Case 1:13-cv-01290-RJL Document 22 Filed 08/26/14 Page 1 of 12
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`UNITED STATES DISTRICT COURT
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`FOR THE DISTRICT OF COLUMBIA
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`SOUNDEXCHANGE, INC.,
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`Plaintiff,
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`v.
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`SIRIUS XM RADIO INC.,
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`Case No. 1:13 cv 1290 (RJL)
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`F I L E D
`Au; 2 5 2014
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`MEMORANDUM OPINION
`(August
`, 2014) [Dkt_ #13]
`
`Clerk, u.S. District & Bankruptcy
`Courtsfor the District of Columbia
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`Plaintiff Soundlixchange, Inc. (“SoundExchange”) brings this action against
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`defendant Sirius XM Radio Inc. (“Sirius XM”) in an effort to recover royalties
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`SoundF,xchange claims it is owed under the Copyright Act. See generally Compl. [Dkt.
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`#1]. Sirius XM moves to dismiss the Complaint, or, in the alternative, stay the action,
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`pursuant to the doctrine of primary jurisdiction. Def. Sirius XM Radio Inc.’s Mot. to
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`Dismiss Pl.’s Compl. (“Def.’s Mot”) [Dkt. #13]; Def. Sirius XM Radio Inc.’s Mem. of
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`Law in Support ofits Mot. to Dismiss at 2 (“Def.’s Mem.”) [Dkt. #13—1]. After review
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`of the motion, the applicable law, and the record herein, defendant’s motion is
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`GRANTED and the case is STAYED pending a decision by the Copyright Royalty Board
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`("CRB").
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`BACKGROUND
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`Sirius XM is the only satellite digital audio radio service (“SDARS”) in the United
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`States. Compl. fl 2. The Copyright Act grants entities such as Sirius XM a statutory
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`license to digitally broadcast copyrighted sound recordings. 17 U.S.C. §§ 112, 114(d)(2);
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`1
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`Compl. W l, 13. Statutory licensees pay royalties, but do not have to negotiate with
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`individual copyright owners for every recording they want to broadcast. Instead,
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`regulations implementing the Copyright Act charge SoundExchange, an independent
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`non—profit organization, with collecting the performance royalties from statutory license
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`users—-such as SDARS, Internet radio stations, and cable TV music channels—and
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`distributing those royalties to the copyright owners in accordance with 17 U.S.C.
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`§ ll4(g)(2)(A)-(D). Compl. W l0, 15.
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`The “reasonable rates and terms of royalty payments” SDARS like Sirius XM owe
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`are set by the Copyright Royalty Board, which is comprised of three Copyright Royalty
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`Judges ("CRJS"). 17 U.S.C. §§ ll4(f)(l), 80l(a)-(b). These CRJs must be experienced
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`attorneys. and at least onejudge must have significant knowledge of copyright law and
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`another must have significant knowledge of economics. 17 U.S.C. § 802(a)(l). The
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`Copyright Act directs that the SDARS royalty rates set by the CRB
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`be calculated to achieve the following objectives:
`(A) To maximize the availability of creative works to
`the public.
`(B) To afford the copyright owner a fair return for his
`or her creative work and the copyright user a fair
`income under existing economic conditions.
`(C) To reflect the relative roles of the copyright owner
`and the copyright user in the product made available to
`the
`public with
`respect
`to
`relative
`creative
`contribution,
`technological
`contribution,
`capital
`investment, cost, risk, and contribution to the opening
`of new markets for creative expression and media for
`their communication.
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`impact on the
`any disruptive
`(D) To minimize
`structure of the industries involved and on generally
`prevailing industry practices.
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`

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`17 U.S.C. § 801(b)(l). To fulfill its statutory mandate, the CRB presides over extensive
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`administrative proceedings, which can involve scores of witnesses and voluminous
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`documents, before issuing its determinations and promulgating regulations. See
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`generally l7 U.S.C. § 803.
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`Sirius XM1 and SoundExchange already have met in two such proceedings before
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`the CRB.
