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Meredith Corp. v. Sesac, LLC

United States District Court, S.D. New York

March 3, 2014

SESAC LLC and JOHN DOES 1-50, Defendants

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Meredith Corporation, Individually and on behalf of all others similarly situated, The E.W. Scripps Company, Individually and on behalf of all others similarly situated, Hoak Media, LLC, Individually and on behalf of all others similarly situated, HoaK Media of Nebraska, LLC, Individually and on behalf of all others similarly situated, Hoak Media of Dakota, LLC, Individually and on behalf of all others similarly situated, Plaintiffs: Bruce Alan Colbath, Robert Bruce Rich, Steven Alan Reiss, LEAD ATTORNEYS, Benjamin Ely Marks, Eric Shaun Hochstadt, Jaime Singer Kaplan, Weil, Gotshal & Manges LLP (NYC), New York, NY; Carrie M Anderson, PRO HAC VICE, Weil Gotshal & Manges LLP(DC), Washington, DC; Meaghan Parfitt Thomas-Kennedy, Weil Gotshal & Manges, New York, NY.

For Scripps Media, LLC, individually and on behalf of all others similarly situated, Plaintiff: Bruce Alan Colbath, Robert Bruce Rich, Steven Alan Reiss, LEAD ATTORNEYS, Benjamin Ely Marks, Eric Shaun Hochstadt, Jaime Singer Kaplan, Weil, Gotshal & Manges LLP (NYC), New York, NY; Meaghan Parfitt Thomas-Kennedy, Weil Gotshal & Manges, New York, NY.

For Sesac, LLC, Defendant: David Andrew Handzo, LEAD ATTORNEY, PRO HAC VICE, Jenner & Block, LLP, Washington, DC; Susan Joan Kohlmann, LEAD ATTORNEY, Jenner & Block LLP (LA), Los Angeles, CA; Alison Irene Stein, Andrew Michael Banks, Michael W. Ross, Jenner & Block LLP (NYC), New York, NY; Carol A. Schrager, Carol A. Schrager, Esq, New York, NY; Henry R. Kaufman, Henry R. Kaufman, P.C., New York, NY; Joshua Harris Rubin, Jenner & Block LLP, New York, BY; Joshua M Segal, Matthew S. McKenzie, Thomas A. Bousnakis, Zoila E. Hinson, PRO HAC VICE, Jenner & Block LLP, Washington, DC; Michael Brian Desanctis, Paul March Smith, Jenner & Block, LLP (DC), Washington, DC.


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Paul A. Engelmayer, United States District Judge.

This lawsuit is the latest in a line dating to the 1940s that have challenged, under federal antitrust law, the practices of performing rights organizations (" PROs" ) that issue collective (or " blanket" ) licenses to the rights to perform the copyrighted music of their members or affiliates. In the United States, there are three such PROs. For more than 50 years, the licensing practices of the two largest--the American Society of Composers, Authors and Publishers (" ASCAP" ), and Broadcast Music, Inc. (" BMI" )--have been subject to consent decrees entered into with the United States Department of Justice (" DOJ" ) following antitrust litigation. These decrees have imposed significant restrictions on these PROs. These include establishing a " rate court" to set reasonable fees for performance licenses when the PRO and the licensee cannot agree; requiring that the PRO's right to issue performance licenses to its members' music be non-exclusive; and requiring that alternatives means of licensing such music be made realistically available to would-be licensees. These terms have factored prominently in the court decisions that, since 1950, have uniformly rejected antitrust challenges to ASCAP's and BMI's use of blanket licenses.

This case involves the third, and smallest, PRO: SESAC LLC (" SESAC" ). Unlike ASCAP and BMI, SESAC has never been subject to a consent decree. However, in the years leading up to 2008, SESAC's latitude to set the terms of music licenses was otherwise limited: first by a series of industry-wide agreements it negotiated with the television broadcast industry; later, for the period April 2005 through December 31, 2007, by a contractual duty that bound SESAC to arbitrate its disputes with licensee stations. Since January 2008, however, SESAC's range of motion has no longer been thus inhibited. SESAC has been free unilaterally to set the terms on which it will issue licenses to perform the music of its more than 20,000 affiliated composers.

