I have a few observations on the Ninth Circuit September 23, 2019 en banc hearing in Skidmore v. Led Zeppelin. Video of the oral argument is embedded at the bottom of this post, and the transcriptions below are mine – I’ve left out a few words here and there to make this easier to read, but I didn’t leave out anything material.
Did Skidmore’s Attorney Give Away the Case?
Quite possibly.
Here are the key excerpts from the oral argument. (I’m labeling all of the judges’ questions as simply “judge,” but the questions were posed by different judges):
Judge: Are you conceding today that if you are confined to the deposit copy your copyright claims are not viable?
Skidmore Counsel: I think that it is very difficult for plaintiff to win based on the deposit copy since it’s such an inaccurate transcription of the composition ….
Judge: Is that a “yes”? …
Skidmore Counsel: Yes, I think that is the reality of the situation.
Judge: When you listen to these two recordings, the deposit copy and the performed copy by Led Zeppelin, I don’t see how any juror could find they’re substantially similar, even with expert testimony. So you’ve got to get your sound recording in to win this case, don’t you? . . .
Judge: If the law is that the deposit copy is the four corners of the copyright deposit there’s nothing else to retry, correct?
Skidmore Counsel: If that’s the law ….
Judge: And you lose the case unless [the jury hears the sound recording]; a hundred times out of a hundred, right? You’ve gotta get your sound recording in in order to win this case, don’t you?
Skidmore Counsel: I think so.
Later in the hearing, when Led Zeppelin’s attorney was arguing:
Judge: It seems to me that assuming the copyright analysis is limited to the deposit copy any error [in the jury instructions] is harmless because no reasonable juror could find that the alleged copying was unlawful appropriation of the deposit copy, so why could we assume that instructional error occurred and find any error harmless?
Counsel for Led Zeppelin: I agree wholeheartedly.
The problem here, from Skidmore’s perspective, is that the judges appeared unconvinced that the sound recording of Taurus should be admissible.
This sets up the scenario (referenced by the judge in the quote above) where the en banc court would not need to address the jury instruction issue that was grounds for reversal by the Ninth Circuit panel, and which at least one judge indicated was problematic. The court can bypass that as “harmless error.”
Whether the Ninth Circuit will take this easy way out remains to be seen, but it seems like a significant risk for Skidmore.
By the way, I’m being facetious when I ask whether Skidmore’s attorney “gave away the case.” As a strategic matter he may have had no choice. He may have concluded that he cannot win a retrial on the deposit copy (he lost the first trial when limited to that evidence), and he doesn’t want a remand on a technicality such as deficient jury instructions if he will be limited to that evidence.
The “Inverse Ratio” Rule
The inverse ratio rule provides that if the plaintiff establishes a high degree of access to its work by the defendant, a finding of copyright infringement may be based upon a lesser degree of similarity. This controversial doctrine exists only in the Ninth Circuit. The trial judge refused to give the jury an inverse ratio instruction, an issue Skidmore raised on appeal.
This doctrine may already be dead as a practical matter. In the 2018 Blurred Lines case (Gaye v. Williams) the original opinion suggested that there was some validity to this doctrine, and asked the trial court to reevaluate it on remand.1 But the Ninth Circuit issued an amended opinion deleting all references to the rule, arguably implying that it did not endorse it.
At the en banc hearing, one of the judges asked Led Zeppelin’s lawyer to address this doctrine, and the lawyer briefly explained why it was bad copyright law (a view widely shared in the copyright community). Quite possibly, this case will allow the Ninth Circuit to put this much-criticized doctrine to bed, once and for all.
The “Thin Copyright” Issue
As I discussed in some detail recently (Copyright Office Backs Led Zeppelin In Ninth Circuit En Banc Appeal), the United States filed an amicus brief urging the court to adopt a “virtually identical” test for musical works that contain only “a small number of standard elements” (as is the case with Taurus, they argued).
An attorney from the Department of Justice argued for the United States at the hearing, and frankly he didn’t push this issue as hard as he might have. He certainly didn’t propose a rule that the Ninth Circuit could adopt, and the judges appeared unreceptive to this argument. I’d be surprised if a new copyright rule establishing a thin copyright for some musical works came out of this case.
Conclusion
Courts are notorious for creating the wrong impression during oral argument. Many a lawyer has walked out of a hearing after getting knocked around by a judge thinking that she had lost, only to win when the ruling arrives. And vice versa.
