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U.S. v. AMERICAN SOCIETY OF COMPOSERS

March 17, 2004.

UNITED STATES OF AMERICA, Plaintiff -against- AMERICAN SOCIETY OF COMPOSERS, AUTHORS: AND PUBLISHERS, et al., Defendants; In the Matter of the Applications of MUZAK, LLC, et al. and DMX MUSIC, INC.,: et al., Applicants For the Determination of Reasonable Licensing Fees.


The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge

OPINION AND ORDER

Applicants Muzak, LLC ("Muzak") and DMX Music, Inc. ("DMX") (collectively "applicants") bring this application for construction of certain provisions of the Second Amended Final Judgment (the "AFJ2") between the plaintiff United States and the defendant American Society of Composers, Authors and Publishers ("ASCAP").*fn1 Specifically, applicants seek a construction of the "per-segment license" provision of the AFJ2 confirming their entitlement to a music publisher catalog-based license, under which the only catalog-based segments subject to a fee would be those that are not already the subject of a direct licensing arrangement between applicants and the publishers. (Applicants' Mem. Supp. Mot. Constr. at 2, 18-19.) The United States also has filed a memorandum to aid the Court in the construction of the consent decree.*fn2

  For the reasons set forth herein, we conclude that a music publisher's catalog is not a "segment" for purposes of "per-segment" licensing under AFJ2 section VII and that ASCAP is, therefore, not required to issue to applicants a catalog-based license limited to those publishers' catalogs that are not otherwise directly licensed. We also conclude, however, that the existence of Page 2 such direct licensing relationships may and will be considered by this Court in a rate court proceeding under AFJ2 section IX in determining whether ASC AP has met its burden of proving the reasonableness of the blanket licensing fee it seeks or, in the event that ASCAP fails to meet that burden, in the Court's calculation of a reasonable fee based on all the evidence.

  BACKGROUND

  Applicants are background/foreground music*fn3 providers that furnish their services to subscriber-businesses such as restaurants, retail stores, hotels, offices, medical facilities and fitness centers. (Knittel Aff. ¶ 4; Walker Aff. ¶ 4.) Background/foreground music services provide background music*fn4 for non-intrusively enhancing business settings, and foreground music*fn5 that is intended to be noticed and enjoyed by the listener, usually as part of a shopping experience. (Knittel Aff. ¶ 10.) Muzak furnishes its services nationwide through a network of approximately twelve Page 3 regional operations centers and 110 independent affiliates providing music delivery through direct satellite broadcasts, telephone-line transmissions and on-premises delivery via tapes and CDs. (Walker Aff. ¶¶ 3-4.) DMX is a premium digital audio service that furnishes its products globally and nationwide through a network of approximately 175,000 independent affiliates providing music delivery via direct satellite broadcasts and on-premises tapes and CDs. (Knittel Aff. ¶¶ 4, 7-8.) ASCAP is an unincorporated membership association that aggregates the licensing authority of approximately 160,000 composers, authors, lyricists and music publishers, and issues licenses affording users access to its amassed repertory of approximately four million musical works. (Applicants' Mem. Supp. Mot. Constr. at 6-7.) For approximately sixty years, applicants have entered into "through-to-the-audience"*fn6 licensing relationships with ASCAP and similar organizations, such as ASCAP's primary competitor Broadcast Music, Inc. ("BMI"), in order to obtain access and performance rights to their amassed repertories of copyrighted music. (Id. at 7.)

  Both applicants have the capability of tracking and monitoring precisely the music that they deliver to their subscribers. DMX utilizes "studio" software for on-premises subscribers that records the title, artist, album, label and length of play for musical works delivered to all such subscribers. (Knittel Aff. ¶ 11.) For broadcast subscribers, DMX utilizes "selector" software to track the broadcast channel, title, artist, album, label, and date and time of transmission. (Id. ¶ 12.) DMX provides ASCAP with the tracking information from the selector and studio software on a quarterly basis, which ASCAP uses to calculate its members' royalty payments. (Id. ¶¶ 13-14.) Muzak has Page 4 similar capabilities, although ASCAP has only requested and Muzak has only provided information pertaining to Muzak's two most popular broadcast channels on a quarterly basis. (Walker Aff. ¶ 8.) ASCAP has not requested from Muzak any on-premises musical information. (Id.)