The issue in this putative class action is whether SESAC's licensing practices since 2008 have violated federal antitrust law.

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Plaintiffs are groups of local television stations.[1] They sue SESAC and 50 of its affiliated composers, who are named as " John Doe" defendants. The plaintiffs allege that, in practice, they must obtain licenses for some music in SESAC's repertory. That is because SESAC's repertory is large and includes works so ubiquitous that some are inevitably embedded in shows that the stations acquire and wish to air.

Plaintiffs contend that, since 2008, SESAC, with its affiliates' assent, has taken steps to make illusory any alternative to the blanket license it sells, which conveys the right to play the music of all SESAC affiliates. Having insulated this product from competition and forced local television stations to acquire it, plaintiffs allege, SESAC has set an exorbitant price for that " all or nothing" license, even though stations have no interest in buying the rights to the entirety of SESAC's repertory. Plaintiffs assert that SESAC and its affiliates have thereby violated § 1 of the Sherman Act, 15 U.S.C. § 1, by combining to unlawfully restrain trade; and § 2 of the same Act, 15 U.S.C. § 2, by conspiring to monopolize the market for the performance rights to the musical works within SESAC's repertory. Plaintiffs also assert a monopolization claim against SESAC under § 2.

Discovery is now complete. SESAC[2] moves for summary judgment. For the reasons that follow, that motion is denied as to all three counts, save that, on the § 1 claim, the Court grants summary judgment to defendants in two ways that narrow that claim. Specifically, the Court rejects plaintiffs' (1) per se theory of liability; and (2) claim of an agreement to restrain trade among all 20,000-plus SESAC affiliates, as opposed to among only the far smaller subset (under 1%) of affiliates who were party to a supplemental affiliation agreement with SESAC.

I. Background

A. Facts[3]

This case involves the process by which local television stations acquire the performance

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licenses necessary to permit them lawfully to broadcast programs containing copyrighted music. Plaintiffs claim antitrust violations arising out of the terms under which SESAC has aggregated such licenses and offered then for sale. To understand these claims and SESAC's defenses, it is necessary to explain the means by which music performance licenses are sold to such stations, both in general and by SESAC specifically.

1. Television Stations' Need for Music Performance Licenses

Almost all television programs contain music, whether as the central focus of a feature performance, as theme music played at the program's opening and closing, or as interspersed or interstitial background music used " to underscore or heighten certain moods, change the pace or otherwise enhance the desired effect of the program." United States v. ASCAP, No. 13 Civ. 95 (WCC) (MHD), 1993 WL 60687, at *2 (S.D.N.Y. March 1, 1993). Most such music is copyrighted under federal copyright law, see 17 U.S.C. § § 101 et seq. Def. 56.1 ¶ ¶ 1-2; Pl. Resp. to Def. 56.1 ¶ ¶ 1-2; Hochstadt Decl. Ex. 1 (Expert Report of Adam B. Jaffe (" Jaffe Rep." )) 10-11. To comply with that law, a station that seeks to broadcast programs containing copyrighted music must first obtain a license from the copyright holder to publicly perform it. Def. 56.1 ¶ ¶ 3-4; Pl. Resp. to Def. 56.1 ¶ ¶ 3-4; Jaffe Rep. 10.

As a practical matter, a television station cannot negotiate separately with the holder of the rights to each copyrighted work

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within each of its programs. Among other reasons, there are far too many musical works contained within these programs to make it realistic to undertake individual negotiations; and as to some works, the copyright holder may not be identified easily.

