US collecting society SoundExchange has appealed a recent ruling which said it couldn’t pursue legal proceedings on behalf of its artist and record label members whenever there is a dispute over the compulsory licence it administers.
That ruling, as part of a legal battle between SoundExchange and satellite radio company Sirius XM, was “erroneous” and based on a “flawed interpretation” of the US Copyright Act, and should therefore be overturned by the Second Circuit Appeals Court, the society says.
It needs the appeals court to reverse the lower court ruling so that it can continue with its litigation against Sirius, which – it claims – has been underpaying royalties to artists and labels to the tune of $400 million.
But SoundExchange also needs the ruling overturned so it can file legal action in the future if any other online broadcasters in the US fail to pay the royalties they owe under copyright law.
SoundExchange administers the compulsory licence that is available under US law for online and satellite broadcasters. Royalty rates are set by the Copyright Royalty Board, with payments flowing via SoundExchange to artists and labels.
The society accuses Sirius of applying “faulty methodology” when calculating what it owes under the compulsory licence, and sued the broadcaster to force it to pay what it believes is actually owed.
In a bid to get that lawsuit dismissed, Sirius came up with the argument that SoundExchange isn’t actually empowered to pursue legal action against licensees. That’s on the basis that the bit of US copyright law which defines the compulsory licence and how it will be administered doesn’t explicitly state that the entity doing the administration – ie SoundExchange – will have the right to sue.
SoundExchange insists that’s an incorrect reading of the Copyright Act, but last month Judge Naomi Reice Buchwald sided with the broadcaster. She concluded that, although the law anticipates that SoundExchange will incur costs enforcing its members’ rights, it doesn’t “expressly or impliedly” provide the society with “the authority to commence a legal action”.
Therefore, she added, it should be assumed that Congress did not intend for SoundExchange to pursue litigation on behalf of its members, even though it has in the past.
Needless to say, SoundExchange disagrees. When it created the compulsory licence, the society argues in its appeal, Congress must have realised that “some licensees will seek any available means to avoid paying artists for the full value of their work to maximise profitability”.
For that licence to “function properly”, it adds, “SoundExchange fully believes Congress intended that the ‘enforcement’ power clearly granted in the statute must necessarily include the ability of its administrator to bring litigation claims when digital music services fail to meet their obligations under the law”.
If it’s not allowed to pursue legal action on behalf of its members, SoundExchange goes on, companies like Sirius will get away with underpaying artists and labels. And the “cumulative impact” of Sirius’s current “underpayment”, it says, now “stands at over $400 million”.
If the Second Circuit does overturn the lower court ruling and the courts ultimately conclude that Sirius has indeed been underpaying artists and labels, it could cover that $400 million by not renewing its deal with flagship DJ Howard Stern, given the last such deal was reportedly worth $500 million.
Originally Sirius’s biggest hire, one time shock jock Stern’’s current deal with the satellite broadcaster is up for renewal and reports suggest he is no longer delivering a big enough audience for the company, meaning it may end its relationship with the DJ.
That’s partly because modern day Stern doesn’t really grab the headlines any more, the shock having long since disappeared from his output. Plus, when it comes to opinionated chat and big name interviews, Sirius and Stern face tough competition from all those popular podcasters.
That said, following all the recent reports Stern was on his way out at Sirius, the DJ himself seemed to play down those rumours on his show earlier today.
