Soundexchange, Inc. v. Sirius Xm Radio Inc. ( 2014 )


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  • UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF COLUMBIA
    SOUNDEXCHANGE, INC.,
    )
    )
    Plaintiff, )
    )
    v. ) Case N0. 1:13 cv 1290 (RJL)
    )
    SIRIUS XM RADIO INC., )
    ) F § L E D
    D f d . ~.
    e en ant 7&. AU\J 2 5 2014
    MEMORANDUM OPINION Cse~.rk, u.S. District & Bankruptcy
    (AuguStE 2014) [Dk{_ #]3] Gourtsfor the Districtuf Co|umhia
    Plaintiff SoundExchange, lnc. ("SoundExchange") brings this action against
    defendant Sirius Xl\/I Radio Inc. ("Sirius XM") in an effort to recover royalties
    SoundF,xchange claims it is owed under the Copyright Act. See generally Compl. [Dl352 U.S. 59
    , 63-64 (1956). ln such instances, the court
    may stay or dismiss without prejudice the case "pending referral of such issues to the
    administrative body for its views.” Ia'. at 64.
    "The primary jurisdiction doctrine rests both on a concern for uniform outcomes
    . . . and on the advantages of allowing an agency to apply its expertjudgment[.j" Allnet
    Comrnc’n Serv., Inc. v. Nat’l Exch. Carrz``er Ass’n, Inc., 
    965 F.2d 1
     118, 1120 (D.C. Cir.
    3 Courts generally do not actually send cases or issues to an agency for resolution pursuant to this
    doctrine, but rather refrain from exercising theirjurisdiction to allow the parties to raise the dispute to the
    agency. See Reiter v. Cc)oper, 
    507 U.S. 258
    , 268 n.3 (1993).
    5
    1992); see also W. Pac. R. Co., 352 U.S. at 64 ("ln the earlier cases emphasis was laid on
    the desirable uniformity which would obtain ifinitially a specialized agency passed on
    certain types of administrative questions. More recently the expert and specialized
    knowledge of the agencies involved has been particularly stressed." (internal citation
    omitted)). An agency’s expertise extends beyond technical issues "to the policy
    judgments needed to implement [its] mandate." Allnez, 965 F.2d at 1120.
    Courts appropriately employ the primary jurisdiction doctrine when an
    administrative agency "is best suited to make the initial decision on the issues in dispute."
    [a’. Administrative agencies may be "better equipped than courts by specialization, by
    insight gained through experience, and by more flexible procedure" to "ascertain[] and
    interpret[] the circumstances underlying legal issues." Far E. Conference v. United
    Stales, 
    342 U.S. 570
    , 574-75 (1952). Ultimately, "[n]o fixed formula exists for applying
    the doctrine of primaryjurisdiction.” W. Pac. R. Co., 352 U.S. at 64. The court must
    determine on a case-by-case basis "whether the reasons for the existence of the doctrine
    are present and whether the purpose it serves will be aided by its application." [d. Ifthe
    court concludes the doctrine does apply, then the court may stay or dismiss without
    prejudice the proceedings before it while the parties present the issue to the appropriate
    administrative agency. See Reiler v. Cooper, 
    507 U.S. 258
    , 268-69 & n.3 (1993).
    Sirius XM argues that the two primary disputes in this case are best suited to
    resolution by the CRB in the first instance, rather than this Court, because both involve
    interpreting and applying the CRB’s regulations on gross revenues. Def.’s Mem. at 1-2.
    SoundExchange, not surprisingly, contends that neither CRB’s definition of"Gross
    6
    Revenues" nor the exclusions therefrom is ambiguous, and this Court is well-situated to
    determine whether Sirius Xl\/1 breached the CRB’s clear terms without further referral to
    the CRB. Pl.’s Opp’n at 8-14. For the following reasons, 1 agree with Sirius XM and
    will stay these proceedings.
    1n order to determine whether to apply the primary jurisdiction doctrine, 1 must
    first consider what, precisely, the parties are contesting. Sirius XM is alleged to have
    excluded from its gross revenue total the revenue it attributed to sound recordings made
    prior to 1972. which are not subject to the federal statutory license. See Compl. 11 20.