Instead, for many years, for most music that they have broadcast, local stations have obtained performance licenses from PROs. Def. 56.1 ¶ 18; Pl. Resp. to Def. 56.1 ¶ 18; Am. Compl. ¶ 10. The PROs affiliate with numerous composers and music publishers, and assist these rightsholders in various ways. These include serving as a clearinghouse for the licensing of public performance rights, monitoring performance of members' works, assuring that users pay for such performances, and distributing royalties to the rightsholders.[4] On their members' behalf, the PROs sell--to TV stations and others that wish to perform such work--performance licenses that cover, generally on an aggregated, or blanket, basis, the musical works of their respective affiliates. Def. 56.1 ¶ 19; Pl. Resp. to Def. 56.1 ¶ 19.

As noted, in the United States, there are three such PROs: ASCAP, BMI, and SESAC. Def. 56.1 ¶ ¶ 18-19; Pl. Resp. to Def. 56.1 ¶ ¶ 18-19. SESAC, a private for-profit corporation owned by investors, is the smallest. Def. 56.1 ¶ ¶ 21-23; Pl. Resp. to Def. 56.1 ¶ ¶ 21-23. The three PROs have repertories of copyrighted music that are exclusive of one another. Together, the PROs' repertories account for virtually every copyrighted musical composition in the United States and its territories. Def. 56.1 ¶ 20; Pl. Resp. to Def. 56.1 ¶ 20.

2. Locally-Produced and Third-Party Produced Television Programs

Programming by local television stations falls broadly into two categories: those locally produced and those produced by third parties. Def. 56.1 ¶ 5; Pl. Resp. to Def. 56.1 ¶ 5. A station's need to obtain performance licenses from PROs is particularly acute in connection with third-party programming. Locally-produced programs, including local news programming, are produced by the station itself. Def. 56.1 ¶ 6; Pl. Resp. to Def. 56.1 ¶ 6. As to such programs, local stations can, with minor exceptions, determine for themselves what music they wish to include. Def. 56.1 ¶ 7; Pl. Resp. to Def. 56.1 ¶ 7. A station could, therefore, largely avoid music in the repertory of a particular PRO in its own locally-produced programming, albeit with considerable effort. Def. 56.1 ¶ 8; Pl. Resp. to Def. 56.1 ¶ 8.

With respect to third-party programming, however, local television stations lack latitude to control music content. Third-party programming includes syndicated series or shows, such as " Seinfeld," " House," or " Wheel of Fortune," movies, most sporting events, commercials, and infomercials, Def. 56.1 ¶ ¶ 9, 10; Pl. Resp. to Def. 56.1 ¶ ¶ 9, 10; Jaffe Rep. 9, 12, all of which may be critical to the station's success. These programs are produced by outside persons or entities, and come to the local station complete or " in the can" ; the stations do not control, nor can they alter, the music embedded therein. Def. 56.1 ¶ ¶ 10, 11; Pl. Resp. to Def. 56.1

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¶ ¶ 10, 11.[5]

A station that broadcasts a copyright-protected performance of a musical work without permission faces the threat of statutory penalties for copyright infringement that can be as high as $150,000 per infringement. 17 U.S.C. § 504(c). For a number of practical reasons, to assure that it has the legal right to broadcast all the music contained in its third-party programs and commercial announcements, a local station generally must acquire licenses from all three PROs.[6] Def. 56.1 ¶ 18; Pl. Resp. to Def. 56.1 ¶ 18.

For one, the sheer volume of music broadcast by a station across its third-party programs makes it likely that this music will draw upon the repertories of ASCAP, BMI, and SESAC. For another, stations are contractually prohibited from altering, removing, or substituting alternatives for, the music embedded in third-party programming. Def. 56.1 ¶ 11; Pl. 56.1 Resp. ¶ 11; Jaffe Rep. 12, 53. A station cannot strip out, or excise, music contained within the repertory of a PRO with whom it wishes not to contract. It also may be difficult, or even impossible, for a station to identify, at the time it buys the rights to air a program, all music embedded in that program, let alone the PRO to whose repertory each musical work belongs. Def. 56.1 ¶ ¶ 11-12; Pl. Resp. to Def. 56.1 ¶ ¶ 11-12. Finally, the alternative sales channel for music performance rights that conceivably might have developed--in which the right to perform embedded music would be secured by the producer and sold to the station along with the third-party program--has not so developed. Most rights the station needs to lawfully air the program, including rights relating to the script, visual images, acting, and direction, are typically conveyed along with the program itself. Def. 56.1 ¶ 14; Pl. Resp. to Def. 56.1 ¶ ¶ 14, 16. But, as a matter of what plaintiffs call " longstanding industry practice," performance rights to embedded music are generally not conveyed along with the program. Am. Compl. ¶ 7. The stations must separately secure such rights. Def. 56.1 ¶ ¶ 14, 16; Pl. Resp. to Def. 56.1 ¶ 16.[7]

