sony_idol

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------x 19 RECORDINGS LIMITED, Plaintiff, v. 14-CV-1056 (RA) (GWG) SONY MUSIC ENTERTAINMENT, ECF CASE Defendant. ---------------------------------------------------------x

ANSWER, AFFIRMATIVE DEFENSES, AND COUNTERCLAIM OF DEFENDANT SONY MUSIC ENTERTAINMENT

Defendant Sony Music Entertainment (“SME”) responds to Plaintiff’s First Amended

Complaint as follows, upon knowledge as to itself and its own acts and upon information and

belief as to all other matters:

1. SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations in paragraph 1.

2. SME denies the allegations in paragraph 2, except admits that: (a) it is a Delaware

general partnership, the partners of which are citizens of New York and Delaware; and (b) its

principal place of business is located at 550 Madison Avenue, New York, NY 10022.

3. Paragraph 3 consists entirely of legal conclusions to which no response is

required.

4. Paragraph 4 contains legal conclusions to which no response is required. To the

extent a response is deemed necessary, SME does not contest that this Court has personal

jurisdiction over it with respect to the claims asserted by Plaintiff in the First Amended

Complaint, but denies that it has engaged in wrongful conduct.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 1 of 23

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5. Paragraph 5 consists entirely of legal conclusions to which no response is

required.


the allegations in paragraph 6, except admits that: (a) American Idol is a television show that first

aired in the United States in 2002; (b) the RCA Records Label, a Unit of BMG Music; the RCA

Music Group, a Unit of BMG Music; the RCA Music Group, a Unit of Sony BMG Music

Entertainment; Sony BMG Music Entertainment Nashville, a Division of Sony BMG Music

Entertainment; Zomba Recording LLC; and RCA/Jive, a Label Group of Sony Music

Entertainment have entered into agreements with 19 that concern sound recordings of certain

artists who appeared on American Idol; and (c) SME has earned millions of dollars in profits and

has paid 19 millions of dollars in royalties pursuant to these agreements. SME respectfully refers

the Court to the agreements for the full and complete terms thereof.

7. SME denies that over 20 million Kelly Clarkson albums have been sold in the

United States. SME denies knowledge or information sufficient to form a belief as to the truth of

the remaining allegations of paragraph 7, except admits that: (a) Clarkson was the winner of the

first season of American Idol in 2002; (b) Clarkson’s debut single reached number 1 on the

Billboard Hot 100 Singles chart; (c) Clarkson has won three Grammy Awards; and (d) over 5

million downloads of Clarkson’s song “Stronger” have been sold worldwide.


the allegations of paragraph 8, except admits that: (a) Clay Aiken finished in second place on the

second season of American Idol; and (b) over 600,000 copies of Aiken’s debut album were sold

in its first week.


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the allegations of paragraph 9, except admits: (a) Carrie Underwood was the winner of the fourth

season of American Idol; (b) Underwood albums and songs have been certified “multi-platinum”

by the Recording Industry Association of America (“RIAA”); (c) Underwood has won Grammy

Awards, Billboard Music Awards, American Music Awards, Country Music Association

Awards, CMT Music Awards, and Academy of Country Music Awards; and (d) over 15 million

Underwood albums have been sold in the United States.

10. SME denies that: (a) over 50 million Daughtry digital downloads have been sold

worldwide; and (b) 8 million Daughtry albums have been sold in the United States. SME denies

knowledge or information sufficient to form a belief as to the truth of the remaining allegations

of paragraph 10, except admits that: (a) Chris Daughtry finished in fourth place on the fifth

season of American Idol; and (b) Daughtry’s debut album was the fastest-selling debut rock

album in Nielsen SoundScan history.


the allegations of paragraph 11, except admits that: (a) Kellie Pickler finished in sixth place on

the fifth season of American Idol; (b) a Pickler album has been certified “gold” by the RIAA in

the United States; (c) Pickler was the winner of the sixteenth season of Dancing with the Stars;

and (d) over 800,000 copies of Pickler’s first album have been sold.


