plead a relevant product market in order to establish a § 1 violation. See generally Part II.B, supra. In antitrust cases governed by a per se analysis, “it is well settled that plaintiff is excused from defining the relevant product market.” In re European Rail Pass Antitrust Litig., 166 F.Supp.2d 836, 844 (S.D.N.Y. 2001)(internal quotation marks and citation omitted).
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With this background, we turn to whether plaintiffs have
adequately pled a § 1 violation under the rule of reason
standard. Here, it is useful to consider the previous decisions
applying the rule of reason to the ASCAP and BMI blanket
licensing practices. While the previous antitrust challenges to
the ASCAP and BMI licenses have been unsuccessful, none were
decided at the pleadings stage. Rather, all were decided after
full trials on the merits. When considering a challenge to
ASCAP and BMI’s blanket licenses from a class of local
television stations, the Second Circuit stated that “it does not
follow that the local stations lose simply because the CBS
network lost.” Buffalo Broadcasting, 744 F.2d at 917 (2d Cir.
1984). Instead, the Second Circuit considered “whether the
plaintiff had proved that it lacked a realistic opportunity to
obtain performance rights from individual copyright holders” –-
the same inquiry that the Second Circuit had made in CBS Remand.
Id. at 926. In NCTA, a district court presented with a
challenge from the cable television industry to BMI’s licensing
practices made the same observation: “[T]he fact that local
broadcast television stations did not prevail in their antitrust
challenge to the blanket license does not mean that plaintiffs
here necessarily fail in their parallel quest. Antitrust
questions are always fact-specific.” NCTA, 772 F.Supp. at 628.
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The NCTA court then proceeded to consider the evidence on
alternatives to the blanket license.
SESAC relies on the decisions in CBS Remand, Buffalo
Broadcasting, and NCTA throughout its motion to dismiss.14 But,
as SESAC’s citations to those cases demonstrate, the courts’
analyses in all three cases were shaped by the evidence produced
at trial. See, e.g., CBS Remand, 620 F.2d at 936 (“After
carefully analyzing the evidence CBS offered, [the district
court judge] concluded that ‘CBS has failed to prove the factual
predicate of its claims [sic] the non-availability of
alternatives to the blanket license.’”); Buffalo Broadcasting,
744 F.2d at 928 (noting the “lack of evidence that the program
license is not realistically available”); NCTA, 772 F.Supp. at
632 (discussing evidence concerning attempts to obtain source
licensing).
Furthermore, all three cases involved challenges to the
practices of either ASCAP or BMI, both of which were already
operating under the terms of the consent decrees that plaintiffs
argue prohibit much of the anticompetitive conduct alleged in
14 See e.g., Def. Mem. at 2, n.1, 12 (citing Buffalo Broadcasting’s rejection of local stations’ claim that the blanket license precluded direct licensing because plaintiffs failed to produce evidence that stations actually offered money to composers for the performing rights to their music); id. (citing Buffalo Broadcasting’s rejection of claim that source licensing was not an alternative because plaintiffs had made no significant attempt to acquire source licensing); id. at 11, n.8 (citing the NCTA court’s finding that there was competition among composers to have their works included in broadcast programming); id. at 12 (citing the NCTA court’s rejection of plaintiffs’ claim that there was a lack of competition among composers).
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the present complaint. Pl. Mem. at 2. The existence of the
consent decrees was certainly a factor in the courts’ rule of
reason analyses. See, e.g., Buffalo Broadcasting, 744 F.2d at
927 (noting that a viable per-program license was guaranteed by
a “judicially enforceable requirement of a ‘reasonable’ fee”);
CBS Remand, 620 F.2d at 938 (stating that “one indisputable fact
that perhaps overshadows all others” is that if CBS were to seek
direct licenses and find “that a competitive market among
copyright owners was not a feasible alternative to the blanket
license, it would be entitled, under the consent decree, to
assure itself of continued performing rights by immediately
obtaining a renewed blanket license”).
