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United States v. American Society of Composers

April 3, 2009

UNITED STATES OF AMERICA, PLAINTIFF,
v.
AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, ET AL., DEFENDANTS.
IN THE MATTER OF THE APPLICATION FOR THE DETERMINATION OF REASONABLE LICENSE REDACTED FEES FOR PERFORMANCES VIA WIRELESS VERSION TRANSMISSIONS AND INTERNET TRANSMISSIONS BY AT&T WIRELESS F/K/A CINGULAR WIRELESS.



The opinion of the court was delivered by: William C. Conner, Senior District Judge

OPINION AND ORDER

This proceeding is before the Court for the setting of interim fees for a blanket license for the public performance of any of the more than two million musical compositions in the repertory of the American Society of Composers, Authors and Publishers ("ASCAP") on the wireless telephones and other handheld devices powered by AT&T Mobility, f/k/a Cingular Wireless, ("AT&T"), ("AT&T devices") and on three Internet websites now or formerly operated by AT&T.

BACKGROUND

The Second Amended Final Judgment entered in the United States' civil antitrust action against ASCAP ("AFJ2") provides in Section IX that anyone desiring a license for the public performance of any ASCAP musical composition may apply to ASCAP therefor and, upon such application, may perform the music for fees to be determined later. See United States v. Am. Soc'y of Composers, Authors & Publishers, 2001 WL 1589999, at *6 (S.D.N.Y. June 11, 2001) (Conner, J.) Section IX further provides that if the parties cannot agree on the fee for such license, either party may apply to this Court to set reasonable interim and final fees. Id. Between October 2004 and January 2006, AT&T made four applications to ASCAP for blanket licenses for three Internet websites and for AT&T's wireless telephone service. After protracted negotiations, during which ASCAP unsuccessfully sought additional information about the licensed services and AT&T's revenues therefrom, the parties were unable to agree on the license fees and on August 19, 2008 ASCAP applied to this Court for the setting of reasonable interim and final fees for the open period commencing October 28, 2004.

On September 2, 2008, based on the incomplete information then available to it, ASCAP submitted to AT&T and this Court its Interim Fee Proposal and on September 16, 2008 AT&T submitted its Response and counterproposal. The parties continued to submit legal memoranda and evidentiary submissions supporting and opposing their respective proposals until January 8, 2009. After the Court had completed preparation of and was about to issue an Opinion and Order setting interim fees, ASCAP notified the Court that, based on additional information obtained during discovery, it had presented to AT&T and would soon file an amended Interim Fee Proposal. That amended proposal was contained in a letter dated January 15, 2009 from ASCAP's counsel ("Leichtman Ltr."). AT&T's counsel responded in a letter dated February 13, 2009, presenting its amended counterproposal ("Beck Ltr.").

The following recitation of facts is based upon the representations of the parties, in some instances unverified, and does not constitute findings of fact, which must await an evidentiary hearing.

I. Services For Which AT&T Seeks an ASCAP License

A. Cellular Video ("CV")

AT&T provides to all of its wireless telephone subscribers and to its business subscribers whose blackberries or other handheld devices have third generation ("3G") data-handling capability two classes of CV service: Basic and Premium. Basic CV is not sold as a stand-alone service, but is bundled in the MEdia Net Unlimited data plan, for which AT&T currently charges $15.00 per month, together with a number of other data services, which plan "allows subscribers to send and receive emails, check sports scores, stock quotes, news headlines, movie times, and weather, and access the Internet." (Beck Ltr. at 2.) Premium CV, which offers additional video content, is sold on a pay-per-view basis or on a monthly subscription basis as part of the "MEdia Max" data bundle for which AT&T currently charges $35.00 per month. Because the "MEdia Max" package also includes unlimited text messaging, which is offered as a stand-alone service for $20.00 per month, AT&T allocates $15.00 of the $35.00 monthly "MEdia Max" subscription charge to CV services. (BeckLtr. at 2-3.)

B. Non-Ericsson Answer Tones

Answer Tones, which ASCAP sometimes refers to as "ringback tones," are musical compositions that are downloaded onto an AT&T subscriber's wireless telephone and which a caller hears instead of the traditional ringing sound when a call is made to that subscriber. For this service, AT&T receives an initial charge of $1.99 per tone plus a monthly recurring charge ("MRC"). AT&T asserts that it obtains [REDACTED] of the Answer Tones it sells from Ericsson, Inc. (Beck Ltr. at 3.) AT&T provides on its Internet website previews of the Answer Tones to assist its subscribers in selecting tones for purchase. Because Ericsson has applied to ASCAP for a license covering its distribution of Answer Tones, AT&T seeks an ASCAP license for only the [REDACTED] of the Answer Tones that it obtains from sources other than Ericsson.