With that caveat, I will venture a prediction that the Ninth Circuit will hold that (a) the copyright in pre-1978 works is limited to the deposit copy, and (b) Skidmore can’t prevail on the deposit copy. Accordingly, any errors in the jury instructions were harmless and the jury verdict of non-infringement is affirmed.
Update (9/25/19): A Few Observations From the Ninth Circuit En Banc Argument in Skidmore v. Led Zeppelin (link)
The appeal in Skidmore v. Led Zeppelin is scheduled to be reargued before an en banc Ninth Circuit appeals court panel on September 23, 2019 (watch it live online here), and the U.S. Copyright Office has taken the unusual step of submittingan amicus brief in support of Led Zeppelin.2
This important copyright case is discussed in my October 2018 post, Led Zeppelin, Spirit and a Bustle at the Ninth Circuit, so I won’t review the background in detail here. The works at issue are Spirit’s 1968 song Taurus3 and the opening section of Led Zeppelin’s Stairway to Heaven. A Ninth Circuit panel reversed the jury’s verdict (verdict here) in favor of Led Zeppelin and sent the case back for retrial based on errors in the jury instructions. Led Zeppelin petitioned the Ninth Circuit to hear the case en banc, and the court granted this request. This means that the appeal will be reheard by the chief judge and ten other Ninth Circuit judges.4
The Ninth Circuit grants only about 1% of en banc petitions, and the Copyright Office rarely files an amicus brief in cases that have not reached the Supreme Court.5 The fact that both events have converged in this case underscores its importance. The music and copyright communities are watching closely.
The Copyright Office amicus brief makes two arguments.
TAURUS DEPOSIT COPY
Pre-1978 Unpublished Musical Works – Is the Sound Recording Covered By the Copyright? This has been an issue in several recent music copyright cases, and I’ve written about it in connection with theBlurred Lines andEd Sherran cases, as well as the first Led Zeppelin appeal, decided by a3-judge Ninth Circuit panel. The panel held that the copyright in unpublished works under the 1909 Act were defined by and limited to the deposit copy, not the sound recording. The Copyright Office urges the en banc court to reach the same conclusion.
This argument is based on an arcane copyright law technicality. However, the Copyright Office’s position is strong, and I expect the en banc court to reach the same conclusion that the panel reached.
“Substantially Similar” or “Virtually Identical”? Copyright protection for pre-1978 sound recordings may be an important issue for Skidmore and Led Zeppelin, but the vast majority of musical works that are the focus of infringement claims involve current/post-1978 works. Therefore, the second issue addressed by the Copyright Office — whether the legal standard for infringement should be “substantially similar” or “virtually identical” — is far more important to the music community.
At the trial of this case the presiding judge instructed the jury to determine whether there was copyright infringement based on the “substantial similarity” test. At trial, and in the first appeal of this case, Led Zeppelin’s lawyers argued that the musical elements from Taurus that were at issue should be protected by only a “thin” copyright, and therefore the test for infringement should be “virtually identical copying.” The premise underlying this argument is that Taurus is little more than a “selection and arrangement” of unprotectable musical elements, an argument that Skidmore vehemently disputes.
The Ninth Circuit panel did not address this argument in the Led Zeppelin appeal. However, it subsequently rejected it inWilliams v. Gaye (the Blurred Lines case), stating:
We reject the Thicke Parties’ argument that the Gayes’ copyright enjoys only thin protection. Musical compositions are not confined to a narrow range of expression . . . [A]s we have observed previously, music … is not capable of ready classification into only five or six constituent elements, but is instead comprised of a large array of elements, some combination of which is protectable by copyright . . . We have applied the substantial similarity standard to musical infringement suits before, . . . and see no reason to deviate from that standard now. Therefore, the Gayes’ copyright is not limited to only thin copyright protection, and the Gayes need not prove virtual identity to substantiate their infringement action.
The Copyright Office attempts to distinguish Taurus, urging the Ninth Circuit to give Taurus only thin protection, apply the “virtually identical” test, and affirm the jury verdict:
[Williams v. Gaye] did not involve an allegation that the infringing work copied only an arrangement of a small number of standard elements . . . the court did not consider the scope of protection for a single phrase comprising a small number of basic musical elements. The opinion should not be read as requiring more than thin protection for a portion of a musical work with such limited originality . . ..