the allegations of paragraph 12, except admits: (a) Jordin Sparks was the winner of the sixth

season of American Idol; (b) Sparks has been nominated for a Grammy Award; (c) Sparks has

won a BET Award, an American Music Award, a Teen Choice Award, and a People’s Choice


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Award; and (d) Sparks and Whitney Houston were among the members of the cast of the film

Sparkle.


the allegations of paragraph 13, except admits that: (a) David Archuleta finished in second place

on the seventh season of American Idol; (b) Archuleta’s first single debuted at number 2 on the

Billboard Hot 100 Singles chart.


the allegations of paragraph 14, except admits that: (a) David Cook was the winner of the

seventh season of American Idol; and (b) Cook’s debut album has been certified “platinum” by

the RIAA.

15. SME denies the allegations of paragraph 15, except admits that 19 has entered

into an “Exclusive Recording Agreement” with each of Kelly Clarkson, Clay Aiken, Carrie

Underwood, Chris Daughtry, Kellie Pickler, Jordin Sparks, David Archuleta, and David Cook.

SME respectfully refers the Court to the agreements for the full and complete terms thereof.

16. SME denies the allegations of paragraph 16, except admits that: (a) 19 and

Ronagold Limited entered into an agreement, dated February 8, 2002, which attached a form for

a agreement between 19 and a “US Designee”; (b) the RCA Records Label, a Unit of BMG

Music, entered into an agreement with 19, dated September 25, 2002, with effect as of

September 4, 2002, concerning Kelly Clarkson; (c) the RCA Music Group, a Unit of BMG

Music, entered into an agreement with 19, dated June 25, 2003, with effect as of May 21, 2003,

concerning Clay Aiken; (d) the RCA Music Group, a Unit of Sony BMG Music Entertainment,

entered into an agreement with 19, dated 2005, concerning Carrie Underwood; (e) the RCA

Music Group, a Unit of Sony BMG Music Entertainment, entered into an agreement with 19,


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dated September 25, 2006, concerning Chris Daughtry; (f) Sony BMG Music Entertainment

Nashville, a Division of Sony BMG Music Entertainment, entered into an agreement with 19,

dated December 21, 2006, concerning Kellie Pickler; (g) Zomba Recording LLC entered into an

agreement with 19, dated August 15, 2008, concerning David Archuleta; (h) RCA Music Group,

a unit of Sony BMG Music Entertainment, entered into an agreement with 19, dated August 15,

2008, concerning David Cook; and (i) RCA/Jive, a Label Group of Sony Music Entertainment,

entered into an agreement with 19, dated October 30, 2009, concerning Jordin Sparks (items (b)

through (i) shall be referred to collectively as the “Licensing Agreements”). SME respectfully

refers the Court to the agreements for the full and complete terms thereof.


the allegations of paragraph 17.

18. SME denies that over 15 million copies of Kelly Clarkson’s album Breakaway

have been sold worldwide, and that “Since U Been Gone” has been certified “multi-platinum” by

the RIAA. SME denies knowledge or information sufficient to form a belief as to the truth of the

remaining allegations of paragraph 18, except admits that: (a) “Since U Been Gone” reached

number 2 on the Billboard Hot 100 Singles chart; (b) “Since U Been Gone” appears in

Clarkson’s album Breakaway; (c) over six million copies of the album Breakaway have been

sold in the United States; (d) over three million copies of the song “No Air” have been sold in

the United States; (e) Sparks was nominated for a Grammy Award in connection with “No Air”;

(f) the music video for “No Air” won a BET Award; (g) “It’s Not Over” reached number 4 on

the Billboard Hot 100 Singles chart; (h) over two million copies of the song “It’s Not Over” have

been sold; and (i) the album Breakaway and the songs “Since U Been Gone,” “Jesus, Take the


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Wheel,” “See You Again,” “No Air,” and “It’s Not Over,” were delivered to SME pursuant to

the Licensing Agreements.

