District Court Dismisses Lawsuit over Royalty Rates Against Muzak

On March 7, 2016, Wilson Sonsini Goodrich & Rosati secured a dismissal with prejudice for Muzak—a subsidiary of Mood Media that provides subscription-based digital music services for satellite television providers—in a lawsuit originally filed in April 2015 in which SoundExchange alleged that Muzak was improperly calculating the royalties it paid for transmitting sound recordings by misusing provisions for preexisting subscription services specified in the Digital Millennium Copyright Act.

The Digital Millennium Copyright Act of 1998 (DMCA) created a framework under which most subscription music services would have their statutory rates for performing sound recordings set by a fair market value standard. However, the statute allowed a handful of "preexisting subscription services," including Muzak, to continue paying royalties under a rate standard intended to protect the reliance interests of Muzak and others arising from the significant investments made in developing a new form of music distribution.

In 2011, Muzak was purchased by Mood Media, which in turn also purchased DMX, a Texas-based company that provided music for cable and satellite television networks. DMX had previously been licensing music and paying royalties under a different statutory standard than that relied upon by Muzak. In 2014, Muzak acquired the right to service customers previously serviced by DMX and began paying for transmissions to DMX's prior customers under Muzak's preexisting subscription service rates. SoundExchange sued, arguing that Muzak was not entitled to acquire any new customers and could only pay preexisting subscription royalty rates for its original customer, the DISH Network.

The U.S. District Court for the District of Columbia rejected SoundExchange's arguments and agreed with Muzak that the preexisting subscription service rates applied to any customers serviced by Muzak that were similar in nature to those previously serviced by Muzak. The court explained that the DCMA "provides a mechanism for the preexisting subscription service to notify the appropriate authority that there is a new type of service and essentially obtain a ruling about whether transmissions on this new type of service may also fall under the preexisting subscription services rate." The court reasoned that this provision (and other aspects of the statute) provided "clear evidence that Congress did at least intend for a preexisting subscription service to be able to provide some 'new type' of service and still utilize the preexisting subscription service royalty rate." Accordingly, the court dismissed the case against Muzak with prejudice.

The Wilson Sonsini Goodrich & Rosati team representing Muzak in the matter includes partners Gary Greenstein and Brian Willen and associate Michael Petrocelli.

For more information, please refer to the court's opinion.