Fundamentally, then, the allegedly copied material, as embodied in the deposit copy of Taurus, consists of the use and placement of a combination of basic and not copyrightable elements: the A-minor chord and the descending chromatic scale. While these elements have been selected and arranged to create the bass line pattern at issue, this particular combination, employing simple rhythm and the standard technique of arpeggiation, is itself relatively simple. Such a combination is subject, at most, to a thin copyright; there are not many ways to express this type of chromatically descending arpeggiated bass line and have it still be recognizable as such. Providing broad protection would effectively result in the protection of a musical idea, granting a monopoly on a common musical convention. Infringement should therefore occur only if the allegedly copied portion appears virtually identically in the two works.6
Not surprisingly, Skidmore takes a contrary view. He has filed asupplemental brief, responding to the Copyright Office’s amicus brief, arguing that “‘thin copyright ‘applies not to the ‘broader protection accorded artistic works,’ but instead to functional, fact-driven, or scenes a faire copyrights where there are a limited number of ways to express the ideas contained in the work.” In anotherfiling (responding to the amicus briefs filed by intellectual property professors and musicologists), Skidmore asserts that “nowhere has this Circuit, or any Circuit, ever applied ‘thin’ copyright or virtual identity to music copyright cases, and have in fact at all points specifically warned against applying the concept to such artistic works.”
How the Ninth Circuit will handle this dispute is important to the future of music copyright law. However, the most immediate problem with the Copyright Office’s argument is that it is asks the appeals court to make a finding that the trial judge declined to make. The trial judge’s jury instructions make clear that while the jury could consider Taurus’s non-original or public domain elements in its deliberations, the judge did not conclude that Taurus was limited to those elements. Accordingly, the jury instructions use the “substantial similarity” test. Although its possible, it seems unlikely that the appeals court will make a ruling that the trial judge declined to make following courtroom testimony by experts on both sides of the case.
However, the issue raised by the Copyright Office needs to be viewed in a broader perspective. It is beyond dispute that copyright law struggles with music infringement. The broad application of copyright principles to works of varying types is one of copyright’s strengths, and has given copyright the ability to adapt to new forms of expression, from photography in the late 19th century to software today. However, these principles face a challenge when it comes to music, where copying and borrowing between musicians is an accepted part of musical practice and the venerable copyright law “idea/expression” distinction has little or no meaning.
The Ninth Circuit could resolve the two extremes presented by the Copyright Office and the parties in this case (“substantial similarity” vs. “virtual identity”) with a more flexible legal test that (except in the most extreme cases), leaves the decision up to the jury. Under this test the judge would instruct the jury that to the extent the jury finds the plaintiff’s music to be comprised of basic, common or public domain elements the jury should give it “weaker” protection. At the other extreme protection should be stronger. However, it would not be a judge-determined either/or test (as is the law today), but a flexible test where the jury would apply the standard on a continuum between these two poles.
For example, Rick Beato makes a convincing casethat Taurus uses a musical phrase contained in many pre-Taurus popular and classical pieces of music. If the jury is persuaded by an expert presenting this evidence, it would be free to conclude that the copyright in Taurus is thin, and judge Stairway To Heaven based on the “virtually identical” standard, or toward that end of the continuum. If Skidmore’s expert had persuasive evidence and opinion to the contrary, the jury might apply a standard more in the direction of “substantially similar.” However, in all but the most obvious cases that would be a decision for the jury, not a judge.
Beyond this, it would be welcomed if the Ninth Circuit took this opportunity to clarify or simplify music copyright law, which must be incomprehensible to most jurors. A glance at the jury instructions in Skidmore v. Led Zeppelin illustrates this (see, in particular instruction 21, which asks the jury to apply the dreaded Ninth Circuit “extrinsic/intrinsic similarities” test).7It’s indisputable that the jury instructions in copyright cases are head-scratchingly complex to jurors (and to many lawyers). It’s not fair to musicians or jurors to require them to apply a body of law that has devolved to this level of complexity.
Sadly, the Ninth Circuit is known for moving in the direction of greater complexity, not less. Regardless of the outcome of this particular case, the odds are that the en banc decision in Skidmore v. Led Zeppelin will leave music copyright law in an even worse state than it is today.
Antitrust law in the United States is regulated by both the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC). Usually, these two agencies are able to reach a common understanding on antitrust policy and enforcement. Infrequently, they find themselves in disagreement. Currently, the proper antitrust treatment of standard-essential patents and patent-holder commitments to make these patents available on “fair, reasonable and non-discriminatory terms” is such an occasion. The disagreement has come to a head in FTC v. Qualcomm, now on appeal before the Ninth Circuit.
