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Slacker Says $10M Judgment Might Cause Severe Financial ‘Damage,’ But SoundExchange Doesn’t Care

"Five years is long enough" to wait for millions in unpaid royalties, SoundExchange told a federal judge.

Slacker is pleading with a judge to overturn his recent ruling requiring the streamer to pony up $10 million in unpaid royalties, arguing it will cause the company economic ruin. But SoundExchange says it is merely the company’s “latest attempt to shirk their obligations.”

The two have been battling in court since June over allegations that Slacker’s parent LiveOne — formerly LiveXLive — owes millions to artists and labels. Earlier this month, SoundExchange demanded — and quickly won — a ruling from Judge André Birotte Jr. that LiveOne must pay up the full $9,765,396 in unpaid royalties.

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Faced with that massive judgment, Slacker now says that SoundExchange’s demand for full payment was an unfair tactic and must be overturned — or risk permanently harming its financials: “This economic damage this will cause LiveOne will be unsustainable for this small company.”

But SoundExchange is unimpressed. In a response, the company says that LiveOne has “steadfastly” avoided paying for music for years, and that harsh measures are “necessary to protect performing artists.”

“The court should deny defendants’ latest attempt to shirk their obligations with the promise that next time will be different,” SoundExchange’s lawyers wrote.

“Refusing To Pay”

SoundExchange, which collects performance royalties for sound recording copyrights, sued LiveOne in June, claiming the company had stopped paying artists and labels way back in 2017. And it claimed that a subsequent audit revealed it had been underpaying for years before that.

Court records show the two sides entered into the repayment plan in 2020, which gave Slacker two years to pay its debts. But in the June lawsuit, the SoundExchange claimed that Slacker had quickly failed to live up to the terms of the agreement.

“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” SoundExchange president and CEO Michael Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”

Just a few months into the litigation, SoundExchange played an unusual legal trump card. On Oct. 12, the group invoked a pre-signed judgment, which had been inked by execs at Slacker back in 2020 as part of the repayment plan. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a so-called judgment against the company for the full sum owed.

On Oct. 13, Judge Birotte Jr. did exactly that, ordering the Slacker to pay $9,765,396, which covered both unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, an important federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.

“Economic Damage”

Faced with that huge debt, LiveOne responded last week with a motion seeking to “set aside the judgment” and asking the judge order the two companies into settlement talks – a move they say will allow them to reach “a fair payment schedule.”

LiveOne’s lawyers said they had been engaged in “ongoing and fruitful negotiations” for a new repayment plan when SoundExchange had suddenly invoked the pre-signed consent judgment. They argued the move came only because LiveOne did not agree to “a complete acceptance” of SoundExchange’s “last and final” settlement offer.

More startlingly, LiveOne’s lawyers said SoundExchange’s big judgment had quickly caused other creditors to call in other debts owed, threatening “economic damage” to the company that would be “unsustainable.”

“Plaintiff’s surreptitious request for entry of judgment has triggered LiveOne’s default on two substantial senior secured notes which are secured by all of LiveOne’s and their subsidiaries assets,” LiveOne’s lawyers wrote. “If LiveOne does not promptly discharge SoundExchange’s default judgment, the secured creditors will accelerate the loans and call for immediate repayment of principal and unpaid interest.”

A rep for LiveOne did not immediately return a request for comment on the filing or for elaboration on its claims about the company’s finances.

“Long Enough”

In a new filing this week, SoundExchange offered no apologies for playing hardball with LiveOne. It said it had spent years “indulging” the company’s “many excuses for non-payment,” and that it had simply become time for the streamer to be legally forced to pay up.

“Five years is long enough,” the group wrote. “SoundExchange has no obligation to negotiate ad infinitum with defendants, who have demonstrated at every opportunity that they will leverage the creativity of others without compensation.”

SoundExchange’s lawyers said the group had been “initially amenable” to working out another deal, but that their patience quickly ran out: “Facing stalled settlement negotiations and an apparent unwillingness to abide by their contractual, statutory, or judicial obligations, that willingness had limits.”

As for LiveOne’s warnings that such a ruling might destroy the company, SoundExchange was skeptical. The group’s lawyers pointed out that LiveOne had missed key deadlines in the case, and had waited months to hire litigation attorneys to deal with the lawsuit.

“Defendants’ contention that the judgment poses an existential threat to their business is difficult to square with their lackadaisical approach to finding counsel and subsequent non-adherence to the court’s deadlines,” they wrote.

And if things really are as bad LiveOne’s attorneys claim, SoundExchange said it’s all the more reason for a final judgment to be entered against the company.

“Every hour defendants divert consumers who might otherwise use a different, royalty-paying digital music streaming service, thereby depriving rightsholders of royalties to which they are entitled,” the group wrote. “If Defendants’ dire financial situation is to be believed, artists may never see those royalties.”