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`In the first, the CRB heard twenty—six days of testimony and admitted more
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`than 230 exhibits before issuing its final determination regarding the royalty rates owed
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`by SDARS from January 2007 through December 2012. Determination of Rates and
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`Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services,
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`73 Fed. Reg. 4080, 4080-81 (Jan 24, 2008) (“Satellite 1”). The CRB considered the four
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`statutory factors laid out in 17 U.S.C. § 801(b)(l) and set the SDARS royalty fee as a
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`percentage of gross revenues escalating from 6% in 2007 to 8% in 2012. Id. at 4084.
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`The CRB further defined “Gross Revenues” as including subscription revenue and
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`advertising revenue attributable to advertisements on channels that do more than “use
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`only incidental performances of sound recordings,” but excluding other specific sources
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`of revenue. Id. at 4102; 37 C.F.R. § 382.1 l(l)(i)-(ii) (2008). Most relevant here, the
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`CRB explicitly excluded revenue recognized from “[c]hannels, programming, products
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`and/or other services offered for a separate charge where such channels use only
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`incidental performance of sound recordings” and from “[c]hannels, programming,
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`products and/or other services for which the performance of sound recordings .
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`.
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`. is
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`I At the time of the first proceeding, Sirius Satellite Radio and XM Satellite Radio were separate
`companies; they later merged. Pl. SoundExchange’s Mem. of Points and Authorities in Opp’n to Def.
`Sirius XM‘s Mot. to Dismiss at l n.l (“Pl.’s Opp’n”) [Dkt. #17]. “Sirius XM ” includes the merged
`company and its predecessor entities.
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`

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`exempt from any license requirement or is separately licensed.” Satellite 1, 73 Fed. Reg.
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`at 4102; 37 C.F.R.
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`382.1 1(3)(vi)(B), (D) (2008).
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`Around five years later, the parties met again in a contested proceeding to
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`determine the SDARS royalty rate for the period from 2013 through 2017.
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`Determination of Rates and Terms for Preexisting Subscription Services and Satellite
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`Digital Audio Radio Services, 78 Fed. Reg. 23054 (April 17, 2013) (“Satellite 1]”).
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`There. the parties proposed rates and also disputed the revenue base to which the adopted
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`royalty rates would apply-Soundlixchange argued to expand the revenue base, and
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`Sirius XM argued to maintain it.
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`Id. at 23072. Ultimately, the CRB determined that
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`royalty rates would start at 9% of gross revenues in 2013 and rise to 11% by 2017, id. at
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`23071, and was “satisfied that the exclusions permitted in the Gross Revenues definition
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`remain proper," id. at 23072. However, the CRB prescribed a methodology it described
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`as a "deduction" rather than a "revenue exclusion” to handle royalties attributable to pre-
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`1972 recordings.
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`Id. at 23073.
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`SoundExchange now brings this action alleging that Sirius XM underpaid royalties
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`owed from 2007 through 2012 (the subject ofSatellite 1). See generally Compl.
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`Soundlixchange alleges that Sirius XM “devised its own definition of Gross Revenues —
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`a definition that substantially reduced its royalty payments to SoundExchange.” Compl.
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`7 4. Specifically, SoundExchange complains that Sirius XM improperly (1) reduced
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`Gross Revenues by an amount it estimated was attributable to pre-1972 sound recordings;
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`(2) excluded from Gross Revenues the revenue received from the price difference
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`between its standard package and its premier package, the latter of which includes
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`4
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`additional talk channels, but no additional music channels; and (3) excluded revenue
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`derived from its Family Friendly and Mostly Music packages.
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`Ia’. SoundExchange also
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`alleges that Sirius XM failed to make late payment fees required pursuant to 37 C.F.R.
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`§ 382.l3(d) and related regulations. Comp]. W 60-63.
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`Sirius XM argues that the doctrine of primary jurisdiction counsels that the CRB
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`should resolve these issues in the first instance, and, accordingly, moves to dismiss the
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`Complaint, or, in the alternative, stay this action. Def.’s Mot.; Def.’s Mem.
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`ANALYSIS
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`The doctrine of primary jurisdiction allows a court to refer to an administrative
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`agency certain issues within that agency’s area of expertise.2 Primary jurisdiction “is
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`concerned with promoting proper relationships between the courts and administrative
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`agencies charged with particular regulatory duties. .
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`.
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`. [It] comes into play whenever
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`enforcement of the claim requires the resolution of issues which, under a regulatory
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`scheme. have been placed within the special competence of an administrative body.”