Standard-Essential Patents and “FRAND” First, a brief introduction to standard setting and essential patents.
A technological standard adopted by a standard setting organization (an “SSO”) may sometimes be written in such a way that it is impossible to build a product or provide a service without infringing on one or more patents. When this happens and the patents are owned by a member of the working group creating the standard, the SSO may fear that once a standard is adopted the patent holder will take advantage of its SSO-granted market power and charge an excessive royalty to license the patents – that the patent owner will “hold up” companies that have made an irreversible investment (in a practical sense) in the standard.
To avoid patent hold-up the SSO tries to be sure that such “standard essential patents,” or SEPs, will be made available to every would-be implementer on “fair, reasonable and non-discriminatory terms,” or “FRAND.” These commitments take the form of a contract between the patent holder and the SSO, with implementers of the standard in the position of third-party beneficiaries.8 Tens of thousands of patents have been included in standards subject to FRAND commitments.
However, the use of standard-essential patents and FRAND commitments has given rise to a hotbed of legal controversy, one example of which is seen in the FTC’s antitrust case against Qualcomm.
FTC v. Qualcomm. Qualcomm is a dominant supplier of cellular modem chips (aka “thin modems”), a core component of mobile devices such as cell phones. It sells modem chips to mobile phone manufacturers (OEMs), such as Apple.
The FTC sued Qualcomm in early 2017, alleging antitrust violations based on certain of Qualcomm’s business practices. Several of these related to FRAND commitments Qualcomm has made to two SSOs – the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS).
Specifically, the FTC challenged Qualcomm’s practice of refusing to sell modem chips to competing chip manufacturers, asserting that this violated Qualcomm’s FRAND commitments. The FTC also challenged Qualcomm’s practice of refusing to sell to OEMs unless they agreed to a separate patent license – what the court calls Qualcomm’s “no license, no chips” policy, and Qualcomm’s requirement that OEMs enter into exclusive supply agreements. The illegality of these practices was premised on the FTC’s allegation that Qualcomm possessed monopoly power in the modem chip market, and that it had acquired this power (and perpetuates it) with these practices.
The District Court Decisions. Federal district court judge Lucy H. Koh, sitting in the Northern District of California, issued two decisions in this case. First, in 2018 she ruled on summary judgment that Qualcomm’s non-discrimination commitments obligated it to make exhaustive SEP licenses available to modem-chip suppliers.9 However, the judge decided this issue based on principles of California contract law (not antitrust), holding that the terms of the TIA and ATIS intellectual property rights policies (IPRs) required Qualcomm to license its SEPs to competing modem chip suppliers on FRAND terms.
The second stage of the case was decided following a non-jury trial held before Judge Koh in early 2019. In a 233-page opinion issued on May 21, 2019, Judge Koh found that Qualcomm did possess monopoly power (approximately 90% market share), and that the practices challenged by the FTC constitute a violation of the antitrust laws. Judge Koh ordered broad injunctive relief against Qualcomm, ordering Qualcomm to abandon its “no license, no chips” policy, requiring it to make exhaustive SEP licenses available to modem-chip suppliers (i.e. direct competitors of Qualcomm), and ordering it to cease requiring exclusivity from OEMs. Qualcomm was ordered to negotiate or renegotiate license terms with customers to comply with this injunction.10
DOJ Antitrust and the FTC Diverge on SEP/FRAND Antitrust Policies. It was at this point that the DOJ formally interjected its views on the issues raised by this case. However, before discussing that, we need to set the stage for the current relationship between the FTC and DOJ on the topic of antitrust law and standard-essential patents.
As noted above, the DOJ and FTC are usually in agreement on issues of antitrust policy and enforcement. However, the antitrust treatment of standard-essential patents and FRAND commitments is controversial – it has been the subject of voluminous legal and economic literature and a large body of case law. Two central issues in the debate around SEP-patents are whether hold-up actually occurs in the marketplace,11 and whether SEP commitments should be subject to antitrust enforcement.
Prior to 2017 the two enforcement agencies were in agreement regarding patent licensing of standard-essential patents and the potentially anticompetitive consequences associated with patent hold-up. However, under the Trump DOJ the views of the two agencies have diverged. Much of this divergence appears to have been instigated by Makan Delrahim, the Assistant Attorney General for the Antitrust Division of the DOJ (the top position at DOJ antitrust).
