Central District Of California Nixes Streaming Platform’s Cartel Claims Against Popular Comedians
04/18/2023On April 5, 2023, Judge Mark C. Scarsi of the Central District of California dismissed with prejudice a streaming service’s antitrust counterclaims alleging that various well-known comedians and their licensing agents conspired to fix prices and attempted to monopolize the market for spoken-word comedic audio content for failure to allege facts showing either an agreement in restraint of trade in violation of Section 1 of the Sherman Act or the market power necessary to state a claim under Section 2. Yellow Rose Productions Inc. v. Pandora Media LLC, No. 2:22-cv-00809 (C.D. Cal, Apr. 5, 2023).
This litigation began when plaintiff comedians sued the streaming service, alleging that the streaming service failed to pay the required royalties for its use of the comedians’ sound recordings and underlying written works. In response, the streaming service filed antitrust counterclaims, which the Court dismissed with leave to amend. The streaming service then filed amended counterclaims, alleging that: (1) the comedians conspired to fix prices and demand supracompetitive royalties in violated Section 1; (2) two firms that acted as licensing agents for the comedians and other spoken word artists (the “licensing agents”) violated Section 1 by entering into a series of bilateral de facto exclusive affiliation agreements with the comedians that enabled them to charge supracompetitive prices for comedy performance rights; and (3) the licensing agents monopolized or attempted to monopolize the market for spoken word content in violation of Section 2 of the Sherman Act. The primary thrust of the streaming service’s counterclaims was that the licensing agents engaged in blanket licensing and “de facto exclusive licensing agreements” that effectively eliminated price competition for licenses to the comedians’ work and allowed them to charge supracompetitive royalties.
The counterclaim defendants all moved to dismiss, arguing, inter alia, that the streaming service had not alleged facts sufficient to show an agreement in restraint of trade or to show that the counterclaim-defendant licensing agents possess sufficient market power to state a Section 2 claim. With regard to the allegation that the comedians, facilitated by the licensing agents, had conspired with each other to fix prices, the Court found that the streaming service had not alleged facts showing more than conscious parallel conduct and that the alleged “plus factors” were not sufficient to raise an inference of conspiracy. For example, the allegation that the comedians would not have attempted to raise rates independently in the absence of conspiracy was contradicted by the allegation that each of the comedians was a “superstar” and a “must-have” for the streaming service, an allegation that, if true, showed that the individual comedians faced little risk in demanding higher rates. The Court found that the other alleged “plus factors,” such as the alleged motive to conspire, whether considered “individually or collectively,” were “entirely consistent with permissible conscious parallel conduct.”
Next, the Court rejected the counterclaim plaintiff’s claim that the licensing agents had illegally restrained trade by forming bilateral agreements that allowed the licensors to become “de facto exclusive licensors” for the individual comedians. Judge Scarsi held that these licenses could not form the basis of an agreement to restrain trade because the alleged exclusive bilateral agreements showed “a degree of economic unity such that [the licensing agents and their member comedians] could not compete in the market for standup comedy licensing rights.” This kind of principal-agent relationship, the Court concluded, did not “form the basis of an agreement to restrain trade in violation of section 1.”
Finally, the Court dismissed the streaming service’s monopolization and attempted monopolization claims because the service did not sufficiently allege direct or circumstantial evidence that the licensing agents possessed market power. In its amended counterclaim, the service alleged that the comedians represented by the licensing agents represented a “critical mass” of “superstar” comedians necessary to offer a viable comedic streaming service. However, Judge Scarsi found that the licensing agents controlled a small fraction of available comedy recordings and that the service had failed to provide facts explaining why the set of recordings controlled by the counterclaim defendants established market power. For example, the Court found that the service had failed to provide a reliable basis to determine the identity of and criteria for the “superstar” comedians, a consistent basis for determining which comedians could be considered “must-haves,” or key facts relating to market size, market share, or barriers to entry or expansion.
The Court went on to deny the counterclaim defendants’ motions for sanctions under Rule 11, finding that the counterclaims were not frivolous or brought in bad faith, and dismissed the counterclaims without leave to amend.