19. SME denies the allegations of paragraph 19, except admits that: (a) each

Licensing Agreement contains provisions for the calculation and payment of royalties, if any, to

19; and (b) each Licensing Agreement provides for 19’s examination of certain books and

records with respect to the royalty statements issued to 19, subject to various restrictions. SME

respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.


the allegations of paragraph 20, except admits that Miller, Kaplan, Arase & Co., LLP and Haber

Corporation examined SME’s books and records on behalf of 19 with respect to certain royalty

statements issued to 19.


the allegations of paragraph 21, except admits that Haber Corporation examined SME’s books

and records on behalf of 19 with respect to certain royalty statements issued to 19 concerning

Carrie Underwood.


the allegations of paragraph 22, except admits that Miller, Kaplan, Arase & Co., LLP examined

SME’s books and records on behalf of 19 with respect to certain royalty statements issued to 19

concerning: (a) Clay Aiken; (b) David Archuleta; (c) Kelly Clarkson; (d) David Cook; (e) Chris

Daughtry; (f) Kellie Pickler; and (g) Jordin Sparks.

23. To the extent that a response is deemed necessary, SME denies the allegations of

paragraph 23.

24. SME denies the allegations of paragraph 24.


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26. SME denies the allegations of paragraph 26, except admits that each Licensing

Agreement requires 19 to provide written notification of 19’s objections to the royalty statements

issued to 19. SME respectfully refers the Court to the Licensing Agreements and the letter for

the full and complete terms thereof.

27. SME denies the allegations of paragraph 27, except admits that it engaged in

settlement discussions with 19.

28. SME denies the allegations of paragraph 28, except admits that (a) 19 and SME

entered into a tolling agreement, dated August 14, 2012; and (b) certain of the limitations periods

tolled under the agreement expired on February 21, 2014. SME respectfully refers the Court to

the tolling agreement for the full and complete terms thereof.





33. SME denies the allegations of paragraph 33. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.


the allegations of paragraph 34, except denies the allegations in the last sentence of paragraph

34.




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36. SME denies the allegations of paragraph 36, except admits that SME has entered

into agreements with streaming service providers.

37. SME denies the allegations of paragraph 37, except admits that SME has provided

19 with partially-redacted copies of agreements with third-party streaming service providers.


39. SME denies the allegations of paragraph 39








45. SME denies the allegations of paragraph 45, except admits that Paragraph 7.5.1 of

each Licensing Agreement includes the words “[i]n respect of Records Sold by Company or its

licensees the marketing of which is supported by a major advertising campaign on radio and/or

television”. SME respectfully refers the Court to the Licensing Agreements for the full and

complete terms thereof.






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56. SME denies the allegations of paragraph 56, except admits that Paragraph 10.2 of

each Licensing Agreement states in part that (a) “The budget for the recording of such Audio

Visual Material (‘the Audio Visual Material Budget’) shall be Mutually Agreed and shall be

reasonable in the context of the applicable mutually agreed treatment, story-board producer and

director”; and (b) “In the event the Audio Visual Budget is exceeded due to Contractor’s and/or

Artist’s default without prior written consent of Company the amount of such excess (the

‘Excess Costs’) shall be fully deductible from any and all sums becoming due to Contractor

hereunder.” SME respectfully refers the Court to the Licensing Agreements for the full and



58. SME denies the allegations of paragraph 58, except admits that: (a) Paragraph

1.22 of each Licensing Agreement contains the definition of “Mutually Agreed”; and (b) the


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paragraph states in part that “‘Mutually Agreed’ shall mean agreed between Contractor (or

Contractor’s Authorized Representative) and Company, such agreement not to be unreasonably

withheld or delayed by either party and with both parties acting in good faith with a view to

seeking such agreement.” SME respectfully refers the Court to the Licensing Agreements for the

full and complete terms thereof.



61. SME denies the allegations in paragraph 61.

62. SME denies the allegations of paragraph 62, except admits that it is not entitled to

recoup expenses that it did not incur.




66. SME denies the allegations of paragraph 66, except admits that Paragraph 7.4.2(c)

of each Licensing Agreement includes the words “Compilation Albums which are released by

Company or as part of its joint venture arrangements or by an affiliate of Company - three

quarters (3/4) of the otherwise applicable rate”. SME respectfully refers the Court to the

Licensing Agreements for the full and complete terms thereof.