For years, therefore, local stations overwhelmingly have obtained, from each PRO, music performance licenses that cover the PRO's entire repertory. Def. 56.1 ¶ 18; Pl. Resp. to Def. 56.1 ¶ 18. In negotiations with the PROs regarding performance rights, the stations have been represented by a non-profit association, the Television Music License Committee (" TMLC" ). Def. 56.1 ¶ 26; Pl. Resp. to Def. 56.1 ¶ 26. TMLC, in turn, has co-founded Music Reports, Inc. (" MRI" ), which provides music rights administration services, including per-program license reporting services, to television stations in the United States. Def. 56.1 ¶ 28; Pl. Resp. to Def. 56.1 ¶ 28.

3. Types of Licenses Available -- and ASCAP's and BMI's License Terms

There are several types of music performance licenses that a user, such as a

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television station, may obtain: blanket licenses, per-program licenses, direct licenses, and source licenses.

a. Blanket licenses:

Blanket licenses authorize a station to perform all compositions in a given PRO's repertory, and to do so an unlimited number of times; for this right, the station pays a fixed fee. Def. 56.1 ¶ ¶ 29-32; Pl. Resp. to Def. 56.1 ¶ ¶ 29-32; Jaffe Rep. 17-18. Historically, local stations have acquired blanket licenses from all three PROs to assure that they obtained the public performance rights necessary for all of their programming. Def. 56.1 ¶ 31; Pl. Resp. to Def. 56.1 ¶ 31; Jaffe Rep. 17-18. Because each blanket license covers all music in that PRO's repertory, this practice allows the stations to air programming without any risk of music copyright infringement. Def. 56.1 ¶ 33; Pl. Resp. to Def. 56.1 ¶ 33.

b. Per-program licenses:

Like a blanket license, a per-program license (" PPL" ) allows a station to perform any composition in a PRO's repertory. Unlike a blanket license, however, a PPL's fee is variable; it depends on how many programs broadcast by the station contain music in a given PRO's repertory for which the station has not independently obtained a direct license. See Def. 56.1 ¶ ¶ 37-39; Pl. Resp. to Def. 56.1 ¶ 38; Jaffe Rep. 27-29. A station must pay the PRO only for any program that it broadcasts that contains one or more instances of that PRO's music, and then only if the station does not already have the required license for that music from another source, in the form of a direct or source license (discussed below). Otherwise, the station need not pay the PRO. See Def. 56.1 ¶ ¶ 38-39; Pl. Resp. to Def. 56.1 ¶ ¶ 38-39; Jaffe Rep. 27-28. In other words, the PPL provides stations that independently obtain licenses a discount off the blanket license, and thus an incentive to seek out licenses by other means.

ASCAP and BMI offer PPLs. See Def. 56.1 ¶ 37; Pl. Resp. to Def. 56.1 ¶ 37. They are required to do so pursuant to consent decrees those entities entered into, decades ago, with DOJ, following antitrust litigation. See, e.g., United States v. ASCAP, No. 41-1395, at *10-*11 (S.D.N.Y. Mar. 14, 1950) (ASCAP Consent Decree Amended Final Judgment or " ASCAP AFJ" ); United States v. BMI, No. 64 Civ. 3787, at *7-*8 (S.D.N.Y. Dec. 29, 1966) (" BMI Consent Decree" ); see also Broad. Music, Inc. v. DMX Inc.., 683 F.3d 32, 36 (2d Cir. 2012) (tracing history of consent decrees); Jaffe Rep. 28, 30. ASCAP is also required to use a specific formula to determine the PPL fee. See United States v. ASCAP, 1993 WL 60687, at *52-*78; see also Jaffe Rep. 28 n.31. It is undisputed, and expert economists for both sides have opined, that ASCAP and BMI's PPLs are economically viable and offer a " genuine alternative to the blanket license for many stations." Jaffe Rep. 28; see Pl. Br. 2.