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`Um’ledStates v. W. Pac. R. C0,, 352 U.S. 59, 63-64 (1956).
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`In such instances, the court
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`may stay or dismiss without prejudice the case "pending referral of such issues to the
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`administrative body for its views.” Id. at 64.
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`“The primary jurisdiction doctrine rests both on a concern for uniform outcomes
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`.
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`.
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`. and on the advantages of allowing an agency to apply its expertjudgment[.]” Allnet
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`C0mmc’n Serv., Inc. v. Nat ’l Exch. Carrier Ass’n, Inc, 965 F.2d 1 118, 1120 (D.C. Cir.
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`3 Courts generally do not actually send cases or issues to an agency for resolution pursuant to this
`doctrine, but rather refrain from exercising theirjurisdiction to allow the parties to raise the dispute to the
`agency. See Reiter v. Cooper, 507 U.S. 258, 268 n.3 (1993).
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`5
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`1992); see also W. Pac. R. Co, 352 U.S. at 64 (“In the earlier cases emphasis was laid on
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`the desirable uniformity which would obtain ifinitially a specialized agency passed on
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`certain types of administrative questions. More recently the expert and specialized
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`knowledge of the agencies involved has been particularly stressed.” (internal citation
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`omitted)). An agency’s expertise extends beyond technical issues “to the policy
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`judgments needed to implement [its] mandate.” Allnet, 965 F.2d at 1120.
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`Courts appropriately employ the primary jurisdiction doctrine when an
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`administrative agency “is best suited to make the initial decision on the issues in dispute.”
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`Id. Administrative agencies may be “better equipped than courts by specialization, by
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`insight gained through experience, and by more flexible procedure” to “ascertain[] and
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`interpret[] the circumstances underlying legal issues.” For E. Conference v. United
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`States, 342 U.S. 570, 574-75 (1952). Ultimately, “[n]o fixed formula exists for applying
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`the doctrine of primaryjurisdiction.” W. Pac. R. Co, 352 U.S. at 64. The court must
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`determine on a case-by-case basis “whether the reasons for the existence of the doctrine
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`are present and whether the purpose it serves will be aided by its application.” Id. Ifthe
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`court concludes the doctrine does apply, then the court may stay or dismiss without
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`prejudice the proceedings before it while the parties present the issue to the appropriate
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`administrative agency. See Reiter v. Cooper, 507 U.S. 258, 268-69 & n.3 (1993).
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`Sirius XM argues that the two primary disputes in this case are best suited to
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`resolution by the CRB in the first instance, rather than this Court, because both involve
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`interpreting and applying the CRB’s regulations on gross revenues. Def.’s Mem. at 1-2.
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`SoundExchange, not surprisingly. contends that neither CRB’s definition of“Gross
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`Revenues“ nor the exclusions therefrom is ambiguous, and this Court is well-situated to
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`determine whether Sirius XM breached the CRB’s clear terms without further referral to
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`the CRB. Pl.’s Opp’n at 8-14. For the following reasons, I agree with Sirius XM and
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`will stay these proceedings.
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`In order to determine whether to apply the primary jurisdiction doctrine, I must
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`first consider what, precisely, the parties are contesting. Sirius XM is alleged to have
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`excluded from its gross revenue total the revenue it attributed to sound recordings made
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`prior to 1972. which are not subject to the federal statutory license. See Compl. ll 20.
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`Soundlixchange contends that, because Sirius XM did not recognize revenue explicitly
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`from the pre-1972 recordings, but rather estimated it based on percentage of recordings
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`played. any exclusion Sirius XM purports to attribute to those recordings does not qualify
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`as an exclusion under 37 C.F.R. § 382.1 l(3)(vi)(D) for “[r]evenues recognized by
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`Licensee for the provision of .
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`.
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`. [c]hannels, programming, products and/or other services
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`for which the performance of sound recordings .
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`.
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`. is exempt from any license
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`requirement." Pl.’s Opp’n at 9; Compl. fl 23.