Since being confirmed in September 2017, Mr. Delrahim has promoted his view that antitrust enforcers should shift their focus away from potential abuses by holders of patents (patent hold-up) in favor of greater scrutiny of licensees (what he calls implementer “hold-out”12): He has stated that “implementer hold-out poses a more serious threat to innovation than innovator hold-up.”13 He has also stated that a unilateral and unconditional refusal to license a valid patent should be per se legal under the antitrust laws, and that any violation of a FRAND commitment should be treated as a breach of contract, not subject to antitrust liability.14
As noted above, Mr. Delrahim is not alone in these beliefs – they are the subject of vigorous debate in the legal and economic communities. However, Delrahim’s approach to standard-essential patents and FRAND licensing is at odds with the legal theories underlying the FTC’s suit against Qualcomm and the policies of the pre-Trump DOJ Antitrust Division.15
Qualcomm’s Appeal and DOJ’s Statement of Interest. This interagency split has now come to a head. Qualcomm has appealed the district court’s decision to the Ninth Circuit, and shortly after filing the appeal Qualcomm asked the Ninth Circuit to stay the injunctive relief ordered by the district court pending resolution of the appeal. (As noted, this motion was allowed). On July 16th the DOJ filed a Statement of Interest with the Ninth Circuit, supporting Qualcomm’s request for a stay.
While the DOJ’s filing is not signed by Mr. Delrahim (who has recused himself from the case, reportedly based on his representation of Qualcomm when he was in private practice), it reflects the legal principles articulated by Delrahim in his public statements. Notably, it challenges the district court’s finding that Qualcomm’s refusal to license its competitors violated antitrust law. At the heart of its brief the DOJ argues that –
Both in imposing liability, and in crafting a remedy, the court mistakenly converted a potential contractual breach into a Sherman Act violation, and ordered what amounts to specific performance. Converting contractual commitments into compulsory licenses, policed by treble-damage lawsuits, risks undermin[ing] important incentives for innovation by reducing the expected rewards below those that FRAND licensing permits.
In other words, it is the Antitrust Division’s position — in conflict with both the FTC and the district court judge — that a FRAND violation should be treated as a breach of contract, but not as an antitrust violation.
I expect that the DOJ (along with Qualcomm) will make this argument a centerpiece in Qualcomm’s full appeal. If adopted by the courts (either the Ninth Circuit or the Supreme Court on a further appeal), it would have a significant impact on the SEP licensing/standard setting ecosystem. Unlike a claim for breach of contract, antitrust liability carries with it the risk of treble damages, attorney’s fees and injunctive relief. It also allows for enforcement actions by the FTC and DOJ, in addition to private suits. If the DOJ persuades the Ninth Circuit or the Supreme Court to adopt this approach it will shift the balance of power between SEP holders and implementers in the favor of SEP holders, since to SEP holders the consequences of losing a FRAND case will be greatly lessened.16And, it will result in reversal of the district court’s decision in FTC v. Qualcomm, since Judge Koh found (implicitly – she never actually states this) that the violation of a FRAND commitment by a monopolist may be both a breach of contract and an antitrust violation.17
Conclusion. Despite a lengthy trial in the district court and an important decision by the district court judge, it’s likely that FTC v. Qualcomm is only in the early innings. The case is on an expedited briefing schedule before the Ninth Circuit, and oral argument will be held in early 2020, with a decision likely before the end of 2020. The Supreme Court has never decided a case involving licensing of standard-essential patents, but this case raises important issues of antitrust and patent licensing, and given the stakes either party will be motivated to appeal an adverse decision by the Ninth Circuit. If the case does end up before the Supreme Court, it could well be a landmark case in patent licensing, with important implications for standard setting organizations.
My thanks to Andy Updegrove for reviewing this post and helping me to understand the nuances of standard essential patents.
First Update: Subsequently, on the merits of the appeal, the DOJ filed an amicus brief in support of Qualcomm (link).
Second Update: On August 11, 2020, the Ninth Circuit Court of Appeals reversed the trial court’s decision in this case. (link)
Can a trade association negotiate sales or licenses on behalf of its members? Can it tell members, “don’t negotiate individually with a specific purchaser, and if you are already in negotiations with that purchaser cut them off and let us negotiate on behalf of you and other members”? At what point does this conduct become an antitrust violation?
These are the issues raised in a lawsuit between Peloton Interactive, Inc. on the one hand, and a group of music publishers and the National Music Publishers Association, Inc. (NMPA) on the other.