c. Direct licenses:

A direct license is a license for performance rights sold directly by the copyright holder (" the rightsholder" ) to a television station. Def. 56.1 ¶ 69; Pl. Resp. to Def. 56.1 ¶ 69. Under their consent decrees, ASCAP and BMI are required to permit stations to obtain direct licenses from rightsholders. See United States v. BMI (In re AEI Music Network, Inc.), 275 F.3d 168, 176 (2d Cir. 2001) (" AEI" ) (discussing ASCAP's and BMI's obligations under their respective consent decrees).

d. Source licenses:

A source license is a license for performance rights to the music in a particular television program that a television station obtains from the program's producer, as opposed to from a

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PRO. Def. 56.1 ¶ 57; Pl. Resp. to Def. 56.1 ¶ 57; Jaffe Rep. App. C at 2. Various plaintiff stations have executed direct and source licenses in the past. Pl. 56.1 ¶ 196, Def. Resp. to Pl. 56.1 ¶ 196.

e. The rate court:

fThe consent decrees with ASCAP and BMI each also create a rate court, situated in this District. Under specific circumstances, where ASCAP or BMI cannot reach agreement with a music user, the user may ask the rate court to set a " reasonable fee" for a license. See, e.g., BMI, 683 F.3d at 37; ASCAP v. Showtime/Movie Channel., 912 F.2d 563 (2d Cir. 1990) (" ASCAP v. Showtime " ) (affirming fee set by rate court for blanket license, following dispute between ASCAP and operator of cable television networks).[8]

4. SESAC and its Negotiations through 2007 with Local Television Stations

Founded in 1932, SESAC for years focused on narrow sectors of the music performance market ( e.g., religious and European concert and stage music). Def. 56.1 ¶ 41-42; Pl. 56.1 ¶ 125; see Affiliated Music Enters., Inc. v. SESAC, Inc., 160 F.Supp. 865, 867, 870 (S.D.N.Y. 1958) (" AME v. SESAC " ). In 1992, after a change of ownership, SESAC expanded its repertory. It did so in part by recruiting from ASCAP and BMI high-profile composers and publishers, including ones whose music was embedded in syndicated television programs. Pl. 56.1 ¶ 125; Def. Response to Pl. 56.1 ¶ 125. SESAC currently licenses more than 20,000 composer and publisher rightsholders. Pl. 56.1 ¶ 124; Def. Resp. to Pl. 56.1 ¶ 124; Def. 56.1 ¶ 41; Pl. Resp. to Def. 56.1 ¶ 41. SESAC pays royalties to these affiliates, generally on the basis of when, how, and how frequently their works are performed, although certain affiliates receive " advances" or guaranteed royalties. Def. 56.1 ¶ ¶ 43-45; Pl. Resp. to Def. 56.1 ¶ ¶ 43-45.

SESAC has never been subject to a consent decree. No rate court is in place to resolve disputes between SESAC and potential licensees. Pl. 56.1 ¶ ¶ 161-162; Def. Resp. to Pl. 56.1 ¶ 161.