  To date, applicants have entered into "blanket" licensing relationships*fn7 with ASCAP.*fn8 (Applicants' Mem. Supp. Mot. Constr. at 7.) These blanket licenses afford applicants complete access to the ASCAP repertory and the licensing fee reflects neither applicants' actual use of the full repertory nor their dependence on the ASCAP license for access to the rights to the copyrighted music. (Id. at 7, 11.) Put differently, the licensing fee for the blanket license is not reduced by applicants' having obtained performance licenses for some musical works directly from ASCAP members. Applicants state that, as a practical matter, they are required to obtain licenses with both ASCAP and BMI because each organization has a distinct large and diverse repertory of works necessary for their programming. (Knittel Aff. ¶¶ 16-17; Walker Aff. ¶¶ 9-10.) They claim that as a result, they enjoy no cost savings from the direct licensing of ASCAP works unless they are able to license all of those works directly, an alternative that is neither financially advisable nor feasible Page 5 because of the size of ASCAP's repertory. (Applicants' Mem. Supp. Mot. Constr. at 11-12.) Applicants contend that this is inequitable because direct licensing presently results in double payment for the use of a musical work; there is no reason for them to obtain and pay for direct licenses from any ASCAP members because they already have rights to perform all their musical works under the ASCAP blanket license which they were compelled to take as a business necessity. (Id. at 12; Knittel Aff. ¶ 16; Walker Aff ¶ 10.)

  Applicants' last ASCAP license expired by its own terms on May 31, 1999. (Witschel Aff., Ex. 30.) Since that time, applicants and ASCAP have been operating under an interim license incorporating the same terms and fees as the previous license. (Id.) Applicants and ASCAP have attempted, albeit unsuccessfully, to reach agreement on licensing fees for a new license. (ASCAP Mem. Opp. Mot. Constr. at 4.) Thereafter, ASCAP filed an application for determination of reasonable fees on January 29, 2003. (Id.) The interim license remains in effect. (Id.) During the fee proceedings, applicants stated their intention to seek a publisher catalog-based "per-segment" license under section VII of the AFJ2 that would provide ASCAP with payment corresponding to the degree to which applicants rely on an ASCAP blanket license, as opposed to direct licensing arrangements with ASCAP members. (Applicants' Mem. Supp. Mot. Constr. at 2.) The licensing fee also would include any adjudicated administrative fee to which ASCAP would be entitled. (Id. at 18.) ASCAP opposed applicants' request, leading to the present motion before the Court.

  DISCUSSION

 I. Standard of Review

  Construction of consent decrees such as the AFJ2 is governed by the well established Page 6 standard recently set forth by this Court in New York ex rel. Spitzer v. St. Francis Hosp., 289 F. Supp.2d 378 (S.D.N.Y. 2003) (Conner, J.):
"A consent judgment is `an agreement of the parties entered into upon the record with the sanction and approval of the [c]ourt.' Schurr v. Austin Galleries of Ill, Inc., 719 F.2d 571, 574 (2d Cir. 1983). It is `a contract to end a lawsuit in which the parties agree to the relief to be provided by the judgment and the wording to effectuate that relief.' Audiovisual Publishers, Inc. v. Cenco, Inc., 964 F. Supp. 861, 875 (S.D.N.Y. 1997). For purposes of enforcement, a consent judgment should be construed and interpreted as a contract. See United States v. ITT Continental Baking Co., 420 U.S. 223, 238 (1975); United States v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL-CIO, 141 F.3d 405, 406 (2d Cir. 1998). Because a consent judgment embodies compromises for the sake of settling a litigation, unlike other contracts it cannot be said to have a discernable `purpose' See ITT, 420 U.S. at 235-36 (citing United States v. Armour & Co., 402 U.S. 673, 681-82 (1971)). Rather, the scope of a consent judgment must be ascertained within its four corners. Armour, 402 U.S. at 682; Int'l Bhd., 141 F.3d at 406."
Id. at 383-84 (quoting SEC v. Gellas, 1 F. Supp.2d 333, 336 (S.D.N.Y. 1998) (Conner, J.)).
  We also note, however, that
"reliance upon certain aids to construction is proper, as with any other contract. Such aids include the circumstances surrounding the formation of the consent order. . . . Such reliance does not in any way depart from the `four corners' rule." ITT, 420 U.S. at 238. Moreover, if the wording is susceptible to more than one reasonable construction, then the court may look to extrinsic evidence. See Audiovisual Publishers, 964 F. Supp. at 876; United States v. Am. Soc'y of Composers, Authors and Publishers, 782 F. Supp. 778, 788 (S.D.N.Y. 1991), aff'd, 956 F.2d 21 (2d Cir. 1992)."
St. Francis Hosp., 289 F. Supp.2d at 384 (quoting Gellas, 1 F. Supp.2d at 336). Accordingly, we now turn to the parties' linguistic arguments with respect to the provisions of the AFJ2 that are at issue. Page 7

 II. "Per-Segment" Licensing Under the AFJ2

  Applicants propose, and ASCAP has heretofore declined to issue, a per-segment license under the AFJ2 that would provide ASCAP with those levels of payments that would correspond to applicants' reliance on ASCAP licenses. (Applicants' Mem. Supp. Mot. Constr. at 18.) The "segments" would consist of the "catalogs," or collections of musical compositions, of the various music publishers that are affiliated with ASCAP. (Id. at 18 & n. 11.) Applicants state that the segments subject to an ASCAP fee would be those catalog segments that are not the subject of a direct licensing relationship; the fee would depend on the licensing source for the musical works played, as tracked by applicants' playlists reported to ASCAP on a quarterly basis. (Id. at 19.) In addition to the ...


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