Peloton and Music Licensing. Peloton sells high-end, in-home stationary bicycles. An important feature of Peloton’s service is music-backed, instructor-led workout classes streamed to users via a built-in video screen. Some of these classes are broadcast live, and many are recorded and accessed on-demand.
Peloton doesn’t own its music, instead Peloton instructors create their playlists using popular recordings drawn from Peloton’s commercial music library.
To do this Peloton needs several music licenses. To play the sound recordings it needs master licenses from record companies. For public performance of the musical works (the compositions) it needs licenses from the performance rights organizations, ASCAP, BMI and SESAC. And, to reproduce the musical works along with videos, it needs synchronization licenses, so-called “sync licenses,” from the owners of the musical works.18
A sync license does not fall under any of the compulsory license provisions of the Copyright Act, and therefore sync licenses must be negotiated directly with the publishing companies that hold the copyrights. Here, it seems, is where Peloton’s attempt to acquire music rights fell short – Peloton was able to purchase blanket or “catalog-wide” sync licenses from what it calls the “major” publishers19 and many (but not all) “independent” publishers.
The Publishers’ Copyright Suit. In March 2019 nine independent publishers filed suit against Peloton, claiming copyright infringement of more than a thousand musical works and seeking total damages as high as $150 million. According to the publishers Peloton transmitted these compositions with exercise videos without a sync license.
Based on the complaint the publishers appear to have a strong case, and it is unlikely that their core allegation – that Peloton was using these songs in videos without sync licenses – was false. If true, Peloton is looking at a significant settlement (or worse, a large court judgment). And, Peloton didn’t assert a credible public defense to the suit – in fact, it reacted by withdrawing the songs at issue from the library of tunes available to its instructors.
But it’s often the case that the best defense is a good offense, and Peloton has attempted to strike back in its countersuit.
Peloton’s Antitrust Counterclaim. In April Peloton filed a counterclaim against the nine publishers and NMPA, which it added as a defendant to its counterclaim. The heart of its claim is that, under the influence and urging of NMPA, the nine publishers refused to negotiate directly and individually with Peloton. Rather, they engaged in price fixing and a group boycott by insisting that Peloton negotiate licenses with NMPA on behalf of all the publishers. Peloton’s counterclaim states:
NMPA has instigated a coordinated effort with the Counterclaim Defendant music publishers to fix prices and to engage in a concerted refusal to deal with Peloton. Through these actions, NMPA has exceeded the bounds of legitimate conduct for a trade association and become the ringleader of concerted activity among would-be competitor music publishers, all in violation of the antitrust laws. . . . NMPA first sought to extract supracompetitive license terms from Peloton by negotiating collectively on behalf of a large (though unidentified) number of member publishers. . . . When NMPA’s collective negotiations with Peloton later stalled (for reasons NMPA never disclosed to Peloton), Peloton pursued direct negotiations with a number of music publishers. After participating in seemingly meaningful negotiations, however, several of the Coordinating Publishers suddenly — and virtually at the same time — cut off their negotiations and collectively refused to deal with Peloton. This refusal to deal with Peloton was at the urging of NMPA …
Does Peloton have a viable antitrust claim? It’s a close call.
Buying Groups and Selling Groups. To understand the antitrust issues here I start with the concept of buying groups, or group purchasing organizations. The courts have recognized that most buying groups are economically efficient and (for example), enable small retailers to compete more effectively with larger retailers. Consequently, buying groups are “not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects.”Northwest Wholesale Stationers v. Pac. Stationery & Printing Co. (USSC 1985). So long as the members of the buying group have a market share of less than 40% of buyers, they are protected by an FTC and court-approved safe harbor from antitrust liability for group negotiation of “input prices.”
However, the same is not true of “selling groups” – competitors who agree to set “output prices” at which they will sell or license their products. Output pricing by members of a trade association can easily cross the line over into price fixing, a per se violation under the antitrust laws.
“Hub-and-Spokes” Conspiracy. And that is what Peloton alleges occurred here. The antitrust theory behind Peloton’s counterclaim appears to be based on a “hub-and-spokes” conspiracy, similar to United States v. Apple (2nd Cir. 2015), where Apple acted as the organizer of an illegal horizontal price-fixing conspiracy among publishers in the e-book market.20Peloton alleges that NMPA has acted as a “ringleader” similar to the role played by Apple in that case.
