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Appalseed Productions, Inc. et al v. Medianet Digital

July 6, 2012

APPALSEED PRODUCTIONS, INC. ET AL.,
PLAINTIFFS,
v.
MEDIANET DIGITAL, INC. ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:

MEMORANDUM OPINION & ORDER

This is an action for copyright infringement brought by music publishers against MediaNet Digital, Inc., which offers musical recordings for digital download and streaming.*fn1

Pending before the Court is Plaintiffs' motion for a preliminary injunction. For the reasons stated below, Plaintiffs' motion will be denied.

BACKGROUND

Plaintiffs own the copyrights to the approximately 230musical compositions listed in the Complaint. These musical works have been registered with the United States Copyright Office. (Cmplt. ¶¶ 30-32, 34-36, 38-40, 42-44, 46-48, 50-52, 54-56, 58-60, 62-64) The gist of Plaintiffs' lawsuit is that Defendants have made available Plaintiffs' compositions for digital download and streaming without having obtained the necessary licenses.

I.THE NATURE OF MEDIANET'S BUSINESS

Pursuant to agreements with record labels, Defendant MediaNet offers a catalog of more than 15 million musical recordings to third-party Internet music services ("third-party services"), including iMesh, Inc., JRiver, Inc., JVL Corporation, MOG, Inc., and Synacor, Inc. (Apr. 9, 2012 Goldstein Decl. ¶ 2; Apr. 9, 2012 Mann Decl. ¶ 2; Mar. 30, 2012 Grauberger Decl. ¶ 6) MediaNet offers a "business-to-business technology platform that enables third-party Internet music services to provide digital music to consumers through digital downloads, subscription, or streaming services." (Apr. 9, 2012 Goldstein Decl. ¶ 2; see also Cmplt. ¶¶ 16-17) MediaNet does not provide music to consumers directly.*fn2 (Apr. 18, 2012 Tr. 22-23; Mar. 27, 2012 Wallace Decl. ¶ 2)

The full digital downloads of sound recordings offered by third-party services working in conjunction with MediaNet are not at issue in this case. (Apr. 18, 2012 Tr. 21) Instead, it is the "on-demand streaming" and "limited downloads" -- services offered by subscription -- that are in dispute. (Apr. 9, 2012 Goldstein Decl. ¶¶ 11-14; Cmplt. ¶¶ 33, 37, 41, 45, 49, 53, 57, 61, 65) A "limited download" allows a consumer to download a copy of a sound recording, store the recording in his or her hard drive, and play the recording so long as the consumer subscribes to the service. (Apr. 9, 2012 Goldstein Decl. ¶¶ 11-14; see also Mar. 30, 2012 Grauberger Decl. ¶ 6) Once the consumer's subscription ends, he or she will no longer be permitted to play the recording. (Apr. 9, 2012 Goldstein Decl. ¶¶ 11-14) "On-demand streaming" refers to a process by which a consumer selects a song to be played for immediate use, through streaming over the Internet. (Id. ¶ 13; Mar. 30, 2012 Grauberger Decl. ¶ 6) Although the consumer may listen to the sound recording as it is streamed, no permanent copy of the recording is made. (Id.)

MediaNet's agreements with record labels address the method by which the record labels' digital music tracks are delivered to MediaNet's servers -- a process referred to as "ingestion." (Mar. 27, 2012 Wallace Decl. ¶ 4) MediaNet is required to comply with the record labels' ingestion requirements and cannot alter the ingestion process. (Id.) During the ingestion process, the record labels deliver "metadata," which includes "identifying information about the delivered digital music track[,] such as a numerical identifier, the track's name, the track's album's name, the performing artist, and the date the track was released" (id. ¶¶ 10-11), as well as "fields that indicate what sort of delivery methods MediaNet is permitted by the record labels to use with the track, such as whether the track may be streamed or downloaded." (Id. ¶ 12) The record labels use this ingestion process on a regular basis to add new digital music tracks to MediaNet's servers and/or to refresh the tracks' metadata. (Id. ¶ 14) More than 100,000 new tracks are "ingested" each week by MediaNet. (July 3, 2012 Charap Decl. ¶ 9)