67. SME denies the allegations of paragraph 67, except admits that Paragraph 7.4.2(d)

of each Licensing Agreement includes the words “Compilation Albums which are released by

third parties - two thirds (2/3) of the otherwise applicable rate”. SME respectfully refers the

Court to the Licensing Agreements for the full and complete terms thereof.



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each Licensing Agreement includes the words “in the event that the number of Records Sold

during the Term of any Recording Commitment Album throughout the world exceeds one

million (1,000,000), then the royalty rate in respect of Records Sold of such Album in excess of

one million (1,000,000) shall increase by one per cent (1%) in every territory”. SME


74. SME admits that (a) Paragraph 1.1 of each Licensing Agreement contains the

definition of “Album”; and (b) the paragraph states that “‘Album’ shall mean a Record

containing not less than twelve (12) (or such lesser number as Company may require) nor more

than twenty-five (25) different Tracks and totalling no fewer than forty-five (45) minutes of

playing time (unless otherwise agreed by Company in writing in respect of a particular Record).”

SME respectfully refers the Court to the Licensing Agreements for the full and complete terms

thereof.


76. SME states that paragraph 76 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.




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each Licensing Agreement includes the words “in the event that the number of Records Sold

during the Term of any Recording Commitment Album throughout the world exceeds one

million (1,000,000), then the royalty rate in respect of Records Sold of such Album in excess of

one million (1,000,000) shall increase by one per cent (1%) in every territory”. SME




each Licensing Agreement includes the words “full price through normal retail outlets only”.

SME respectfully refers the Court to the Licensing Agreements for the full and complete terms

thereof.








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100. SME states that paragraph 100 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.


102. SME denies the allegations of paragraph 102, except admits that Paragraph

7.4.1(b) of the Licensing Agreements concerning Clarkson, Aiken, Underwood, Daughtry, and

Pickler includes the words “price upon which royalties to Company are calculated”. SME


103. SME denies the allegations of paragraph 103, except admits that Paragraph

1.32(c) of each Licensing Agreement provides that “Records Sold” shall not include certain “so

called ‘free’” Records. SME respectfully refers the Court to the Licensing Agreements for the

full and complete terms thereof.


105. SME denies the allegations of paragraph 105, except admits that in some

instances, units reported to SME from certain Record Clubs did not match the units that were

reported on 19’s royalty statements, which resulted in an underpayment of royalties to 19.



108. SME denies that it has failed to provide any documents in breach of its

obligations under the Licensing Agreements or to disguise any amounts due to 19.




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each Licensing Agreement states in part that “Company shall use its reasonable endeavours to

complete and submit appropriate double taxation exemption claim forms in respect of payments

to Company in the USA.” SME respectfully refers the Court to the Licensing Agreements for

the full and complete terms thereof.

112. SME states that the third sentence of paragraph 112 contains legal conclusions to

which no response is required. SME denies the remaining allegations of paragraph 112, except

admits that: (a) certain royalties reported to SME by its foreign affiliates were reduced by foreign

taxes; and (b) SME deducted certain taxes in calculating 19’s royalties.




116. SME admits the allegations of the first sentence of paragraph 116. SME denies

the allegations of the second sentence of paragraph 116.











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130. SME denies the allegations of paragraph 130, except admits that: (a) SME

overpaid 19 in royalties for the sale of Compilation Albums under each of the Licensing

Agreements; (b) the royalty overpayment resulted from the incorrect application of the royalty

rate associated with sales of Albums to these sales of Compilation Albums; (b) the royalty rate

associated with sales of Records other than Albums should have been applied to these sales of

Compilation Albums; (c) SME notified 19 of these royalty overpayments and the reasons for

them prior to 19’s commencement of this action.





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134. SME denies the allegations of paragraph 134. SME respectfully refers the Court

to the Licensing Agreements for the full and complete terms thereof.