Thus, while the record of television network antitrust
challenges to PROs and blanket licenses is both long and
unsuccessful, it is also one that counsels against the outright
dismissal of the present antitrust claims before this Court –-
claims that raise challenges to a different blanket license
offered by a different PRO and operating without the constraints
of a consent decree.
In this context, we consider SESAC’s major arguments as to
why the complaint fails to plausibly allege a restraint of
trade. First, SESAC argues that plaintiffs’ alleged problem is
one of their own making and has nothing to do with SESAC.
Specifically, SESAC contends that because plaintiffs allege that
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 32 of 41
33
it is “entrenched industry practice” in which stations acquire
broadcast rights without music performance rights that causes
them to “lack any bargaining power,” it cannot be SESAC’s
blanket license that restrains trade. Def. Mem. at 10-11.
Rather, SESAC suggests that, in light of plaintiffs’ practice of
acquiring broadcast rights without performance rights, the
blanket license is actually beneficial to plaintiffs.
Furthermore, SESAC argues that because plaintiffs purchase
broadcast rights without demanding disclosure of the songs they
need to license, the blanket license provides the additional
benefit of access to the full repertory. Id. at 11.
Second, SESAC argues that plaintiffs have failed to
plausibly allege how the SESAC blanket license affects direct
licensing. As a preliminary matter, SESAC states that the
complaint includes no indication of how many SESAC Rightsholders
have agreements, or who they are. Id. at 12. Furthermore,
SESAC argues that plaintiffs have made no allegation about any
actual efforts they have made to obtain direct licenses. Even
if plaintiffs had made efforts to obtain direct licenses, SESAC
argues that it is implausible that direct licensing would
provide a “competitive alternative” to the blanket license
because local stations could not possibly negotiate rights with
every SESAC Rightsholder. According to SESAC, it is implausible
to suggest that “rightsholders would compete with each other in
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 33 of 41
34
unrelated negotiations over the price of performance rights for
music already embedded in programs that stations have committed
to broadcast.” Def. Mem. at 13.
Third, with regard to source licensing, SESAC notes that
the Second Circuit has twice rejected the argument that a
blanket license eliminates the availability of source licensing.
See Buffalo Broadcasting, 744 F.2d at 931-32; CBS Remand, 620
F.2d at 934. Furthermore, SESAC contends that plaintiffs’
allegations about source licensing are, again, based on the
“longstanding industry practice” (Am. Compl. ¶ 8) in which
producers convey all rights to local stations except for music
performance rights. SESAC contends that it has nothing to do
with this practice, and thus cannot be the source of any alleged
anticompetitive result.
SESAC may well be correct that a blanket license is, in
many respects, beneficial for a number of local stations.
Indeed, while approximately 250 stations chose the per-program
license when its terms were determined by the arbitrators, the
rest of the local stations did not.15 Nevertheless, at this
stage, plaintiffs’ allegations that (1) SESAC has entered into
15 It strikes this Court –- based on the history of litigation in this industry, the parties’ briefs, and the oral argument –- that, purely as a practical matter, the core of the dispute between the parties could be resolved with relatively minor adjustments. The fact that plaintiffs did not bring an antitrust action against SESAC for decades, and that this lawsuit was only filed after changes to SESAC’s per-program license, speaks to the possibility of an acceptable licensing framework (and one that would likely not raise antitrust issues).
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exclusive licensing arrangements with Rightsholders (Am. Compl.
at ¶ 28); (2) SESAC does not offer a viable per-program license
(id. at ¶ 26); (3) it is virtually impossible for local stations
to avoid SESAC music (id. at ¶ 32) ; and (4) the SESAC blanket
license’s fee structure effectively forecloses alternative
licensing options (id. at ¶ 24) are sufficient to state a claim
for a § 1 violation. The “entrenched industry practice” of
producers conveying all rights except for music production
rights (a practice that SESAC argues is the cause of any alleged
anticompetitive result) was in full effect prior to earlier
antitrust challenges to the ASCAP and BMI licenses, and courts
still considered those licensing practices based on the evidence
produced at trial. See, e.g. NCTA, 772 F.Supp. at 621 (stating
that “[t]he prevailing industry practice is that music
performing rights are not conveyed and must be obtained from the
copyright holder or his or her agent in order to perform the
music in the program”); CBS Remand, 620 F.2d at 934 (discussing
the “industry practice” in which producers do not obtain
performance rights “for reassignment to the network”).
