IP Law Daily, COPYRIGHT—S.D.N.Y.: Radio stations denied ASCAP licenses until they pay outstanding fees, (Jul 12, 2018)

By Thomas Long, J.D.

Three radio stations that had allowed their licenses with the American Society of Composers, Authors, and Publishers (ASCAP) to lapse six years earlier, but continued to play music from the ASCAP repertory, cannot seek interim ASCAP licenses from the federal district court in New York City (the designated ASCAP rate court), unless the stations pay ASCAP outstanding royalties of over $319,000, the court has decided. On ASCAP’s motion, the court decided to dismiss the interim license application proceeding on July 20 unless the stations pay ASCAP the fees that they indisputably owed. Pursuant to the most recent version of the consent decree governing ASCAP’s operations, the organization was not required to issue a license to any party that was in breach of a license through its failure to pay fees (In the Matter of the Application of Major Market Radio, LLC, July 11, 2018, Cote, D.).

In August 2012, ASCAP terminated its licenses for the three Nevada-based station operators—Major Market Radio, LLC, Golden State Broadcasting, LLC, and Silver State Broadcasting, LLC—due to their failure to pay licensing fees. The stations were located in Palm Desert, California, Alameda County, California, and North Las Vegas, Nevada, and were controlled by the same person operating through various companies. Despite lacking a license, the stations kept playing ASCAP music. Earlier this year, a jury found that the station operators engaged in willful infringement of copyrights held by ASCAP’s members. A week after the verdict, the stations applied to ASCAP for a license for the first time since the termination of their licenses in 2012. ASCAP denied the application, stating that the stations had to pay outstanding fees first. The stations then filed an application seeking an interim license from the court, and ASCAP moved to dismiss the proceeding.

ASCAP—an unincorporated organization of music copyright holders that coordinated the licensing of musical works and the distribution of royalties for the public performance of those works—has operated since 1941 under a consent decree stemming from a Department of Justice antitrust lawsuit. The most recent version of the consent decree ("AFJ2") contains mechanisms to regulate ASCAP’s issuance of licenses and the fees charged for them. AFJ2 provided that "ASCAP is hereby ordered and directed to grant to any music user making a written request therefor a non-exclusive license to perform all of the works in the ASCAP repertory." There is a key exception to this provision, however, known as the "Nonpayment Exception." Under this exception, ASCAP is not required to issue a license to any party that was in material breach or default of any license agreement by failing to pay fees that it indisputably owed to ASCAP. AFJ2 also provided for a procedure to resolve disputes over the amount of a reasonable fee, through which either side may bring the dispute to a "rate court." The Southern District of New York is, at present, the designated rate court.

ASCAP contended that it was owed $319,349.50 in outstanding fees and was not required to issue licenses to the stations until that amount was paid, pursuant to the Nonpayment Exception. The stations acknowledged that they owed money to ASCAP, but they offered to pay only $14,248.47. The court noted that the station operators held ASCAP licenses from 2009 until August 21, 2012. The stations made no or minimal payments to ASCAP during that time and therefore owed licensing fees to ASCAP throughout that period. Those failures to pay were material breaches of the licensing agreements, the court said, adding that there was no reasonable dispute as to the amounts owed. The amounts were calculated pursuant to formulae contained in agreements between ASCAP and the Radio Music License Committee (RMLC), and the stations did not suggest that ASCAP’s calculations were in error.

The stations first argued that as long as there was any bona fide dispute over any portion of the fees due to ASCAP, they were entitled to an interim license while they applied for a new license. The court disagreed. Because there was a material breach, the existence of a dispute over the amount of fees did not affect ASCAP’s ability to rely on the Nonpayment Exception. ASCAP had no obligation to issue a license to a station that owed fees for earlier licensed periods.

The stations also contended that the amounts that ASCAP asserted were owed by two of the stations for 2009 and 2011 were not "indisputably" owed because ASCAP calculated those fees under the wrong formula. According to the stations, they were entitled to the fee formulae that applied to new stations. In the court’s view, this argument did not provide a reasonable basis for disputing fees. The stations did not meet the definition of "new" stations in the ASCAP-RMLC agreements. The station operators had obtained the stations’ broadcasting licenses from their prior owners; they were existing radio stations that changed hands, not newly formed stations.

The court rejected the stations’ argument that the amount now demanded by ASCAP—a signification portion of which was interest and finance charges—was unconscionable and unreasonable. Even if this argument did not run afoul of AFJ2’s prohibition against discrimination in fee schedules among similarly situated licensees, the fees sought by ASCAP were not unconscionable, the court said. The station operators were or should have been aware when they purchased the stations of their ASCAP fee basis. The fact that the station operators were disappointed by the revenue streams from the stations did not entitle them to withhold fee payments.

Accordingly, the court concluded that the stations indisputably owed $319,349.50 to ASCAP, and decided that the proceeding seeking interim licenses would be dismissed on July 20 unless the stations paid ASCAP that amount before that date.

The case is No. 1:18-cv-04255-DLC.

Attorneys: Dariush Ghaffar Adli (Adli Law Group, PC) for Major Market Radio, LLC, Golden State Broadcasting, LLC, and Silver State Broadcasting, LLC. Jay Cohen (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for American Society of Composers Authors and Publishers.

Companies: Major Market Radio, LLC; Golden State Broadcasting, LLC; Silver State Broadcasting, LLC; American Society of Composers Authors and Publishers

Cases: Copyright NewYorkNews