135. SME denies the allegations of paragraph 135, except admits that: (a) SME

overpaid 19 in royalties for the sale of permanent digital track downloads under the Licensing

Agreements concerning Clay Aiken, Kelly Clarkson, and Carrie Underwood; (b) the royalty

overpayments resulted in part from the incorrect application of the royalty rate associated with

sales of Albums to these sales of permanent digital track downloads; (c) the royalty rate

associated with sales of Records other than Albums should have been applied to these sales of

permanent digital track downloads; (d) the royalty overpayments also resulted in part from the

failure to apply the royalty provisions of Paragraph 7.7 of the Licensing Agreements concerning

Clay Aiken, Kelly Clarkson, and Carrie Underwood, respectively, to these sales of permanent

digital track downloads; and (e) SME notified 19 of these royalty overpayments and the reasons

for them prior to 19’s commencement of this action.

136. SME denies the allegations of paragraph 136, except admits that (a) Paragraph 1.1

of each Licensing Agreement contains the definition of “Album”; and (b) the paragraph states

that “‘Album’ shall mean a Record containing not less than twelve (12) (or such lesser number as

Company may require) nor more than twenty-five (25) different Tracks and totalling no fewer

than forty-five (45) minutes of playing time (unless otherwise agreed by Company in writing in

respect of a particular Record).” SME respectfully refers the Court to the Licensing Agreements

for the full and complete terms thereof.


each Licensing Agreement includes the words “according to the country of retail sale, the


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Contract Period of release, and the nature and configuration of the applicable Record”. SME






142. SME denies the allegations of paragraph 142, except admits that: (a) each

Licensing Agreement contains provisions for the calculation and payment of royalties, if any, to

19; (b) each Licensing Agreement provides for 19’s examination of certain books and records

with respect to the royalty statements issued to 19, subject to various restrictions; and (c)

Paragraph 17.4 of each Licensing Agreement states in part that “Company agrees that Contractor

may (but not more than once during any calendar year and only once with respect to any

statement rendered hereunder) inspect examine and otherwise audit (‘Audit’) Company’s books

and records for the purposes of determining the accuracy of Company’s statements to Contractor

hereunder.” SME respectfully refers the Court to the Licensing Agreements for the full and



144. SME denies that it has failed to provide any documents in breach of its

obligations under the Licensing Agreements.


146. SME admits the allegations of the first and second sentences of paragraph 146.

SME denies the allegations of the third sentence of paragraph 146.



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148. SME denies the allegations of paragraph 148. SME respectfully refers the Court

to the Licensing Agreements for the full and complete terms thereof.

149. SME denies the allegations of paragraph 149, except admits that it has not agreed

to a settlement with 19.


Claim I

151. SME repeats and realleges the foregoing responses as if fully set forth herein.

152. SME admits that the Licensing Agreements are valid and enforceable contracts.

153. Paragraph 153 contains legal conclusions to which no response is required, and

which were rejected in part by the Court’s Opinion and Order, dated March 17, 2015, and

accordingly does not require response. To the extent that a response is deemed necessary, SME

denies the allegations of paragraph 153.

154. Paragraph 154 contains legal conclusions to which no response is required. To

the extent that a response is deemed necessary, SME denies the allegations of paragraph 154.





Claim II


158. SME admits that the Licensing Agreements are valid and enforceable contracts.


160. Paragraph 160 contains legal conclusions to which no response is required, and

which were rejected in part by the Court’s Opinion and Order, dated March 17, 2015, and


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accordingly does not require response. To the extent that a response is deemed necessary, SME

denies the allegations of paragraph 160.



RESPONSE TO PRAYER FOR RELIEF

162. SME denies that Plaintiff is entitled to the relief enumerated in paragraphs 1-6 of

Plaintiff’s Prayer for Relief or to any other relief.

AFFIRMATIVE DEFENSES

As and for a First Affirmative Defense

163. Plaintiff’s claims are barred, in whole or in part, by contractual incontestability

and limitations provisions.

As and for a Second Affirmative Defense

164. Plaintiff’s claims are barred, in whole or in part, by contractual limitations of

remedies.