    SoundExchange contends that, because Sirius Xl\/l did not recognize revenue explicitly
    from the pre-1972 recordings, but rather estimated it based on percentage of recordings
    played. any exclusion Sirius XM purports to attribute to those recordings does not qualify
    as an exclusion under 37 C.F.R. § 382.1 l(3)(vi)(D) for "[r]evenues recognized by
    Licensee for the provision of . . . [c]hannels, programming, products and/or other services
    for which the performance of sound recordings . . . is exempt from any license
    requirement." Pl.``s Opp’n at 9; Compl. j 23.
    In Satellite 11. the CRB agreed with Sirius XM that "pre-1972 recordings are not
    licensed under the statutory royalty regime and should not factor into determining the
    statutory royalty obligation.” Satellite II, 78 Fed. Reg. at 23073. However, it also
    determined that "the current Gross Revenues definition does not expressly recognize such
    an exclusion" and that "revenue exclusion is not the proper means for addressing pre-
    l972 recordings." Id. lnstead, it fashioned a "deduction" for such recordings. [d.
    SoundExchange argues that this decision confirms that Sirius XM improperly excluded
    7
    revenue from 2007 through 2012. Pl.’s Opp’n at 9-10. Sirius XM contends it does no
    such thing, but rather acknowledges that Sirius XM did not owe royalties for its
    performance of pre-1972 recordings and prescribes a specific methodology for the
    royalty calculation going forward. Def. Sirius XM Radio Inc.’s Reply Mem. of Law in
    Further Support ofits l\/lot. to Dismiss at 4-5 ("Def."s Reply") [Dkt. #20].
    The second issue involves the appropriate royalties owed on Sirius XM’s premium
    subscription package, Sirius Xl\/1 Premier.3 During the relevant time period, Sirius XM
    charged its subscribers $12.95/month for the basic package and $l6.99/inonth for Sirius
    XM Premier, which includes the same channels provided in the basic package, as well as
    additional talk channels. Compl. W 27-28. Sirius XM excluded from gross revenue the
    additional revenue it received from subscriptions to Sirius XM Premier above what it
    would have received if those subscriptions had been for the basic package.
    SoundExchange complains that this was not a proper application of37 C.F.R.
    § 382.l l(3)(vi)(B)’s exclusion for "[c]hannels, programming, products and/or other
    services offered for a separate charge where such channels use only incidental
    performance of sound recordings" because a Sirius XM Premier subscriber pays a single
    fee and does not pay for the additional talk channels with "a separate charge." Pl.’s
    Opp``n at 9-10; Compl. 11 32. SoundExchange contends that this, too, was decided by the
    Satellite 11 court when it stated in a footnote that "the exclusion is available only to the
    " Sirius Xl\/l offers premier packages branded as Sirius Premier, Xl\/l Premier, and Sirius Xl\/l Premier.
    Compl. ij 4 n.l. 1 use "Sirius Xl\/l Premier" to refer to all three packages.
    8
    extent that the channels, programming, products and/or other services are offered for a
    separate charge." Satellite [], 78 Fed. Reg. at 23072 n.45. 1 disagree.
    Unfortunately for SoundExchange, the gross revenue exclusions are ambiguous
    and do not, on their face, make clear whether Sirius Xl\/I’s approaches were permissible
    under the regulations. 1 agree with Sirius XM that these disputes are best suited to review
    in the first instance by the CRB. Although uniformity is not a concern here-Sirius XM
    and SoundExchange are the only two parties affected by the 2007-2012 SDARS rates-
    the technical and policy expertise ofthe CRB makes referral to that body appropriate.
    These are "issues which, under a regulatory scheme, have been placed within the special
    competence of an administrative body." W. Pae. R. Co., 352 U.S. at 64.
    1ndeed, the CRB was established in part for the purpose of determining
    "reasonable rates and terms of royalty payments" between parties like SoundExchange
    and Sirius Xl\/l. 17 U.S.C. § 114(f). lt is composed ofjudges with technical expertise in
    copyright law and economics. See 17 U.S.C. § 802(a)(1) (requiring at least on CRJ to
    have "significant knowledge of copyright law" and another to have "significant
    knowledge of cconomics"). And the expertise relevant to a primary jurisdiction decision
    "is not merely technical but extends to the policyjudgments needed to implement an
    agency’s mandate." Allnet, 965 F.2d at 1 120. Our Circuit has recognized the difficult
    and multifaceted decisions delegated to the policy judgment ofthe CRB:
    First, the agency is required to estimate the effect of the
    royalty rate on the future of the music industry, which
    requires a forecast of the direction in which the future public
    interest lies based on the expert knowledge of the agency.
