SoundExchange royalties dispute with Music Choice to be referred to Copyright Royalty Board

Michael Huppe, President and CEO at Sound Exchange

On Monday (December 20), US performance rights organization SoundExchange secured a legal victory in a royalties battle with US television service Music Choice.

The court decided that the case will be referred to the Copyright Royalties Board (CRB), rather than it being heard in Federal court.

SoundExchange launched a lawsuit against Music Choice to recover underpaid royalties in April 2019, following an audit of Music Choice’s royalty statements.

At the time, SoundExchange claimed that “Music Choice systematically underreported its Gross Proceeds”, leading to underpayment to SoundExchange for statutory royalties related to its business establishment service (BES).

Music Choice relies on a statutory license to obtain the rights to use sound recordings in its BES.

Currently, the basic royalty rate for a BES, decided by the CRB, is “12.5% of [the] Licensee’s ‘Gross Proceeds’” derived from the use in such service of musical programs that are attributable to copyrighted recordings.”

SoundExchange engaged an independent auditor to verify the royalty statements provided by Music Choice for its BES during the period of January 1, 2013 through December 31, 2016 and claims to have found it was that wasn’t paying the correct royalties for its use of sound recordings.

SoundExchange argues that the legal action should be referred to the CRB “under the doctrine of primary jurisdiction” because “[t]he Board has the expertise and jurisdiction necessary to resolve the parties’ dispute over interpretation of the Board’s royalty rate regulation”.

In his written comments, which you can read in full here, Judge Reggie B. Walton of the U.S. District Court for the District of Columbia explains that “the doctrine of primary jurisdiction … is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties”.

As first reported by Law360, Music Choice disagrees that the doctrine of primary jurisdiction should be invoked in this instance, and also notes that the issue shouldn’t be referred to the CRB because the Board “does not have any authority to enforce the statutory license regulations or resolve payment disputes”.

Music Choice also claims that “the questions presented by this case”, which relate to the “interpretation of regulations and statutes of that authority to the unique facts of this case, are of the sort that district courts routinely resolve”.

“It is absolutely appropriate for the Court to refer disputes over ambiguous statutory or regulatory interpretation to the Board.”

Judge Reggie B. Walton

Commenting on Music Choice’s argument that the CRB doesn’t have the authority to determine the outcome of this case, Walton writes that “Music Choice’s contrary interpretation would result in the following illogical outcome: although the board would retain continuing jurisdiction over its own determinations, it would be unable to correct errors or respond to unforeseen circumstances arising out of older determinations.”

Added Walton: “It is absolutely appropriate for the Court to refer disputes over ambiguous statutory or regulatory interpretation to the Board when in the Court’s discretion the Board is best suited to offer guidance in the first instance due to its expertise.”

Walton concluded:  “In sum, the balance of all the relevant factors, including judicial economy, weigh in favor of referring the question of regulatory interpretation raised by this case to the Board pursuant to the doctrine of primary jurisdiction.”

“Music Choice’s actions reflect a persistent effort to avoid paying royalties for its use of protected sound recordings.”

Colin Rushing, SoundExchange, speaking in 2019

In 2019, when SoundExchange launched the legal action, then Senior Vice President and General Counsel (and now Cheif Legal Officer), Colin Rushing, said: “Music Choice’s actions reflect a persistent effort to avoid paying royalties for its use of protected sound recordings.

“Its creative accounting has cheated creators out of the royalties they are due and is inconsistent with the Copyright Royalty Board’s regulations.”

“We hope this action will compel Music Choice to pay the royalties that are due to music creators and to change its practices moving forward.”

In April last year Sound Exchange announced that it has distributed more than $7 billion in total royalties to music creators since its creation in 2003.Music Business Worldwide