SoundExchange, Inc. v. Muzak, LLC

Citation: 322 F. Supp. 3d 72Docket: Case 15-CV-0476-RCL

Court: Court of Appeals for the D.C. Circuit; August 21, 2018; Federal Appellate Court

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Plaintiff's Motion for Summary Judgment as to Liability is partially granted, affirming the plaintiff's prima facie case, while ruling that a summary judgment on the defendant's affirmative defenses would be premature. Muzak, LLC is identified as a digital music provider that previously operated without needing licenses to publicly perform sound recordings. This changed with the 1995 Digital Performance Right in Sound Recordings Act, which granted copyright owners an exclusive right to public performance via digital transmission and established a compulsory licensing regime, allowing non-interactive digital subscription services to perform sound recordings by paying royalties and meeting notice requirements.

The royalty rates are set every five years through adversarial proceedings by the Copyright Royalty Board. Initial proceedings in 1996 involved Muzak and other subscription services, resulting in rates that some claimed favored providers. In 1998, the Digital Millennium Copyright Act (DMCA) revised the royalty rate-setting process to better favor copyright holders, introducing a willing buyer/willing seller standard for calculating rates. However, it also created an exception for preexisting subscription services (PSS), defined as those that were operational before July 31, 1998. Muzak and two other services were grandfathered under this exception, allowing them to benefit from more favorable royalty rates set by the old method, rather than the new marketplace standard.

Muzak, at the time of the Act, provided music channels exclusively to Dish Network customers under the DishCD brand, operating at the PSS rate without objection since then. In 2011, Mood Media Corporation acquired Muzak, then subsequently purchased DMX, which offered music channels to DirecTV customers branded as SonicTap. Prior to the acquisition, DMX did not pay PSS rates for its SonicTap service. After integrating DMX into Muzak, by May 2014, Muzak began programming SonicTap channels to align with its DishCD offerings, resulting in nearly identical program offerings.

SoundExchange, designated as the sole representative for copyright holders, collected royalties from Muzak for DishCD at the PSS rate and from DMX for SonicTap at a different rate. Following the integration, Muzak paid the PSS rate for all its subscription services. SoundExchange filed a lawsuit challenging the PSS rate payments for SonicTap, arguing that the PSS exception did not apply to those transmissions. The Court initially dismissed the suit, interpreting that Muzak was entitled to the PSS rate for all offerings. However, the D.C. Circuit reversed this decision, stating that both the business and the specific program offering must qualify for the PSS rate.

Currently, SoundExchange seeks summary judgment on the liability, contending that the D.C. Circuit's ruling prevents Muzak from paying the PSS rate for non-Dish transmissions and asserting that any further discovery on Muzak's defenses would be futile. The Court agrees with the former but finds it premature to rule on the latter.

Summary judgment is permissible when the movant demonstrates that no genuine dispute exists regarding any material fact, thus entitling them to judgment as a matter of law, as outlined in FED. R. CIV. P. 56(a). A material fact is one that could influence the case's outcome under applicable law. A genuine dispute exists if a reasonable jury could potentially favor the nonmoving party. The court must assess evidence favorably for the nonmoving party and draw all reasonable inferences in their favor. Generally, courts view summary judgment as premature if all parties have not fully engaged in discovery. Pre-discovery motions for summary judgment are particularly disfavored. Under Federal Rule of Civil Procedure 56(d), a court may deny or postpone a summary judgment motion if the nonmoving party demonstrates an inability to present essential facts for opposition. The D.C. Circuit promotes granting requests for additional discovery in response to summary judgment motions as a standard practice.

Muzak is not permitted to pay the PSS rates for its non-Dish transmissions, as determined by the Court. The resolution hinges on whether Muzak can pay the PSS rate for its programming provided to SonicTap subscribers, with SoundExchange asserting that the D.C. Circuit's opinion mandates such a ruling. SoundExchange contends the ruling is inevitable and immune to discovery, while Muzak argues that a decision is premature without completed fact discovery. The Court notes that pre-discovery summary judgment motions are generally disfavored, but finds this case unique due to undisputed relevant facts. Muzak did not identify any facts related to the prima facie case as unavailable, focusing instead on affirmative defenses.

The D.C. Circuit's opinion indicates that Muzak should not have paid the PSS rate since the term "service" in the preexisting subscription service (PSS) definition requires both a business and program offering to qualify. Muzak satisfies the first prong but fails on the second, as its SonicTap offering does not meet the necessary criteria. While Muzak argues that its service provided to DirecTV is substantially similar to that provided to DISH Network, the Court concludes that despite these similarities, the offerings are not the same under the statutory definition. The D.C. Circuit indicated that expanding Muzak’s grandfather eligibility to include SonicTap would undermine the Act's intent to transition the industry to market rates. Therefore, the Court grants SoundExchange's motion regarding its prima facie case, determining that Muzak's non-DISH transmissions do not qualify as a PSS.

Muzak's assertion of its affirmative defenses, specifically unclean hands, is currently under scrutiny as SoundExchange seeks summary judgment. Muzak has withdrawn its estoppel defense and argues that SoundExchange has allowed Music Choice to operate more freely compared to Muzak's own restrictions. Muzak alleges that SoundExchange's members have interests in Music Choice and that SoundExchange has implicitly sanctioned Music Choice's use of the PSS Rate, which directly relates to the DirecTV account in question. 

SoundExchange's motion for summary judgment was filed before any discovery had commenced, and the court finds it premature to dismiss Muzak's defenses without allowing time for discovery to uncover relevant facts that could support these defenses. Under Rule 56(d), the court typically denies summary judgment motions if the opposing party cannot present necessary facts at that moment. The D.C. Circuit encourages this approach, particularly before the discovery phase is complete. 

The court has granted SoundExchange’s motion in part, recognizing its prima facie case for relief, but has denied it concerning Muzak's affirmative defenses. An order accompanying this decision will follow, and it is noted that while DMX was involved in past rate-making, the entity acquired by Mood in 2012 is not the same. Discovery has begun but remains in its early stages, and Muzak does not claim that its services through SonicTap and DishCD are identical, acknowledging differences in their programming offerings.