Prior to 1995, SESAC had negotiated directly with local television stations regarding its licenses. Def. 56.1 ¶ 89; Pl. Resp. to Def. 56.1 ¶ 89. In 1995, the TMLC approached SESAC to negotiate an industry-wide license. Def. 56.1 ¶ 90; Pl. Resp. to Def. 56.1 ¶ 90. Thereafter, SESAC negotiated a five-year blanket license with the TMLC that spanned October 1, 1995 (retroactively) through December 31, 2000. Def. 56.1 ¶ 91; Pl. Resp. to Def. 56.1 ¶ 91. The parties were able to negotiate another industry-wide blanket license, through settlement of arbitration, for the 2001-2004 period. Def. 56.1 ¶ 92; Pl. Resp. to Def. 56.1 ¶ 92. That agreement also provided that, should the parties prove unable to agree on terms for a subsequent license period, SESAC could elect

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to arbitrate. Def. 56.1 ¶ 93; Pl. Resp. to Def. 56.1 ¶ 93. In that case, the stations would have the right to obtain a PPL from SESAC, under terms set by the arbitrators. Id.

The negotiations between SESAC and the TMLC for a license covering the 2005-2007 period were unsuccessful; SESAC thereafter exercised its option to proceed to arbitration. Def. 56.1 ¶ 94; Pl. Resp. to Def. 56.1 ¶ 94. An independent panel of arbitrators set an industry-wide blanket license fee of $16 million for the year 2005, $17.6 million in 2006, and $19.3 million in 2007. Def. 56.1 ¶ 95; Pl. Resp. to Def. 56.1 ¶ 95. They also set the terms of the first SESAC PPL, which covered the period between April 1, 2005 and December 31, 2007. Def. 56.1 ¶ 40; Pl. Resp. to Def. 56.1 ¶ 40; Pl. 56.1 ¶ ¶ 170-71. For the same period, the arbitrators, in 2006, set some rate terms for SESAC's PPL, and SESAC and TMLC agreed on others. Def. 56.1 ¶ 96; Pl. Resp. to Def. 56.1 ¶ 96; Pl. Resp. to Def. 56.1 ¶ 40.

In July 2007, SESAC and the TMLC began to negotiate an industry-wide license for the period beginning January 1, 2008. Def. 56.1 ¶ 97; Pl. Resp. to Def. 56.1 ¶ 97. After four months of negotiations, the negotiations broke down, without an agreement. Def. 56.1 ¶ 98; Pl. Resp. to Def. 56.1 ¶ 98. SESAC thereafter began dealing with the stations on an individual basis. Def. 56.1 ¶ 99; Pl. Resp. to Def. 56.1 ¶ 99.

5. The 2008-2012 Period and the Present

On November 27, 2007, SESAC sent offers for new licenses for the period between 2008 and 2012 to individual stations and station groups, including the plaintiff stations.[9] Def. 56.1 ¶ 99; Pl. Resp. to Def. 56.1 ¶ 99; Pl. 56.1 ¶ 180. SESAC's offers increased its blanket licensing rates by 10% over the prior license period, despite what plaintiffs assert was an overall decline in demand for SESAC's music on local television during the prior license period. Pl. 56.1 ¶ ¶ 176, 181-82.

For the period between 2008 and 2012, SESAC also modified the PPL formula. Several modifications, plaintiffs claim, substantially increased the cost of that license so as to diminish (if not eliminate altogether) its utility. These included the addition of an " Incidental Ambient Use Fee," and increases in an administrative fee and in a " default multiplier" applied to certain programs. Pl. 56.1 ¶ ¶ 255-58, 270. These changes are discussed in more detail infra Part IV.D.1.

Since SESAC modified the PPL in these ways, no station has operated on a PPL, and SESAC has not been paid any PPL fees. Pl. Resp. to Def. 56.1 ¶ 37; Jaffe Rep. 74-79; Transcript of 10/7/13 Oral Argument (" Tr." ) 27 (Dkt. 138). By contrast, in 2005, 180 stations had utilized SESAC's PPL on a retroactive basis, saving a total of approximately $575,000 out of the total blanket license fee of some $16 million; in 2006, 185 stations took the PPL, saving slightly under $1 million, out of a total blanket license fee of $17.6 million; and in 2007, 248 stations took the PPL, saving approximately $2 million out of the overall blanket license fee of $19.3 million. Pl 56.1 ¶ 250. A disputed issue in this case is whether SESAC's current PPL provides an economically viable alternative to the blanket license. Compare Def. Reply Br. 20-22 with Pl. Resp. to Def. 56.1 ¶ 37; Pl. 56.1 ¶ ¶ 249-270; Pl. Br. 22-24, 42-43. Plaintiffs' claim that the pricing and restrictive

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terms associated with SESAC's PPL from 2008 forward " render it commercially infeasible," as reflected in the lack of use of this license. Pl. Br. 22; see infra Part IV.D.1.

