Central District Of California Allows Sherman Act Claims Against Performing Rights Organization To Proceed But Strikes Claims For Monetary Relief
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  • Central District Of California Allows Sherman Act Claims Against Performing Rights Organization To Proceed But Strikes Claims For Monetary Relief
     
    02/25/2020
    On February 13, 2020, Judge Terry Hatter of the United States District Court for the Central District of California issued an order denying Defendant Global Music Rights LLC (GMR)’s motion to dismiss antitrust claims based on its licensing practices, but striking all claims for restitution or disgorgement of profits. Radio Music License Committee Inc. v. Global Music Rights LLC, 19-cv-03957 (C.D. Cal. February 13, 2020). 

    Publishing Rights Organizations (PROs), such as GMR, aggregate the public-performance rights of musical works in order to detect unauthorized usages and to license the performance rights on behalf of the copyright holders.  Plaintiff Radio Music License Committee Inc. (RMLC), a non-profit that negotiates public-performance licenses on behalf of its member radio stations, alleged that GMR enticed a number of prominent songwriters to leave established PROs that were subject to long-standing consent decrees with the DOJ over antitrust concerns, and to join together in a new PRO that was not subject to those restrictions.  It further alleged that defendant departed from the industry standard by imposing a system of fractional (rather than blanket) licenses, which required licensees to license the same musical piece multiple times—from each co-writer of that piece.  As a result, plaintiff alleged that it was effectively coerced into purchasing multiple licenses for the same popular works.  Based on these and related allegations, Plaintiff asserted claims of price-fixing and monopolization in violation of the Sherman Act and California’s Cartwright Act.

    Defendant moved to dismiss, arguing that the Complaint should be dismissed for four principal reasons.  First, plaintiff misrepresented past precedent on PROs as inherently anticompetitive, arguing that the Supreme Court seminal decision in BMI v. CBS, Inc. established that, due to its potential efficiency-enhancing attributes, a PRO is subject to a rule of reason analysis, not a per se prohibition.  Second, defendant contended that it could not possess market power because it controlled less than one-tenth of one percent of all songs available for performance.  Third, defendant argued that plaintiff could not plausibly allege exclusionary conduct designed to marginalize its larger, more established rivals.  Finally, defendant noted that Ninth Circuit precedent required any claim, including monetary relief, to be based on direct injury and standing, while plaintiff could assert only associational standing.

    The Court began with the issue of standing, holding that associational standing was not appropriate in a claim for monetary relief where the monetary relief would require individualized proof, and thus struck the demand for restitution and disgorgement of profits.  Although the Court did not specifically address associational standing under the Clayton Act, this result is consistent with Section 4 of Clayton Act’s limitation of monetary damages to those who actually suffered injury in their “business or property” by reason of an antitrust violation.  In sum, plaintiff’s attempt to circumvent this limitation by seeking equitable relief in the form of restitution and disgorgement was creative but unavailing.
     
    Turning to the merits of the claim, the Court disposed of defendant’s arguments quickly and without extensive discussion of the particular facts alleged, holding simply that plaintiff had alleged sufficient facts to state a claim and that it was premature to attempt to determine whether plaintiff could prove its claims at the motion to dismiss stage.  Accordingly, the Court denied the motion to dismiss.

    Notably, defendant GMS has filed its own antitrust lawsuit against RMLC, alleging that RMLC and its member radio stations had formed a monopsony cartel and engaged in price fixing in violation of the Sherman Act.  This lawsuit is also pending before Judge Hatter in Los Angeles.  After RMLC moved for judgment on the pleadings, the United States Department of Justice (DOJ) filed a statement of interest in the case to express its views on the proper the legal standard for establishing a buyers’ cartel.  Disagreeing with the RMLC brief’s articulation of the antitrust principles governing buyer conduct, the DOJ argued that collusion by buyers, not just sellers, may be subject to the per se unlawful standard “because the Sherman Act protects competition not only in output markets where sellers compete to sell goods or services, but also in input markets where businesses compete to purchase various inputs.”  The DOJ also reiterated that specific intent to injure competition was not a required element of a per se violation based on horizontal price fixing by either buyers or sellers.  The DOJ also contested plaintiff’s argument that it did not engage in monopsony price-fixing because prices were set by a third party.
     
    Judge Hatter has rejected RMLC’s motion for judgment on the pleadings in that suit as well, again finding that the facts alleged were sufficient to state Sherman Act claims.  Thus, these related lawsuits, each alleging that the other engaged in improper collective action, will proceed, the latest in a long series of antitrust disputes between music rights holders and licensees that stretch back many decades.

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