    Second, the agency has legislative discretion in determining
    9
    copyright policy in order to achieve an equitable division of
    music industry profits between the copyright owners and
    users. Finally, the statutory factors pull in opposing
    directions, and reconciliation of these objectives is committed
    to the agency as part of its mandate to determine reasonable
    royalty rates
    SoundExchange, 1nc. v. Lz'l)rarz``an ofCong., 
    571 F.3d 1220
    , 1223-24 (D.C. Cir. 2009)
    (internal quotation marks, citations, and alterations omitted).
    1n its two prior relevant rate-setting proceedings, the CRB has heard weeks of
    testimony and reviewed scores of exhibits submitted by these two parties and others in
    their industry. See Satellite 1, 73 Fed. Reg. at 4081; Satellite 11, 78 Fed. Reg. at 23054.
    Therefore, the CRJs are "especially familiar with the customs and practices ofthe
    industry and of the unique market-place involved in this case." Rz``ccz`` v. Chz'cago
    Mercantz``le Exclz., 
    409 U.S. 289
    , 305 (1973). When determining and implementing the
    SDARS statutory royalty rates, the CRB sought to achieve the four policy goals
    delineated in the Copyright Act at 17 U.S.C. § 801(b)(1) Whether it set the rates
    intending the types of revenue at issue to be included in or excluded from the gross
    revenue calculation is a question best posed to the CRB itself. To be sure, the issues
    here involve "the Commission’s interpretation ofits own regulations, on which it is owed
    great deference." Allnet, 965 F.2d at 1122.
    Soundl§xchange argues that the CRB already definitively construed both
    provisions at issue in SoundExchange’s favor in the Satellite 11 proceeding. Pl.’s Opp’n
    at 9-1 l, 13. But the construction and application of the Satellite 1 rates were not before
    the CRB in the Satellite 11 proceedings, which were prospective only. lt is true that the
    10
    Satellite 11 panel set forth a different mechanism for dealing with pre-1972 sound
    recordings than Sirius XM had used previously, but whether Sirius Xl\/l’s approach was
    improper such that it owes SoundExchange additional fees for times past is an open
    question ofinterpretation and policy. And Satellite 11 did nothing to clarify whether the
    CRB considers the additional talk channels on Sirius XM Premier to be "offered for a
    separate charge." These questions remain open.
    SoundExchange also questions whether the CRB is authorized to hear the claims
    at issue. Pl.``s Opp``n at 16. Under the Copyright Act, the CRB has "continuing
    jurisdiction" to "issue an amendment to a written determination to correct any technical
    or clerical errors in the determination or to modify the terms, but not the rates, of royalty
    payments in response to unforeseen circumstances that would frustrate the proper
    implementation of such determination." 17 U.S.C. § 803(c)(4). Neither party is asking
    for a change to rates; only a clarification ofthe terms. This is within the CRB’s
    continuingjurisdiction. Ifthe CRB judges Sirius XM’s gross revenue calculations to
    have been improper, SoundExchange can seek damages in this court. 4
    CONCLUSION
    Our Circuit has opined that, "[i]n general, when primaryjurisdiction lies with an
    administrative agency, the district court should stay the proceedings in front ofit, not
    4 Sirius Xl\/l addresses Counts 3 and 4 of the Complaint only in passing, describing them as "small in size
    compared with" the other claims Def.’s Mem. at 9 n.4. lt argues that "to the extent the doctrine of
    primaryjurisdiction counsels this Court’s deference to the CRB on the principal issues in this case, it
    counsels deference on these less significant issues as well." Id. On the pleadings, 1 cannot discern
    whether these are issues that would invoke the CRB’s technical expertise or policyjudgments They will
    be stayed while the case as a whole is stayed, and 1 leave it up to the parties to determine whether to
    present the issues underlying Counts 3 and 4 to the CRB.
    ll
    dismiss the suit." Arn. Ass ’n ofCruz``se Passengers v. Cunarcl Line, Ltcl., 
    31 F.3d 1184
    ,
    1 187 (D.C. Cir. 1994). Thus, in the absence of any strong argument to dismiss the case
    without prejudice and for all the foregoing reasons, defendant’s motion to stay the action
    [Dkt. #13] is GRANTED. The case shall be STAYED pending a decision by the
    Copyright Review Board. An appropriate order shall accompany this Memorandum
    %``..tsi..t/
    RICHAR§CL_LECN
    United States District Judge
    ()pinion.
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