Southern District Of New York Sinks Sync Licensing Claims
Antitrust
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  • Southern District Of New York Sinks Sync Licensing Claims
     
    02/19/2020
    On January 29, 2020, Judge Denise Cote of the United States District Court for the Southern District of New York granted a group of music publishers’ motion to dismiss antitrust and tortious interference claims.  Downtown Music Publishing LLC et al. v. Peloton Interactive Inc., No. 1:19-cv-02426 (S.D.N.Y. 2020).  Defendant Peloton brought counterclaims alleging that the National Music Publishers’ Association, Inc. (“NMPA”) and its members (collectively, “plaintiffs”) had engaged in anticompetitive behavior including the refusal to deal with Peloton by denying sync licenses for music to be used in its exercise classes.  The Court dismissed defendant Peloton’s antitrust counterclaims for failure to state a claim due to lack of proper market definition and declined to allow Peloton an option to amend its relevant market allegations.

    Defendant and counter-plaintiff Peloton is an at-home fitness equipment and content company, whose products include instructor-led classes that incorporate music owned by publishers affiliated with the NMPA.  Due to the ad hoc nature of its instructors’ choosing their music before classes, Peloton acquires specialized “sync licenses” to acquire catalog-wide rights to publishers’ music libraries.  In 2018, plaintiff NMPA notified Peloton that it was unlawfully using some of the NMPA members’ music for which it had not acquired licenses, and requested that Peloton negotiate exclusively with NMPA to acquire rights to all of its publishers’ music.  After NMPA denied Peloton access to its list of members, it still tried individual outreach to members in order to license only the songs it wanted to use in its classes.  As expected, this was met with little success, and on March 29, 2019, NMPA sued for copyright infringement.  In response, defendant Peloton brought counterclaims under Section 1 of the Sherman Act, 15 U.S.C. § 1, and tortious interference claims.  Plaintiffs moved to dismiss.

    The Court first considered whether Peloton’s Sherman Act claims were barred by the Noerr-Pennington doctrine (which protects from antitrust scrutiny any potentially anticompetitive efforts to petition the government) and whether Noerr protected copyright holders from claimant’s “prelitigation efforts, including threat letters, settlement offers, and the rejection of settlement offers.”  However, the Court found that while Noerr may protect non-baseless copyright infringement actions, it does not permit plaintiffs “to band together and deny Peloton the right to individually negotiate future sync licenses with either some or all of them,” particularly when those negotiation efforts began prior to the start of plaintiffs’ copyright infringement suit.

    The Court next turned to the question of whether Peloton had properly alleged a relevant antitrust market.  The Court ruled that even per se antitrust claims must define a relevant market for anticompetitive behavior in order to survive a motion to dismiss.  “[I]t is an element of a per se case to describe the relevant market in which [courts] may presume the anticompetitive effect would occur.”  Peloton’s defined relevant market of “sync licenses to the copyrighted works controlled (in whole or in part) and collectively negotiated by the [Music] Publishers through NMPA” was legally insufficient, because Peloton did not and could not explain why other songs—songs by non-NMPA artists—to which it had rights under separate sync licenses could not substitute for the songs affiliated with NMPA publishers.  The Court noted that while “[i]t is true that every copyrighted work has at least some modicum of originality,” music used in fitness videos may be interchangeable.  This is unlike music that courts have found is “irrevocably embedded” into television programming networks, as in Peloton’s leading authority, Meredith Corp. v. SESAC, LLC, No. 09-cv-9177, 2011 WL 856266, at *9 (S.D.N.Y. 2011).

    Further, the Court denied Peloton’s request for leave to amend its counterclaims.  The Court found its alternative market definition unpersuasive because it did not present information regarding the quantity, diversity, and interchangeability of music suitable for its exercise videos.  Peloton’s informal request to amend was made too late in the litigation process, stated the Court, as its motion came in the midst of fact discovery and only a few months away from the close of discovery.  The Court also dismissed Peloton’s tortious interference claims because it did not show that it would have obtained licenses with individual music publishers had it not been for NMPA’s conduct.

    This case serves as a reminder of the importance of properly defined antitrust markets to both rule of reason and per se allegations.  Parties in antitrust actions should be cognizant of proper market definition during the course of discovery, even in seemingly straightforward per se anticompetitive claims.  This case further highlights the limits placed by the antitrust laws on organization and member choices to bargain collectively for a permitted purpose, but not to bargain collectively for all purposes.

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