Moreover, as discussed above, the “entrenched industry practice”
does not lock stations into a particular kind of license, but
rather requires that they obtain one.16
16 Relying on Judge Winter’s concurring opinion in Buffalo Broadcasting, SESAC also argues that “separate bilateral agreements between SESAC and its
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36
With regard to the possibility of alternatives to the
blanket license, the complaint includes sufficient allegations
to survive a motion to dismiss. Once again, we note that all
previous cases in this industry considered evidence as to
whether per-program, source, or direct licenses were realistic
alternatives to the blanket license. Here, plaintiffs allege
that none of them are.
While SESAC may be correct that local stations could not
plausibly negotiate rights with every SESAC Rightsholder for
music already embedded in programs, that does not mean that
local stations might not, for example, obtain direct licenses in
conjunction with a per-program license if one were economically
viable. See Buffalo Broadcasting, 744 F.2d at 928 (“[T]he
program license provides local stations with a fall-back
position in the event that they forgo the blanket license and
then encounter difficulty in obtaining performing rights to
music on some syndicated programs either by direct licensing or
by source licensing.”). While SESAC argues that plaintiffs have members, as alleged by Plaintiffs, cannot restrain trade.” Def. Mem. at 13. In Buffalo Broadcasting, Judge Winter stated that “so long as composers or producers have no horizontal agreement among themselves to refrain from source or direct licensing and there is no other artificial barrier, such as a statute, to their use, a non-exclusive blanket license cannot restrain competition.” 744 F.2d at 934 (Winter, J., concurring). As Magistrate Judge Dolinger noted in an opinion concerning ASCAP’s blanket license fee, “it appears that the other members of the panel were not prepared to adhere to that conclusion.” See American Society of Composers, Authors and Publishers v. Showtime/The Movie Channel, Inc., 912 F.2d 563, 584 n.24 (2d. Cir. 1990)(attaching Magistrate Judge Dolinger’s opinion in the appendix). Rather, the Second Circuit in Buffalo Broadcasting stated that “the context in which the blanket license is challenged can have a significant bearing on the outcome.” 744 F.2d at 933.
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37
failed to allege that they pursued direct licenses, the essence
of plaintiffs’ claim is that any direct license would result in
“double paying.”17 While SESAC states that the Second Circuit
has twice rejected an argument that a blanket license eliminates
the availability of source licensing, both cases (CBS Remand and
Buffalo Broadcasting) were decided after trials. And while
SESAC contends that “Second Circuit precedent nowhere indicates
that antitrust law itself requires such a license” (Def. Reply
Mem. at 5), the availability of the per-program license was an
important aspect of the courts’ analyses of the ASCAP and BMI
licenses. Indeed, plaintiffs allege that “[o]nly in conjunction
with a viable per program license, which SESAC has altered (and
can even eliminate) at its whim, would direct or source
licensing of part of a broadcast schedule be potential
substitutes.” Am. Compl. at ¶ 62. Plaintiffs’ argument is
that a per-program license is essentially a “bridging mechanism”
(Tr. at 48:8-9) that allows stations the opportunity to try get
into the marketplace and try to acquire performance rights from
composers or producers.
SESAC’s motion to dismiss is fundamentally premised on its
claim that “[p]laintiffs propose to simply re-prove the same
failed case” that television networks previously brought against
17 Plaintiffs do allege that they “have made good-faith commercials efforts to enter into source licensing arrangements with major syndicators and producers and have been completely rebuffed.” Am. Compl. at ¶ 9.
