SoundExchange, RIAA and A2IM are among several music organizations to join an amicus brief arguing that the pending class-action settlement between members of the Turtles and SiriusXM over pre-1972 recordings should not be approved in its present form.
According to the filing, made March 1 in the U.S. Central District Court of California, the organizations argued that the proposed settlement could impact future rate-setting proceedings, as well as the ways pre-1972 recordings are valued and licensed. The brief was filed by Jenner & Block LLP on behalf of Sound Exchange, RIAA, A2IM, AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund, American Federation of Musicians of United States and Canada and SAG-AFTRA.
The settlement, struck in December, provided that SiriusXM would pay the Turtles class action group $25-40 million dollars, depending on how the class action suit turned out in three states. The Turtles won in California and New York, but those results are under appeal. In Florida, the “Happy Together” group lost but has also appealed.
The settlement provided for a ten-year license for recordings of class action participants, which would be paid at a rate of 5.5 percent of revenue if the Turtles suit prevailed in all three states. At that percentage, the settlement could result in as much as a $59 million payout.
The suit came about because the U.S. had no master-recording copyright until 1972, and Sirius argued that for that reason, it had no obligation to pay for playing those recordings. Because of this loophole, they have been deducting money for the pro-rata share of performances from those recordings every year from payments made to Sound Exchange, the record labels and performers. Copyright holders, like the Turtles in their class-action suit, argue that while there is no Federal law for pre-1972 recordings, they are protected by state law, which is why so far suits have been filed against SiriusXM in those three states.
After the Turtles class-action lawsuit prevailed in California, Sirius agreed to a settlement with the major labels and ABKCO to the tune of $210 million in June 2015. So, while the majors gained a windfall, the Turtles class action lawsuit still had to slug it out in court, until it finally scored the settlement in December. Even with that outcome, the suits continue because the settlement merely acts as insurance, capping out what Sirius could pay if it loses, while guaranteeing at least some kind of payment for members of the Turtles class-action suit.
The amicus filing says that record labels and performer organizations have “deep misgivings about the prospective relief embedded in the Turtles settlement, including the assertion that it identifies a ‘market rate,'” which could be used as evidence in future rate proceedings.
The RIAA, SoundExchange, A2IM and the other organizations argue that the settlement “would impose a steep discount from the rate that Sirius XM pays for federally protected recordings — i.e., those made after 1972 when the master recording copyright was created.”
Sirius pays 11 percent of gross revenue, while the settlement calls for the class to receive its pro-rata share of 5.5 percent of revenue, or half the going rate paid this year.The Copyright Royalty Board is currently holding rate court proceedings to determine what the rate should be for the 2018-2022 period. SoundExchange has proposed a rate of 23 percent of revenue, while Sirius initially proposed a rate of 8.1-11 percent, or in other words, a rate reduction. In December, major labels executives told Billboard they fear that Sirius will use the settlement market rate to their benefit in the CRB proceeding and thus win a lower rate than the radio service is currently paying.
Now, sources say SiriusXM is trying to use this market rate to receive a more favorable royalty rate in the CRB proceeding. They also argue the court should not endorse the settlement as a “market” rate — one struck between a willing buyer and willing seller.
The rate set forth in the agreement calls for 5.5 percent on a going forward basis and has a mechanism to be further discounted based on whether the Turtles class action wins appeals in all three states where the litigation was ongoing. The rate declines by 2 percent if the Turtles lose in New York, which they just did; and another 1.5 percent if they lose the appeal in Florida. So with the New York loss, the going forward rate now stands at 3.5 percent.
While major label executives were immediately wary of the rate-setting mechanism in the settlement, one executive on the Turtles’ side of the class action said that their concerns are misplaced. That executive argued that the 5.5 percent rate covers three states with 13 percent of Sirius listeners. If that rate was extrapolated out across all 50 states, it implies a rate of 38.5 percent of revenue.
The amicus filing argues that if the class actions constitute 5 percent of SiriusXM sound recording performances, in terms of gross revenues, the payout would equal less than three-tenths of one percent of SiriusXM’s gross revenues, which would further be discounted by the deduction of attorney fees awarded to class counsel, Gradstein & Marzano.
This is not a market rate, but well below it, according to the filing.
The amicus says that the class action plaintiffs no doubt agreed to settle at reduced rates due to the costly and uncertain prospects of multiple state court litigation, not because those rates reflect what would happen in the marketplace.
Most direct licenses are for a few years, while the CRB proceedings occur every five years. “Simply put a license spanning 10 years is inconceivable as the product of a transaction between a willing buyer and willing seller.” That provision basically saddles “a class of copyright owners with what amounts to a 10-year compulsory license,” the filing states.
The filing argues that the settlement uses the class action mechanism to put in place what is fundamentally a policy solution to an industry-wide problem, not a solution appropriate for judicial adoption.
While members of the class-action suit can opt out, they probably are focusing on the payday instead of the long-term implications of the deal, according to the filing. But it’s possible they aren’t considering that the settlement provides SiriusXM with ammunition to possibly secure lower rates in future proceeding, which will harm copyright owners and performers outside the class.
That’s why, they argue, the settlement should not be approved without changes to address these deficiencies.