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`In Satellite 1]. the CRB agreed with Sirius XM that “pre-1972 recordings are not
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`licensed under the statutory royalty regime and should not factor into determining the
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`statutory royalty obligation.” Satellite [1, 78 Fed. Reg. at 23073. However, it also
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`determined that “the current Gross Revenues definition does not expressly recognize such
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`an exclusion" and that "revenue exclusion is not the proper means for addressing pre-
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`l972 recordings.” Id.
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`Instead, it fashioned a “deduction” for such recordings. Id.
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`SoundExchange argues that this decision confirms that Sirius XM improperly excluded
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`7
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`revenue from 2007 through 2012. Pl.’s Opp’n at 9-10. Sirius XM contends it does no
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`such thing, but rather acknowledges that Sirius XM did not owe royalties for its
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`performance of pre-1972 recordings and prescribes a specific methodology for the
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`royalty calculation going forward. Def. Sirius XM Radio 1nc.’s Reply Mem. of Law in
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`Further Support ofits Mot. to Dismiss at 4-5 (“Def.’s Reply”) [Dkt. #20].
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`The second issue involves the appropriate royalties owed on Sirius XM’s premium
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`subscription package, Sirius XM Premier.3 During the relevant time period, Sirius XM
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`charged its subscribers $12.95/month for the basic package and $16.99/month for Sirius
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`XM Premier, which includes the same channels provided in the basic package, as well as
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`additional talk channels. Compl. W 27-28. Sirius XM excluded from gross revenue the
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`additional revenue it received from subscriptions to Sirius XM Premier above what it
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`would have received if those subscriptions had been for the basic package.
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`SoundExchange complains that this was not a proper application of37 C.F.R.
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`§ 382.1 1(3)(vi)(B)’s exclusion for “[c]hannels, programming, products and/or other
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`services offered for a separate charge where such channels use only incidental
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`performance of sound recordings” because a Sirius XM Premier subscriber pays a single
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`fee and does not pay for the additional talk channels with “a separate charge.” Pl.’s
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`Opp‘n at 9-10; Compl. ll 32. SoundExchange contends that this, too, was decided by the
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`Satellite [1 court when it stated in a footnote that “the exclusion is available only to the
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`‘ Sirius XM offers premier packages branded as Sirius Premier, XM Premier, and Sirius XM Premier.
`Compl. 1l 4 n.l.
`I use “Sirius XM Premier" to refer to all three packages.
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`8
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`extent that the channels, programming, products and/or other services are offered for a
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`separate charge.“ Satellite 1], 78 Fed. Reg. at 23072 n.45.
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`I disagree.
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`Unfortunately for SoundExchange, the gross revenue exclusions are ambiguous
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`and do not, on their face, make clear whether Sirius XM’s approaches were permissible
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`under the regulations.
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`I agree with Sirius XM that these disputes are best suited to review
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`in the first instance by the CRB. Although uniformity is not a concern here—Sirius XM
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`and SoundExchange are the only two parties affected by the 2007-2012 SDARS rates—
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`the technical and policy expertise ofthe CRB makes referral to that body appropriate.
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`These are “issues which, under a regulatory scheme, have been placed within the special
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`competence of an administrative body.” W. Pac. R. Co., 352 U.S. at 64.
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`Indeed, the CRB was established in part for the purpose of determining
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`“reasonable rates and terms of royalty payments” between parties like SoundExchange
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`and Sirius XM. 17 U.S.C. § l14(f).
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`It is composed ofjudges with technical expertise in
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`copyright law and economics. See 17 U.S.C. § 802(a)(l) (requiring at least on CRJ to
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`have “significant knowledge of copyright law” and another to have “significant
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`knowledge of economics"). And the expertise relevant to a primary jurisdiction decision
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`“is not merely technical but extends to the policyjudgments needed to implement an
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`agency’s mandate.” Allnet, 965 F.2d at 1 120. Our Circuit has recognized the difficult
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`and multifaceted decisions delegated to the policy judgment ofthe CRB:
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`the agency is required to estimate the effect of the
`First,
`royalty rate on the future of the music industry, which
`requires a forecast of the direction in which the future public
`interest lies based on the expert knowledge of the agency.
`Second, the agency has legislative discretion in determining
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`9
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`copyright policy in order to achieve an equitable division of
`music industry profits between the copyright owners and
`users.
`Finally,
`the
`statutory factors pull
`in opposing
`directions, and reconciliation of these objectives is committed
`to the agency as part of its mandate to determine reasonable
`royalty rates.
