SESAC Faces Narrower Claim For Anti-Trust

In November 2009, the television broadcaster plaintiffs sued SESAC in federal court in Manhattan, alleging that local television stations can't avoid airing songs in the SESAC catalogue because many appear in popular syndicated programming. The broadcasters claimed that since 2008, SESAC has taken steps to make its “all or nothing” blanket license the only viable option to get rights to its affiliates' music.

Southern District Judge Naomi Buchwald, who was originally assigned the case, denied SESAC's motion to dismiss in March 2011, finding that the plaintiffs had plausibly alleged violations of ” 1 and 2 of the Sherman Act. Now, District Judge Paul Englemayer denied SESAC's motion for summary judgment. Judge Englemayer found that while the evidence didn't support the plaintiffs' claim of a broad conspiracy to restrain trade among all of SESAC's more than 20,000 composer and musician affiliates, there were triable antitrust claims with a small but important subset of them.

Judge Englemayer found that music composers embedded in such syndicated hits as Seinfeld , Grey's Anatomy , Entertainment Tonight and Dr. Phil have entered supplemental agreements with SESAC ' some offering guarantees and advances in excess of $1 million. Those agreements expose the composers to large penalties if they opt to directly license their copyrights to broadcasters.

Judge Englemayer observed: “The parties make competing arguments whether these agreements are pro- or anti-competitive. But the decisive point as to the standard of review is that these agreements do not fall within any recognized category of per se unlawful conduct. They are not pure horizontal agreements among competitors to fix prices of the sort condemned per se , but instead have a significant vertical dimension: Pursuant to the supplemental agreement, the affiliates give SESAC the right to license their works, including to television stations, but are penalized for issuing direct licenses to these same stations. As such, the supplemental agreements can be fairly classified as 'vertical price restraints ' to be judged according to the rule of reason.'”

“This holding does not diminish the force of plaintiffs' claim that SESAC's supplemental agreements are in fact highly anti-competitive,” the district judge continued, “in that they squelch an obvious form of competition with the blanket license.”

“A finder of fact could reasonably conclude that these affiliates entered into these agreements with SESAC with the intention of insulating SESAC's blanket license product from competition,” Judge Englemayer wrote. Though the district judge denied SESAC's motion for summary judgment, he narrowed the broadcasters' claims by rejecting their per se theory of liability under '1 of the Sherman Act and finding that claims of agreeing to restrain trade should apply only to composers who had supplemental agreements with SESAC.

Both Sides Claim Victory

R. Bruce Rich of Weil, Gotshal & Manges represents the plaintiffs in the New York case, owners of local commercial television stations including Meredith Corp. and The E.W. Scripps Co. that are seeking class action status. Rich said his clients are “gratified that Judge Englemayer has recognized that SESAC has engaged in a course of conduct that a jury could find violates the antitrust laws.” He added, “We're looking forward to an early trial in order to prove that out.”

Susan Kohlmann of Jenner & Block, counsel to SESAC, also claimed at least a partial victory. “We are heartened that the court significantly narrowed the scope of the plaintiffs' claims in this case,” Kohlmann said in an e-mailed statement. “Although we are disappointed that summary judgment was not granted in full, we believe that SESAC ultimately will prevail on the portions of the suit that remain.”

In the Pennsylvania case, in December a federal magistrate judge in Philadelphia found that the Radio Music License Committee (RMLC), which negotiates licenses for radio broadcasters, was likely to succeed at trial in pressing antitrust claims against SESAC. The judge stopped short, however, of recommending an injunction barring rate increases by SESAC, finding that the RMLC had failed to establish irreparable harm. Radio Music License Committee Inc. v. SESAC Inc., 2:2012cv05807 (E.D. Pa.). Latham & Watkins represents the RMLC in that matter.

Ross Todd is a Reporter for the Litigation Daily, an ALM sibling of Entertainment Law & Finance.

The U.S. District Court for the Southern District of New York refused to throw out part of an antitrust class action brought by television station owners against SESAC, the music licensing organization that represents about 20,000 composers. Meredith Corp. v. SESAC LLC, 09 Civ. 9177. The ruling came just three months after a magistrate judge in Pennsylvania ruled that radio broadcasters are likely to prevail on similar claims against SESAC.