As and for a Third Affirmative Defense

165. Plaintiff’s claims are barred, in whole or in part, on the ground that Plaintiff failed

to mitigate any damages alleged in the First Amended Complaint.

As and for a Fourth Affirmative Defense

166. Plaintiff’s claims are barred, in whole or in part, by the doctrines of release or

accord and satisfaction.

As and for a Fifth Affirmative Defense

167. Plaintiff’s claims are barred, in whole or in part, by the doctrines of implied

acceptance or novation.


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As and for a Sixth Affirmative Defense

168. Plaintiff’s claims are barred, in whole or in part, by the doctrines of laches,

estoppel, waiver, and/or account stated.

As and for a Seventh Affirmative Defense

169. Plaintiff’s claims are barred, in whole or in part, by the doctrine of ratification.

As and for an Eighth Affirmative Defense

170. Plaintiff’s claims are barred, in whole or in part, by the applicable statutes of

limitations.

As and for a Ninth Affirmative Defense

171. Plaintiff’s claims are barred, in whole or in part, by the doctrines of res judicata

and collateral estoppel.

As and for a Tenth Affirmative Defense

172. SME is entitled to an offset to the claims set forth in the First Amended

Complaint and/or equitable recoupment sufficient to diminish or defeat Plaintiff’s recovery

thereunder.

Additional Affirmative Defenses

173. SME reserves the right to assert any additional affirmative defenses which

become apparent based on facts adduced in discovery or otherwise.

COUNTERCLAIM (Breach of Contract / Implied Covenant of Good Faith and Fair Dealing)


2. The Licensing Agreements are valid and enforceable contracts.

3. SME has performed its obligations under each of the Licensing Agreements.


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4. As alleged in paragraph 130 above, SME has overpaid 19 in royalties for the sale

of Compilation Albums under each of the Licensing Agreements.

5. Additionally, as alleged in paragraph 135 above, SME has overpaid 19 in

royalties for the sale of permanent digital track downloads under the Licensing Agreements for

Clay Aiken, Kelly Clarkson, and Carrie Underwood.

6. Moreover, in December 2011, SME overpaid 19 an advance under the License

Agreement for Kellie Pickler in connection with her Recording Commitment Album of the Third

Contract Period. Under Paragraph 6.1.1(b) of the License Agreement for Kellie Pickler, the

advance payable for Contract Periods other than the First Contract Period is calculated based on

certain “royalties net of reserves”. When calculating an advance for Pickler’s Recording

Commitment Album of the Third Contract Period, however, SME mistakenly failed to account

for applicable reserves. This error resulted in an overpayment to 19 in December 2011.

7. None of the Licensing Agreements provide for 19 to receive or retain the

overpayments made by SME.

8. The implied covenant of good faith and fair dealing prevents 19 from retaining

royalties that were paid to it in error and to which it is not contractually entitled.

9. 19 has breached each of the Licensing Agreements and the implied covenant of

good faith and fair dealing by retaining the overpayments made by SME.

10. By reason of the foregoing, SME seeks to recover from 19 more than $2 million

in overpayments to which 19 was not entitled under the License Agreements.

PRAYER FOR RELIEF

WHEREFORE, Defendant respectfully requests that the Court enter judgment:

i. dismissing the First Amended Complaint and all claims asserted therein with prejudice;


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ii. awarding SME any and all money damages to which SME is entitled, including compensatory damages for overpayments to 19 in an amount to be determined at trial, plus prejudgment interest; and

iii. awarding SME attorneys’ fees, costs and disbursements, and such other and further relief as the Court may deem just and proper.

Dated: March 31, 2015 Respectfully submitted, New York, New York /s/ Jonathan M. Sperling Jonathan M. Sperling

Christopher Y. L. Yeung COVINGTON & BURLING LLP

The New York Times Building 620 Eighth Avenue New York, NY 10018 (212) 841-1000 (212) 841-1010 (fax) [email protected] [email protected]

Attorneys for Defendant Sony Music Entertainment


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