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`S0undExcnange, Inc. v. Librarian 0fC0ng., 571 F.3d 1220, 1223-24 (D.C. Cir. 2009)
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`(internal quotation marks, citations, and alterations omitted).
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`In its two prior relevant rate-setting proceedings, the CRB has heard weeks of
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`testimony and reviewed scores of exhibits submitted by these two parties and others in
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`their industry. See Satellite 1, 73 Fed. Reg. at 4081; Satellite [1, 78 Fed. Reg. at 23054.
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`Therefore, the CRJs are "especially familiar with the customs and practices ofthe
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`industry and of the unique market—place involved in this case.” Ricci v. Chicago
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`Mercantile EXClZ., 409 U.S. 289, 305 (1973). When determining and implementing the
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`SDARS statutory royalty rates, the CRB sought to achieve the four policy goals
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`delineated in the Copyright Act at 17 U.S.C. § 80l(b)(l). Whether it set the rates
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`intending the types of revenue at issue to be included in or excluded from the gross
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`revenue calculation is a question best posed to the CRB itself. To be sure, the issues
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`here involve “the Commission’s interpretation ofits own regulations, on which it is owed
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`great deference." Allnet, 965 F.2d at 1122.
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`SoundExchange argues that the CRB already definitively construed both
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`provisions at issue in SoundExchange’s favor in the Satellite [1 proceeding. Pl.’s Opp’n
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`at 9-1 1, 13. But the construction and application of the Satellite 1 rates were not before
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`the CRB in the Satellite 1] proceedings, which were prospective only.
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`It is true that the
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`10
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`Satellite 1] panel set forth a different mechanism for dealing with pre-1972 sound
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`recordings than Sirius XM had used previously, but whether Sirius XM’s approach was
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`improper such that it owes SoundExchange additional fees for times past is an open
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`question ofinterpretation and policy. And Satellite 1] did nothing to clarify whether the
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`CRB considers the additional talk channels on Sirius XM Premier to be “offered for a
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`separate charge.” These questions remain open.
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`SoundExchange also questions whether the CRB is authorized to hear the claims
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`at issue. Pl.'s Opp‘n at 16. Under the Copyright Act, the CRB has “continuing
`
`jurisdiction" to “issue an amendment to a written determination to correct any technical
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`or clerical errors in the determination or to modify the terms, but not the rates, of royalty
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`payments in response to unforeseen circumstances that would frustrate the proper
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`implementation of such determination.” 17 U.S.C. § 803(c)(4). Neither party is asking
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`for a change to rates; only a clarification ofthe terms. This is within the CRB’s
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`continuingjurisdiction. Ifthe CRB judges Sirius XM’s gross revenue calculations to
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`have been improper, SoundExchange can seek damages in this court. 4
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`CONCLUSION
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`Our Circuit has opined that, “[i]n general, when primaryjurisdiction lies with an
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`administrative agency, the district court should stay the proceedings in front ofit, not
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`4 Sirius XM addresses Counts 3 and 4 of the Complaint only in passing, describing them as “small in size
`compared with” the other claims. Def.’s Mem. at 9 n.4.
`It argues that “to the extent the doctrine of
`primaryjurisdiction counsels this Court’s deference to the CRB on the principal issues in this case, it
`counsels deference on these less significant issues as well.” Id. On the pleadings, I cannot discern
`whether these are issues that would invoke the CRB’s technical expertise or policyjudgments. They will
`be stayed while the case as a whole is stayed, and I leave it up to the parties to determine whether to
`present the issues underlying Counts 3 and 4 to the CRB.
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`1 l
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`dismiss the suit.” Am. Ass ’n ofCruise Passengers v. Cunard Line, Ltd., 31 F.3d 1184,
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`1 187 (D.C. Cir. 1994). Thus, in the absence of any strong argument to dismiss the case
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`without prejudice and for all the foregoing reasons, defendant’s motion to stay the action
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`[Dl<t. #13] is GRANTED. The case shall be STAYED pending a decision by the
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`Copyright Review Board. An appropriate order shall accompany this Memorandum
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`Opinion.
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`I
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`7%“
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`RICHA
`
`N
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`United States District Judge
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`12