Digital Music Provider Can Operate During Court Dispute

When MediaNet Digital Inc. (then MusicNet) formed in 2001, it billed itself as a 'legitimate' alternative to hubs for illegal downloading. Since then, MediaNet has spent $130 million in royalties to build a library of roughly 15 million songs and counting, which it then licenses to subscription-based music services like MOG and iMesh. Like most 'legit' digital music services, MediaNet has yet to make a cent in profit. In fact, MediaNet offers a fascinating example of the recording industry's struggles to adapt to the digital age.

Given the heavy price MediaNet is paying for the right to sell its licenses, you can imagine its frustration when a group of small music publishers and musicians slapped the company with a copyright infringement suit in federal court in Manhattan last year, claiming that MediaNet has failed to pay 'mechanical royalties' on some of the songs in the sound recordings in its library.

The plaintiffs moved for an injunction that would have shut MediaNet down pending the litigation. But in July 2012, District Judge Paul Gardephe of the U.S District Court for the Southern District of New York rejected the injunction bid, handing the company a key early victory in the case. Judge Gardephe ruled that while MediaNet may be engaging in 'isolated incidents' of copyright infringement, the risk of continued infringement is not enough to meet the requirement for injunctive relief of showing irreparable injury. And in any case, the judge found that the plaintiffs could easily seek money damages based on carefully tracked streams and downloads. Appalseed Productions Inc. v. MediaNet Digital Inc., 11 Civ. 5922.

The music publisher plaintiffs are represented by a small firm in Mt. Juliet, TN, called Grauberger & Greene Associates that has made a name for itself bringing copyright infringement claims against legal online music services. In the MediaNet case, the firm alleged infringement of 230 songs owned by its music publishing clients. The plaintiffs acknowledge that MediaNet has paid for public performance licenses that grant permission to play the sound recordings. But they argue that for certain songs MediaNet has failed to take out mechanical licenses that grant permission to reproduce the songs in sound recordings.

It's long been an open question whether on-demand music streaming sites, like the ones MediaNet does business with, even need mechanical licenses, because the song files are never permanently transferred onto a user's computer. Despite the ambiguity in the law, at least three tech companies that operate digital music services ' Microsoft, Yahoo! Inc. and RealNetworks Inc. ' have settled similar claims brought by Grauberger & Greene. It's possible the companies, which preach the importance of music downloading 'going legit,' didn't want to risk an embarrassing copyright infringement verdict. The settlement amounts were undisclosed.

Grauberger & Greene's bid to wrest a similar settlement from MediaNet is now off to a slow start. Gardephe didn't rule on the likelihood that the case would succeed on the merits, but he wasn't impressed by the plaintiffs' arguments that MediaNet's activities were causing grave injury. As early as 2002, MediaNet began sending notices of intent (NOIs) to secure 'compulsory licenses' under the Copyright Act for use of songs in sound recordings, including many of works named in the plaintiffs' complaint.

Judge Gardephe noted that by 'November 2008, the copyright administrator for all but one of the Plaintiffs acknowledged receipt of the NOIs. Even if this Court were to accept Plaintiffs' argument that the NOIs are facially defective, they appear to have put Plaintiffs on notice ' two and a half years before the preliminary injunction motion was filed ' that Defendants were using or intending to use Plaintiffs' compositions. Such a delay in seeking a preliminary injunction weighs against a finding of irreparable harm.'

'The judge made exactly the right decision ' there's simply no way you can get to irreparable harm on these facts,' Arent Fox partner Paul Fakler, MediaNet's lead counsel in New York, says: 'We're talking about one of the first legitimate digital music services, which has paid an extraordinary amount of its revenue toward licensing. In a scenario like this, even if a couple tracks did slip through the cracks out of 15 million, is an injunction really an appropriate remedy?'

Grauberger & Greene name partner Stephen Grauberger did not return a call seeking comment.

When MediaNet Digital Inc. (then MusicNet) formed in 2001, it billed itself as a 'legitimate' alternative to hubs for illegal downloading. Since then, MediaNet has spent $130 million in royalties to build a library of roughly 15 million songs and counting, which it then licenses to subscription-based music services like MOG and iMesh. Like most 'legit' digital music services, MediaNet has yet to make a cent in profit. In fact, MediaNet offers a fascinating example of the recording industry's struggles to adapt to the digital age.

Given the heavy price MediaNet is paying for the right to sell its licenses, you can imagine its frustration when a group of small music publishers and musicians slapped the company with a copyright infringement suit in federal court in Manhattan last year, claiming that MediaNet has failed to pay 'mechanical royalties' on some of the songs in the sound recordings in its library.

The plaintiffs moved for an injunction that would have shut MediaNet down pending the litigation. But in July 2012, District Judge Paul Gardephe of the U.S District Court for the Southern District of New York rejected the injunction bid, handing the company a key early victory in the case. Judge Gardephe ruled that while MediaNet may be engaging in 'isolated incidents' of copyright infringement, the risk of continued infringement is not enough to meet the requirement for injunctive relief of showing irreparable injury. And in any case, the judge found that the plaintiffs could easily seek money damages based on carefully tracked streams and downloads. Appalseed Productions Inc. v. MediaNet Digital Inc., 11 Civ. 5922.

The music publisher plaintiffs are represented by a small firm in Mt. Juliet, TN, called Grauberger & Greene Associates that has made a name for itself bringing copyright infringement claims against legal online music services. In the MediaNet case, the firm alleged infringement of 230 songs owned by its music publishing clients. The plaintiffs acknowledge that MediaNet has paid for public performance licenses that grant permission to play the sound recordings. But they argue that for certain songs MediaNet has failed to take out mechanical licenses that grant permission to reproduce the songs in sound recordings.

It's long been an open question whether on-demand music streaming sites, like the ones MediaNet does business with, even need mechanical licenses, because the song files are never permanently transferred onto a user's computer. Despite the ambiguity in the law, at least three tech companies that operate digital music services ' Microsoft, Yahoo! Inc. and RealNetworks Inc. ' have settled similar claims brought by Grauberger & Greene. It's possible the companies, which preach the importance of music downloading 'going legit,' didn't want to risk an embarrassing copyright infringement verdict. The settlement amounts were undisclosed.

Grauberger & Greene's bid to wrest a similar settlement from MediaNet is now off to a slow start. Gardephe didn't rule on the likelihood that the case would succeed on the merits, but he wasn't impressed by the plaintiffs' arguments that MediaNet's activities were causing grave injury. As early as 2002, MediaNet began sending notices of intent (NOIs) to secure 'compulsory licenses' under the Copyright Act for use of songs in sound recordings, including many of works named in the plaintiffs' complaint.

Judge Gardephe noted that by 'November 2008, the copyright administrator for all but one of the Plaintiffs acknowledged receipt of the NOIs. Even if this Court were to accept Plaintiffs' argument that the NOIs are facially defective, they appear to have put Plaintiffs on notice ' two and a half years before the preliminary injunction motion was filed ' that Defendants were using or intending to use Plaintiffs' compositions. Such a delay in seeking a preliminary injunction weighs against a finding of irreparable harm.'

'The judge made exactly the right decision ' there's simply no way you can get to irreparable harm on these facts,' Arent Fox partner Paul Fakler, MediaNet's lead counsel in New York, says: 'We're talking about one of the first legitimate digital music services, which has paid an extraordinary amount of its revenue toward licensing. In a scenario like this, even if a couple tracks did slip through the cracks out of 15 million, is an injunction really an appropriate remedy?'

Grauberger & Greene name partner Stephen Grauberger did not return a call seeking comment.