II.LICENSING OBLIGATIONS

In order to lawfully distribute digital music over the Internet, MediaNet must obtain various licenses. (Apr. 9, 2012 Goldstein Decl. ¶ 4; Cmplt. ¶ 24) For example, licenses must be obtained from the record labels to play, reproduce, and distribute sound recordings. (Apr. 9, 2012 Goldstein Decl. ¶ 4) Where the record labels do not own the musical compositions embodied in their sound recordings, a company wishing to distribute these recordings digitally must also obtain rights to play and reproduce the underlying musical compositions from the copyright owners of those compositions. (Id.) The right to play the musical composition is referred to as the "public performance right," while the right to reproduce and distribute musical compositions embodied in sound recordings is commonly referred to as the "mechanical right." (Id. ¶ 5) It is the "mechanical right" in the musical works listed in the Complaint that is at issue here. (Id. ¶ 6) More specifically, it is the copyright holders' mechanical rights in "limited downloads" and "on-demand streams" of the musical compositions embodied in sound recordings referenced in the Complaint that are at issue. Permission to reproduce and distribute copyrighted works in these formats may be obtained by voluntary license -- i.e., with the consent of the copyright holder -- or by compulsory license, pursuant to 17 U.S.C. § 115.*fn3 (Cmplt. ¶ 27)

Section 115 of the Copyright Act permits companies such as MediaNet to obtain compulsory licenses from copyright holders to reproduce and distribute copies of sound recordings at a statutory rate, adjusted over time. (Id. ¶ 7; 17 U.S.C. § 115) In 2002, MediaNet began sending Notices of Intent to Obtain a Compulsory License ("NOIs") to music publishers, including certain of the Plaintiffs, concerning a number of the compositions at issue. (Id. ¶¶ 20-21) MediaNet sent additional NOIs to certain Plaintiffs in 2003, 2008, 2009, and 2010. (Id. ¶¶ 20-22) On November 15, 2008, MediaNet sent NOIs to Plaintiffs Appalsongs and Cram Renraff, and to MCS, then copyright administrator for all Plaintiffs except Appalsongs. (Id. ¶ 22) These NOIs covered 170 of the compositions listed in the Complaint. On November 19, 2008, MCS sent MRI an email acknowledging receipt of the NOIs and stating that MCS would "be happy to issue a license." *fn4 (Id. ¶ 22, Ex. A) MediaNet alleges that, in total, it has sent NOIs to Plaintiffs or Plaintiffs' copyright administrators covering all but approximately 20 of the 230 compositions listed in the Complaint.*fn5 (Id. ¶ 24)

Plaintiffs claim, however, that they first learned of MediaNet's use of their musical compositions on October 8, 2009, when MediaNet's then general counsel participated in an unsuccessful mediation of a case brought by Plaintiffs in the Middle District of Tennessee against Yahoo!, Inc., RealNetworks, Inc., and Microsoft Corporation. MSC Music America, Inc., et al. v. Yahoo! Inc., et al., No. 09-CV-0597 (the "Yahoo Case"); see Apr. 12, 2012 Grauberger Decl. ¶¶ 2, 7. In that case, Plaintiffs alleged that the defendants, which operated internet music subscription and non-subscription services, had without permission "copied, displayed, performed and distributed to the public, via [their] 'On-Demand Streams' and 'Limited Downloads'" sound recordings embodying Plaintiffs' copyrighted musical compositions. (See No. 09-CV-0597, Dkt. No. 1 at ¶¶ 28-30, 34-36, 40-42, 46-48, 52-54, 58-60, 64-66, 70-72, 76-78, 82-84, 88-90, 94-96, 100-102) The Yahoo Case was resolved in October 2010through a confidential settlement agreement entered into by Plaintiffs, Microsoft, Yahoo!, and MediaNet.*fn6 (Apr. 12, 2012 Grauberger Decl. ¶ 36; No. 09-CV-0597, Dkt. No. 176) Although MediaNet was not a party to the Yahoo Case, it was a party to the settlement agreement, apparently in its capacity as indemnitor. (Apr. 18, 2012 Tr. 28, 35, 75; May 7, 2012 Tr. 35)

On August 24, 2011, Plaintiffs filed the instant suit alleging that MediaNet and its present and former CEO had engaged in copyright infringement, contributory copyright infringement, and vicarious copyright infringement under the Copyright Act, 17 U.S.C. § 101 et seq. (Cmplt. ¶¶ 80-106) Plaintiffs allege, inter alia, that without their authorization or permission, Defendants have "copied, displayed, performed and distributed to their customers . . . [sound recordings embodying Plaintiff's copyrighted musical works] via 'On-Demand Streams' and 'Limited Downloads' through . . . their customers' music services." (Id. ¶¶ 33, 37, 41, 45, 49, 53, 57, 61, 65) The Complaint further alleges that "Defendants did not seek or obtain permission or authorization from Plaintiffs prior to copying Plaintiffs' copyrighted works onto MediaNet's music service and distributing said works through its customers and ultimately to the general public." (Id. ¶ 66)

III.PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION

Plaintiffs claim that they recently learned of flaws in Defendants' automated "ingestion" process -- the mechanism by which record labels regularly add new digital music tracks to MediaNet's servers (Cmplt. ΒΆ 14) -- that have caused Defendants to routinely make available for streaming or download tracks for which they have no license. (Mar. 30, ...


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