During the period 2008 forward, as before, each SESAC affiliate has been subject to a standard affiliation agreement. Def. 56.1 ¶ 49; Pl. Resp. to Def. 56.1 ¶ 49. The agreement makes SESAC the " sole and exclusive [PRO] to represent the affiliate," see, e.g., Hochstadt Decl. Ex. 115, but it does not restrict direct licensing by the affiliate, and is silent as to the terms of the licenses SESAC will offer, Def. 56.1 ¶ ¶ 49, 70-71; Pl. Resp. to Def. 56.1 ¶ ¶ 49, 70-71. For between 99.5% and 99.7% of SESAC's affiliates, the standard affiliation agreement is the only agreement with SESAC. Def. 56.1 ¶ 72; Pl. Resp. to Def. 56.1 ¶ 72.

Each of the remaining 0.3% to 0.5% of affiliates has entered into a supplemental affiliation agreement with SESAC. These add terms to those in the standard agreement. The supplemental agreements give the affiliate an advance or an otherwise guaranteed amount of money, sometimes well over $1 million a year. See, e.g., Kohlmann Decl. Exs. 98, 135; Hochstadt Decl. Exs. 131-133. However, they expose the affiliate to large monetary penalties for issuing a direct license. For one composer, the penalty is $500,000 for the first direct license to be issued, with penalties for issuing additional direct licenses escalating to $1 million and the termination of all royalty payments, see Kohlmann Decl. Ex. 135; other affiliates are required promptly to forfeit to SESAC the entire sales price obtained for the direct license, see, e.g., id. Exs. 81, 97, 98; Hochstadt Decl. Exs. 132-134. The effect of these terms, plaintiffs argue, is to eliminate any imaginable incentive for the affiliate to issue such a license. The agreements also require that the affiliate refer any request for a direct license to SESAC; and allow the affiliate to issue a direct license only if SESAC does not reach an agreement with the affiliate, and then only " at a rate no less than SESAC's current licensing rates." See Def. 56.1 ¶ ¶ 73-74, 79; Pl. 56.1 ¶ ¶ 19, 226-227, 243; see also infra Part IV.C.2.

The music of the affiliates subject to these supplemental agreements is, characteristically, in high demand by television stations, including because it is embedded in popular programs; between 2007 and 2011, the music of six such affiliates together accounted for between 43% and 50% of SESAC's royalty distributions. Pl. Resp. to Def. 56.1 ¶ 73; Def. Reply 56.1 ¶ 73; Pl. 56.1 ¶ ¶ 131-138, 219. Such agreements are in place with, among others, for 2005 through 2016, the composer of music embedded in the programs " Seinfeld," " Will & Grace, " Less than Perfect," and " Reba," Pl. 56.1 ¶ ¶ 134, 226; for 2007 through 2013, the composer of music embedded in the programs " Grey's Anatomy," " Boston Legal," " Ally McBeal," " The Good Wife," and " The Bachelor," Pl. 56.1 ¶ 245; for 2007 through 2011, the composer of music embedded in the programs " Ugly Betty," " In Plain Sight," " Monk," " GCB," and " Medium," Pl. 56.1 ¶ 132; and for 2007 through 2011, two composers of music embedded in the programs " Entertainment Tonight," " Dr. Phil," " Rachel Ray," and " The Insider," Pl. 56.1 ¶ ¶ 133-136; see, e.g., Hochstadt Decl. Exs. 131-134; Kohlmann Decl. Exs. 81, 97, 98, 107, 134-37. Clauses in the supplemental agreements require the affiliates to keep their terms confidential. Def. 56.1 ¶ 56; Pl. Resp. to Def. 56.1 ¶ 56. As to source licenses, in 2009, MRI, acting on behalf of the TMLC and local stations, attempted to secure source licenses for local stations. Def. 56.1 ¶ 59; Pl. Resp. to Def. 56.1 ¶ 59; Pl. 56.1 ¶ ¶ 197, 200. MRI's efforts to obtain source licenses for music in SESAC's repertory

