Lawsuit against SoundExchange could gain much for SiriusXM, broadcasters, webcasters with little risk

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Issue Date: 
Apr 4 2012 - 11:10am

From Issue:

Kevin GoldbergIn the upcoming legal battle between SiriusXM and SoundExchange, the satellite radio broadcaster (along with broadcasters and others) has everything to gain, while SoundExchange and the CRB face potentially serious set-backs. So argues Kevin Goldberg, Special Counsel at Fletcher, Heald & Hildreth, in the CommLawBlog.

Last week news broke that SiriusXM had sued SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to directly license the sound recordings (find RAIN's coverage here).

The eventual outcome of the lawsuit aside, Goldberg (pictured) says SiriusXM "made the right play... litigation is expensive, but not as expensive as the $200 million in royalties that SiriusXM claims to have paid last year," he writes. "Add in the fact that a victory would not only reduce that expense, but also afford SiriusXM more flexibility in future negotiations and the ability to innovate."

Moreover, broadcasters (and, RAIN would add, webcasters) stand to "reap the benefits" of SiriusXM's lawsuit "without any effort." Goldberg echoes Davis Wright Tremaine partner David Oxenford (RAIN coverage here) in reasoning that SiriusXM's direct licensing deals "would provide important concrete data – possibly the only such data – regarding the value of a digitally transmitted sound recording" in future CRB royalty hearings for both SiriusXM and broadcasters.

"This would be especially important if the broadcasters’ own worst case scenario – enactment of the Performance Rights Act – were to occur," writes Goldberg.

The outlook is less rosy for SoundExchange. The royalty collection agency faces, at the very least, a long and expensive legal battle, Goldberg argues. At worst, it could face "possible dismantling... or the imposition of some limiting consent decree... or the forced introduction of a competitor receiving agent."

Quote from Goldberg

The lawsuit may also "be enough to rethink the entire regime" of the Copyright Royalty Board (CRB), writes Goldberg. "From allowing SoundExchange to exist without competition to siding with SoundExchange on virtually every contested fact in the 2007 Webcasting II decision (and many other ratemaking proceedings), the CRB may have created the environment that allowed questionable, if not illegal, activity to flourish."

The constitutionality of the CRB and its appointment process have been repeatedly questioned and challenged in the past (RAIN coverage here, here, here and here).

But who wins or loses this particular lawsuit may be "beside the point," says Goldberg. "The mere initiation of the case may represent an early tremor signaling the onset of a seismic event, an event that would likely, one way or another, fundamentally affect all the players."

You can find Goldberg's extensive analysis and explanation of the SiriusXM lawsuit against SoundExchange and A2IM here.


Why does a collective litigate?

SX should simply be an agent to collect and distribute royalties that it collects. It should NOT have the power to litigate before the CRB to determine rates. The copyright owners and performers should be litigating and incurring the costs of the litigation.

As is currently practiced, SX collects royalties and uses those royalties to litigate higher rates. In essence those paying royalties are funding those arguing for higher rates with no expenses other than overhead. If the labels and artists were to litigate and not SX, the expenses vs. returns would directly impact their decisions. In the current scenario, the joint interests of all on the receiving end work collectively in many different avenues of rate setting before the CRB. On the other side, each type of paying entity is forced to foot their own bill and pay for the litigation efforts of SX. More importantly, SX uses one legal entity to represent its interests and therefore gains an advantage of first hand knowledge of the process and precedent, thus becoming the expert in litigation for setting rates.

Sound Exchange does not pay musicians

We have been trying to collect from Sound Exchange for a year and a half now. The do not return phone calls and very few emails. Its all over the internet that they do not pay.
We are filing a complaint with the attorney Generals office.

David Kaspersin
Dynamic Recording Studio Independent Label / Dynamic Web Pages
2844-46 Dewey Ave.
Rochester N. Y. 14616 -4630 USA

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