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ASCAP and BMI. Def. Reply Mem. at 6. Whether SESAC’s argument
is correct cannot be determined at this stage given plaintiffs’
pleadings.
D. Sherman Act Section 2 Claims
Under Section Two of the Sherman Act, “[e]very person who
shall monopolize, or attempt to monopolize, or combine or
conspire with any other person or persons, to monopolize any
part of the trade or commerce among the several States, or with
foreign nations, shall be guilty of a felony . . . .” 15 U.S.C.
§ 2. In order to prove a violation of § 2, plaintiffs must
demonstrate (1) the possession of monopoly power in the relevant
market, and (2) the willful acquisition or maintenance of that
power. PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d
Cir. 2002).
Monopoly power is “the power to control prices or exclude
competition.” United States v. E.I. du Pont de Nemours & Co.,
351 U.S. 377, 391 (1956). See also Eastman Kodak Co. v. Image
Technical Servs., 504 U.S. 451, 464 (1992) (defining market
power as the power “to force a purchaser to do something that he
would not do in a competitive market”). Here, where SESAC holds
nearly 100% of the relevant market, it is clear that they have
established monopoly power.18
18 See E.I. du Pont Nemours & Co., 351 U.S. at 379, 391 (stating that control of 75% of the relevant market would have constituted monopoly power).
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39
Still, in order to plead a § 2 claim, plaintiffs also must
adequately plead the willful acquisition or maintenance of that
power. SESAC argues that plaintiffs’ § 2 claim “is merely an
attempt to dress up a failed § 1 claim.” Def. Reply Mem. at 9.
In many respects, the conduct that plaintiffs allege violates §
2 is the same as the conduct underlying its § 1 claim. See,
e.g. Am. Compl. at ¶ 86 (alleging, inter alia, that SESAC
prevents Rightsholders from entering into direct licenses with
users and refuses to offer alternatives to the “all or nothing”
blanket license). But having sustained plaintiffs’ § 1 claim
based on these allegations, we find that plaintiffs’ § 2 claims
can also survive a motion to dismiss because plaintiffs have
plausibly alleged that SESAC’s monopoly power has been
maintained or acquired through the alleged exclusionary conduct
described above. Indeed, much of SESAC’s argument with regard
to exclusionary conduct is the same as its argument with regard
to the § 1 claim. See, e.g., Def. Mem. at 16 (arguing that
direct licenses would not be a practical competitive
alternative); id. at 17 (arguing that “SESAC’s alleged failure
to offer alternative licenses does not have any anticompetitive
effect”).
Finally, we note that the plaintiff television networks in
CBS also brought § 2 claims. When the Supreme Court held in CBS
that the blanket license was not a per se violation of § 1, it
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 39 of 41
also noted, and did not overrule, the district court's ruling
that "since direct negotiation with individual copyright owners
is available and feasible there is no monopolization. II
CBS, 441 U.S. at 6. Of course, the availability alternatives
to the blanket license was the fundamental question underlying
the § 1 rule of reason analysis.
CONCLUSION
For the foregoing reasons, the motion to dismiss is deni
SESAC should file its answer to the compla wi thin fourteen
(14) days.
Dated: New York, New York March 8, 2011
~~~L~NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE
40
Case 1:09-cv-09177-NRB Document 33 Filed 03/09/11 Page 40 of 41
Copies of foregoing Order have been mailed on this to the lowing:
Attorneys for Plaintiffs
Helene D. Jaffe, Esq. Weill Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153
Carrie M. Anderson, Weil Gotshal & Manges LLP 1300 Eye St. N.W., Suite 900 Washington, DC 20005
Attorneys for Defendant
Susan J. Kohlmann, Esq. Jenner & Block LLP 919 Thi Avenue New York, NY 10022
Paul M. Smith, Esq. Jenner & ock LLP 1099 New York Avenue, N.W., Suite 900 Washington, DC 20001-4412
41
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