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were unsuccessful. Def. 56.1 ¶ ¶ 59, 64, 66; Pl. Resp. to Def. 56.1 ¶ ¶ 59, 64, 66; Pl. 56.1 ¶ 202.

During negotiations for the 2008-2012 license period, SESAC issued interim licenses to some local stations or station groups, Def. 56.1 ¶ ¶ 102, 105, 107, 110; Pl. Resp. to Def. 56.1 ¶ 102, including plaintiff stations associated with the Meredith, Scripps, and Hoak organizations, Def. 56.1 ¶ ¶ 104-110. To stations that had not yet signed licenses, SESAC sent cease-and-desist letters, threatening, upon the expiration of the interim licenses, to sue these stations for copyright infringement if the stations continued to broadcast programs containing music from SESAC's repertory. Pl. 56.1 ¶ 189; Hochstadt Decl. Ex. 114; see also Hochstadt Decl. Exs. 50, 104. According to representatives of many stations, they eventually felt compelled to capitulate to SESAC's demands and to take the blanket license, lest they face copyright infringement actions. Pl. Br. 21; Pl. 56.1 ¶ ¶ 189-93.

Some stations and station groups were able to obtain discounts on the blanket license: Groups operating three or more stations were offered a discount based on the magnitude of the stations groups' SESAC fees, Def. 56.1 ¶ 112; Pl. Resp. to Def. 56.1 ¶ 112; stations that had recently reduced their broadcasts of programs with SESAC music were offered a " programming discount," Def. 56.1 ¶ 113; Pl. Resp. to Def. 56.1 ¶ 113; and stations that had recently dropped SESAC's music from their local news were offered a " news music adjustment," Def. 56.1 ¶ 114; Pl. Resp. to Def. 56.1 ¶ 114. Plaintiffs, however, characterize these discounts as " de minimis," leaving the licenses " vastly inflated over reasonable rates." Pl. 56.1 ¶ 186. Plaintiffs also note that the discounts did not reduce increases to their base license rates for later years, and that as condition of taking the discounts, SESAC required stations to forego the opportunity to use the PPL option during the five-year license term. Id.

6. DOJ's Investigation of SESAC

During 2008, while negotiations over the 2008-2012 license period were taking place, several TMLC representatives, including one associated with plaintiff Meredith, and plaintiffs' expert, Professor Adam Jaffe, met with the Antitrust Division of the DOJ. Def. 56.1 ¶ ¶ 117-18; Pl. Resp. to Def. 56.1 ¶ ¶ 117-18. The TMLC representatives encouraged the DOJ to sue SESAC for antitrust violations, and drafted a complaint for the DOJ to file against SESAC. Def. 56.1 ¶ 120; Pl. Resp. to Def. 56.1 ¶ 120. The DOJ closed its investigation without taking action. Def. 56.1 ¶ ¶ 121-22; Pl. Resp. to Def. 56.1 ¶ ¶ 121-22; Kohlmann Decl. Ex. 16 (Deposition of Willard Hoyt) at 280-81.

B. Allegations of the Amended Complaint

On November 4, 2009, plaintiffs filed an initial Complaint, Dkt. 1, and on March 18, 2010, an Amended Complaint, Dkt. 25 (" Am. Compl." ).[10]

In essence, the Amended Complaint alleges that, in practice, local television stations cannot avoid songs in the SESAC repertory. And, it alleges that, since 2008, SESAC has taken steps to make its " all or nothing" blanket license the only viable option for a station to obtain the performance rights to the music of SESAC's affiliates, see Am. Compl. ¶ ¶ 24-28, and has charged a supra-competitive price for that ...

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