C. Previews

AT&T presents on its Internet websites promotional advertising for various AT&T services including previews of Ringtones, Answer Tones and video clips. AT&T asserts that "virtually all performances of music on [these] websites are previews." (Wolfson Decl. ¶ 19.) On August 18, 2009, AT&T moved for a partial summary judgment ruling that previews are a fair use of copyrighted music and therefore do not require a license. However, that motion was denied in an Opinion and Order dated January 30, 2009, in which this Court ruled that previews, because they are not transformative and are performed for sales promotional purposes, are not a fair use. United States v. Am. Soc'y of Composers, Authors & Publishers, __ F. Supp. 2d __, 2009 WL 484449, at *5-9 (S.D.N.Y. Jan. 30, 2009) (Conner, J.). In view of that ruling, AT&T has stated that its request for an ASCAP license "should be deemed to include the roughly [REDACTED] of previews offered by AT&T [] in connection with non-Ericsson ringback tones and should be deemed to include previews offered in connection with [R]ingtones for which AT&T [] bears clearance responsibility." (Beck Ltr. at 4-5.)

Thus, regardless of whether the Ringtones themselves are publicly performed, AT&T apparently does not dispute that Ringtone previews, which are streamed on demand to anyone accessing an AT&T Internet website, are publicly performed. Although AT&T does not charge for these previews, they undeniably increase AT&T's sales of Ringtones, an important source of revenue for AT&T. AT&T obtains most if not all of its Ringtones and Ringtone previews from sources other than Ericsson. At a Court conference on March 20, 2009, AT&T's counsel indicated that he did not know which of those suppliers have been granted or have applied for through-to-the-listener ASCAP licenses. (3/20/09 Tr. 2:11-24.) It thus appears that AT&T will require an ASCAP license for at least some of its Ringtone previews, whether or not it requires one for Ringtones.

II. Other Music Performances For Which AT&T Does Not Seek a License

A. Streaming Services

AT&T also makes available to its wireless telephone subscribers a number of other types of content which involve performances of music, including MobiTV, Inc. ("MobiTV"), eMusic, Mobile TV, XM Satellite Radio ("XM Radio" or "XM"), Pandora and video clips, all of which AT&T asserts are supplied by others effectively having through-to-the-listener licenses from ASCAP. (Beck Ltr. at 1-2.) ASCAP initially responded that, although those suppliers have applied for ASCAP licenses, only two of them (XM Radio and Pandora) have actually been granted a license; moreover, the license to XM Radio expressly excludes the right of any receiver of XM's transmissions to "further transmit any of the musical compositions licensed hereunder" (Parness Decl., Ex. EE ¶ 2(c)) and the license to Pandora "extends only to [Pandora] and [its] Internet Site or Service and is limited to performances presented by means of Internet Transmissions, and by no other means." (Parness Suppl. Decl., Ex. G ¶ 6(a).) After that initial response, ASCAP granted an interim license to MobiTV in which it asserts that the "fee was based not on a 'through to the audience' basis" and that "AT&T would still have to pay fees based on its share of the revenue for the service that it does not 'split' with Mobi." (Leichtman 2/17/09 Ltr. at 3.)

B. Downloads

AT&T also allows subscribers to download onto their wireless telephones audio-only music and music videos from various sources, but correctly points out that this Court ruled in United States v. ASCAP in re AOL, RealNetworks and Yahoo! Inc., 485 F. Supp. 2d 438 (S.D.N.Y. 2007) that music downloads, which are performed at high speeds and cannot be contemporaneously enjoyed, are not public performances requiring an ASCAP license.

C. Ringtones

AT&T, for an initial charge and presumably an MRC, also provides musical Ringtones that are downloaded onto its subscribers' wireless telephones, and which they hear instead of a ringing sound when they receive a call. Because AT&T has indicated its intention to file a motion for partial summary judgment declaring that these Ringtones are not publicly performed, it has not applied for an ASCAP license to cover this service.

III. ASCAP's Interim Fee Proposals

ASCAP's initial proposal was based on AT&T's report of the number of subscribers to its CV service (see Parness Decl., Ex. K at 20) and AT&T's computation of average revenue per user (see id. at 21), from which ASCAP reckoned that AT&T received a total of at least [REDACTED] in revenue during the period from March 2006 through June 2008. ASCAP proposed a license fee of 3.0% of the total revenue, or [REDACTED] through June 2008 and [REDACTED] per quarter thereafter, computed at the same monthly rate as for the earlier period.

ASCAP's amended proposal is much more complicated.

A. Fee Rate

ASCAP repeated its proposal of a 3% fee rate for most services but, recognizing that in United States v. ASCAP in re AOL, RealNetworks and Yahoo! Inc., 562 F. Supp. 2d 413 (S.D.N.Y. 2008) ("In re AOL, et al.") the Court rejected that rate and found a rate of 2.5% of music-use-adjusted revenue to be reasonable, added alternative computations based on a 2.5% rate on revenue from all services except Ringtones. Having granted a ...


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