Like the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI), SESAC is a performing rights organization that serves as a clearinghouse for licensing copyrighted music on behalf of composers and musicians. Unlike its much larger competitors, SESAC is not subject to consent decrees with the U.S. Department of Justice. That means SESAC, unlike BMI and ASCAP, isn't forced into a “rate court” proceeding whenever it disagrees with licensees over fees. But that doesn't mean it's immune from private antitrust claims.

Case Background

In November 2009, the television broadcaster plaintiffs sued SESAC in federal court in Manhattan, alleging that local television stations can't avoid airing songs in the SESAC catalogue because many appear in popular syndicated programming. The broadcasters claimed that since 2008, SESAC has taken steps to make its “all or nothing” blanket license the only viable option to get rights to its affiliates' music.

Southern District Judge Naomi Buchwald, who was originally assigned the case, denied SESAC's motion to dismiss in March 2011, finding that the plaintiffs had plausibly alleged violations of ” 1 and 2 of the Sherman Act. Now, District Judge Paul Englemayer denied SESAC's motion for summary judgment. Judge Englemayer found that while the evidence didn't support the plaintiffs' claim of a broad conspiracy to restrain trade among all of SESAC's more than 20,000 composer and musician affiliates, there were triable antitrust claims with a small but important subset of them.

Judge Englemayer found that music composers embedded in such syndicated hits as Seinfeld , Grey's Anatomy , Entertainment Tonight and Dr. Phil have entered supplemental agreements with SESAC ' some offering guarantees and advances in excess of $1 million. Those agreements expose the composers to large penalties if they opt to directly license their copyrights to broadcasters.

Judge Englemayer observed: “The parties make competing arguments whether these agreements are pro- or anti-competitive. But the decisive point as to the standard of review is that these agreements do not fall within any recognized category of per se unlawful conduct. They are not pure horizontal agreements among competitors to fix prices of the sort condemned per se , but instead have a significant vertical dimension: Pursuant to the supplemental agreement, the affiliates give SESAC the right to license their works, including to television stations, but are penalized for issuing direct licenses to these same stations. As such, the supplemental agreements can be fairly classified as 'vertical price restraints ' to be judged according to the rule of reason.'”

“This holding does not diminish the force of plaintiffs' claim that SESAC's supplemental agreements are in fact highly anti-competitive,” the district judge continued, “in that they squelch an obvious form of competition with the blanket license.”

“A finder of fact could reasonably conclude that these affiliates entered into these agreements with SESAC with the intention of insulating SESAC's blanket license product from competition,” Judge Englemayer wrote. Though the district judge denied SESAC's motion for summary judgment, he narrowed the broadcasters' claims by rejecting their per se theory of liability under '1 of the Sherman Act and finding that claims of agreeing to restrain trade should apply only to composers who had supplemental agreements with SESAC.

Both Sides Claim Victory

R. Bruce Rich of Weil, Gotshal & Manges represents the plaintiffs in the New York case, owners of local commercial television stations including Meredith Corp. and The E.W. Scripps Co. that are seeking class action status. Rich said his clients are “gratified that Judge Englemayer has recognized that SESAC has engaged in a course of conduct that a jury could find violates the antitrust laws.” He added, “We're looking forward to an early trial in order to prove that out.”

Susan Kohlmann of Jenner & Block, counsel to SESAC, also claimed at least a partial victory. “We are heartened that the court significantly narrowed the scope of the plaintiffs' claims in this case,” Kohlmann said in an e-mailed statement. “Although we are disappointed that summary judgment was not granted in full, we believe that SESAC ultimately will prevail on the portions of the suit that remain.”

In the Pennsylvania case, in December a federal magistrate judge in Philadelphia found that the Radio Music License Committee (RMLC), which negotiates licenses for radio broadcasters, was likely to succeed at trial in pressing antitrust claims against SESAC. The judge stopped short, however, of recommending an injunction barring rate increases by SESAC, finding that the RMLC had failed to establish irreparable harm. Radio Music License Committee Inc. v. SESAC Inc., 2:2012cv05807 (E.D. Pa.). Latham & Watkins represents the RMLC in that matter.

Ross Todd is a Reporter for the Litigation Daily, an ALM sibling of Entertainment Law & Finance.