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U.S. v. AMERICAN SOCIETY OF COMPOSERS

United States District Court, S.D. New York


July 2, 2004.

UNITED STATES OF AMERICA, Plaintiff,
v.
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 and DMX Music, Inc. (collectively "applicants") move for clarification of this Court's Opinion and Order (the "Order"), dated March 17,2004, in United States v. Am. Soc. of Composers, Authors & Publishers (Applications of Muzak, LLC & DMX Music, Inc.), and published at 309 F. Supp.2d 566.*fn1 In the Order, familiarity with which is presumed, this Court concluded: For all of the foregoing reasons, 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 such direct licensing relationships may and will be considered by this Court in a rate court proceeding under AFJ2 section IX in determining whether ASCAP 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.

309 F. Supp.2d at 581 (emphasis added). The parties disagree about whether the above-emphasized language in the Order requires a blanket license fee structure that is adjustable during the license term to afford applicants the benefit of direct licensing arrangements that they may enter into during the license term. (Applicants' Mem. Supp. Mot. Clarification at 1, 6.) Having reviewed the parties' submissions, we grant applicants' motion for clarification, but deny the specific relief requested therein. We conclude that under the Order, the Court need consider only those direct licensing relationships already in existence at the time of trial in determining a reasonable blanket licensing fee. Accordingly, the Order does not contemplate a blanket license fee mechanism that provides credits or discounts for direct licensing arrangements that applicants may enter into during the term of the license.

  DISCUSSION

  Applicants contend that the Order and the Second Circuit's decision in United States v. Broad. Music, Inc. (Application of AEI Music Network, Inc.), 275 F.3d 168, 176-77 (2d Cir. 2001) (hereinafter "AEI"), must be read as "requir[ing] the offer to applicants of a blanket license the fee mechanism of which affords applicants a credit or discount with respect to direct licenses whenever entered into during the license term." (Applicants' Mem. Supp. Mot. Clarification at 6.) They state that ASCAP's contrary construction would both render the Order meaningless and stop alternative licensing as contemplated by both AEI and the Order "dead in its tracks" because of the time needed to implement direct licensing programs in light of the "underbrush of decades of ossified blanket-license only practice [that] needs to be swept away."*fn2 (Id. at 2-3.) For its part, the United States endorses the open-ended approach advocated by applicants. (United States Mem. at 2.) We, however, disagree with applicants' suggested interpretation of the Order.

  We begin with the plain language of the Order itself. We agree with ASCAP's observation (ASCAP Mem. Opp. Mot. Clarification at 2-3) that the relevant language in the Order states plainly that the Court will only consider presently existing, or put differently, "previously entered into" direct licensing relationships in the rate court proceeding.*fn3 See Order, 309 F. Supp.2d at 581 ("We also conclude, however, that the existence of such direct licensing relationships may and will be considered by this Court in a rate court proceeding under AFJ2 section IX in determining whether ASCAP 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." (emphasis added)); see also id. at 577-78 (describing AEI as "emphasiz[ing] that Shenandoah may not be utilized to preclude the issuance of blanket licenses with reasonable fees that reflect direct licensing arrangements previously entered into by applicants" (emphasis added)); id. at 578 (stating that "a rule permitting the blanket licensing fee to reflect prior direct licensing arrangements is in accord with previously articulated principles for the de termination of reasonable fees" (emphasis added)); id. at 580 ("We already have concluded herein, however, that the `genuine choice' and `per-segment' licensing provisions do not preclude the issuance of a blanket license with a fee structure that reflects applicants' previous direct licensing arrangements." (emphasis added)).*fn4 We are not unmindful of applicants' concern, shared by the United States, that not requiring a fee structure that provides for credits or discounts as a result of their ongoing entries into direct licensing relationships will lead them into the "double payment trap" and "nullify the intended benefits of this Order." (Applicants' Mem. Supp. Mot. Clarification at 2; United States Mem. at 4-5.) We also recognize the practical difficulties involved in the direct licensing process and the fact that they render it highly unlikely that applicants will be able to enter into any significant number of direct licensing relationships before the trial of the present rate court proceeding. (Applicants' Reply Mem. Supp. Mot. Clarification at 4 & n. 4.) However, as ASCAP points out, the blanket licensing arrangement that it and applicants will ultimately enter into as a result of this proceeding need not be long-term. (ASCAP Mem. Opp. Mot. Clarification at 5.) Furthermore, unless the Second Circuit has occasion to decide otherwise,*fn5 the Order will remain in effect during the term of the license. Applicants thus will remain free to negotiate direct licensing arrangements with composers and publishers during that time, and may of course avoid the "double payment trap" by entering into such arrangements to take effect at a future date, a course of action that Muzak has in fact taken once before.*fn6 (Gertz Dep. at 17.) This simply means that the Order's long-term significance with respect to future licenses likely exceeds its immediate effect on the parties' business relationship, and that we need not adopt immediately applicants' proposed flexible fee structure, which we view as likely to spawn expensive and time-consuming litigation every time that applicants enter into a new direct licensing arrangement during the license term.

  CONCLUSION

  We therefore grant applicants' motion for clarification, but deny the specific relief requested therein. We conclude that under the Order, the Court need consider only those direct licensing relationships already in existence at the time of trial in determining a reasonable blanket licensing fee. Accordingly, the Order does not contemplate a blanket license fee mechanism that provides credits or discounts for direct licensing arrangements that applicants may enter into during the term of the license.

  SO ORDERED.


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