Twombly “Plausibility.” However, the NMPA and the publishers have already informed the court that they intend to file a motion to dismiss Peloton’s counterclaim. This motion is likely to rely on the argument that the counterclaim fails to allege facts that satisfy the Twombly “plausibility” requirement required for pleading an antitrust conspiracy.21 The publishers are likely to argue that the complaint contains insufficient allegations of concerted action between the publishers to support the inference that the publishers engaged in a horizontal conspiracy. In other words, in the language of the hub-and-spoke metaphor, there is no “rim.”
Indeed, Peloton’s antitrust claim provides no direct evidence of an overarching conspiracy between the publishers. There are no allegations of communications between the publishers from which the court could infer an agreement or conspiracy between them; there are no statements by informants or witnesses that support a horizontal conspiracy; and there are no specific allegations of back-room conspiratorial meetings between the publishers. Peloton alleges that several publishers pulled out of direct negotiations with Peloton at about the same time, but even these allegations of parallel conduct appear lacking: of the nine publishers alleged to be part of the conspiracy, Peloton provides specific allegations of parallel conduct as to only three.22
On this record Peloton may be hard-pressed to meet the “plausibility” standard and persuade the court that the conduct at issue is not the result of independent decision making on the part of the publishers – that is, that they would be better off having NMPA negotiate with Peloton on their behalf then negotiating directly.
Consequences if Peloton Prevails. That said, court rulings on motions to dismiss are unpredictable, and unappealable by a losing defendant. If Peloton’s counterclaim does survive a motion to dismiss its antitrust case represents a real threat to NMPA and the publishers. Any damages Peloton can prove will be subject to trebling, and NMPA and the publishers may be liable for Peloton’s attorney’s fees, which in an antitrust case can be substantial. And, the publishers’ copyrights may be unenforceable against Peloton based on the doctrine of copyright misuse.23
To add to this, there are practical issues that are not immediately apparent from the court filings. Can Peloton’s law firm represent all ten defendants (NMPA and the nine publishers) against this counterclaim? Or, are there sufficiently different interests that will require the publishers to each retain separate counsel, increasing their overall defense costs?
If the publishers’ lawyers are representing the publishers on a contingent fee basis, did they agree that this would include the defense of any counterclaims? If not, are the publishers (many of which are relatively small entities) prepared to incur the substantial cost of defending a complex, multi-party antitrust suit? Are they prepared, on behalf of their artist clients, to risk losing the right to enforce their copyrights against Peloton under the copyright misuse doctrine?
I would venture that the answers to most of these questions is “no.” Quite likely, once the potential impact of Peloton’s counterclaim sinks in, and assuming the counterclaim survives the motion to dismiss, some of the publishers will negotiate directly with Peloton and settle their copyright claims in exchange for a release from Peloton’s antitrust claims, leaving fewer and fewer of the “starting ten” counterclaim defendants to fight with Peloton. As the number of publishers left in the case decreases, the pressure on the remaining publishers will increase, eventually forcing them to the settlement table.24 How NMPA, the alleged “ringleader” – which owns none of the music involved – will navigate this minefield and emerge from this litigation is an open question.
Update: The music publishers have filed a proposed amended complaint greatly increasing the number of compositions at issue – and therefore the damages they are seeking from Peloton. Link here.
Update: This case was settled after the court dismissed Peloton’s antitrust counterclaim. (Link)
It looks like the music copyright world is facing another high-profile infringement trial. This time the songs at issue are Marvin Gaye’s 1973 “Get Lets it On“25 and Ed Sheeran’s 2014 “Thinking Out Loud.” On January 2, 2019, a federal judge denied Sheeran’s motion for summary judgment in this case. Absent a settlement, the case will proceed to trial in federal court in New York.
This case raises some of the same questions that were at issue in the two cases decided recently by the Ninth Circuit – the Blurred Lines case (where the Ninth Circuit upheld a jury finding of infringement of another Marvin Gaye song), and the Led Zeppelin/Spirit Stairway to Heaven case, where the Ninth Circuit reversed a judgment for Led Zeppelin and remanded the case for a second trial. See Blurred Lines At The Ninth Circuit and Led Zeppelin, Spirit and a Bustle at the Ninth Circuit.
I discuss a few of the interesting aspects of the Get It On case below, but the bottom line is that Sheeran should settle rather than take the risk of proceeding to trial.
Admissibility of pre-1978 Sound Recordings. One issue present in the Ninth Circuit cases and here as well is the admissibility of a pre-1978 sound recording, in this case Get It On, which was recorded in 1973. The plaintiffs have rights to the musical work (the composition), but they do not claim a copyright in the sound recording. However, the plaintiffs argue that under the 1909 Copyright Act (in effect in 1973) a musical composition’s copyright extends to it first mechanical reproduction – in other words the 1973 sound recording of Get It On. Sheeran disagrees.
The judge dodged this arcane issue, leaving it for a later stage of the case. He held that his ruling on Sheeran’s summary judgment motion would be the same whether or not the copyright extends to the sound recording. Given the Ninth Circuit’s ruling in the Stairway to Heaven litigation,26 it’s unlikely the plaintiffs will be able to use the 1973 sound recording to prove infringement. This would leave them in the awkward position that faced the plaintiffs in Blurred Lines and Stairway, where the juries did not hear the original recordings of the plaintiffs’ songs, and the plaintiffs were left with no choice but to have a witness perform the sheet music in court. While this is a positive for Sheeran, it’s not enough to overcome the negatives in this case, especially given his live performance of the two songs, as I discuss below.
Commonplace Musical Elements. With respect to the substantive merits of the case, Judge Stanton rightly noted that many elements of Get It On are unprotectable. However, the parties and their musicologist experts disagreed on whether the chord progressions and harmonic rhythms present in the two songs are unprotectable as commonplace musical elements. This, the court held, is a factual question to be determined at trial.
The problem that Sheeran faces is copyright law’s recognition that a musical work may receive copyright protection based on a combination of commonly used and public domain elements. As the Ninth Circuit stated in its Stairway decision, “there can be copyright protection on the basis of a sufficiently original combination of otherwise non-protectable music elements. . . . the selection and arrangement of public domain elements could be considered original.” This is Second Circuit law as well – a work “may be copyrightable even though it is entirely a compilation of unprotectable elements.”(Knitwaves, Inc. v. Lollytogs(2nd Cir. 1995)).
At the heart of the infringement claim is Get It On’s “I-III-IV-V” chord progression and its distinctive harmonic rhythm, where the second and fourth chords are “anticipated” or placed ahead of the beat. Sheeran argued that this progression/rhythm is a common musical technique, but he has been able to point to only one pre-Get It On song that shared this chord progression and rhythm. While it’s unusual for a music copyright case to be based on a chord progression, it’s not unheard of, and the chord progression/rhythm in this case appears to be sufficiently original to avoid disqualification based on the scènes à faire doctrine27 and serve as the basis for a copyright claim.
The Substantial Similarity Test in the Second Circuit. A third factor that is likely to weigh against Sheeran at trial is the Second Circuit’s notoriously confusing test for substantial similarity in cases where the plaintiff’s work has both protectible and unprotectible elements, as is the case here.28.
In cases involving protectible and unprotective elements the court must apply the “more discerning” test and “attempt to extract the unprotectible elements29 from consideration and ask whether the protectible elements, standing alone, are substantially similar.” (Knitwaves, supra). Complicating what can be a challenging task even for trained musicians is the Second Circuit’s seemingly contradictory instruction that “we have disavowed any notion that we are required to dissect the works into their separate components and compare only those which are in themselves copyrightable.” Rather, the court (and presumably the jury) is “principally guided by comparing the contested design’s total concept and overall feel with that of the allegedly infringing work . . . as instructed by our good eyes and common sense.”
In my experience, jurors are easily confused by substantial similarity instructions in copyright cases,30 and the state of the law in the Second Circuit is likely to make that problem even worse than usual. Add to that the risk that some (perhaps all) of the jurors may be musically unsophisticated and the trial of a case like this becomes even more of a coin toss than most jury trials. The case may be vulnerable to the opinion of one or two jurors who have a musical background or be familiar with the musical genres at issue in the case.
The Sheeran Video. The capstone of the plaintiffs’ case against Sheeran is the unusual fact that Sheeran performed Thinking Out Loud in concert, during which he transitioned back and forth between Thinking Out Loud and Get It On (4:30 in the video). This is likely a first in a music copyright case.
While the judge may not permit the jury to listen to the 1973 recording of Get It On, he will be hard-pressed to preclude the plaintiffs from playing this video at trial. The plaintiffs have a near-insurmountable argument that this is an admission that the two songs are substantially similar. In fact, the judge refers to this video in his decision, suggesting that the video will be admitted at trial.31 That may be all the jury needs to conclude that the two works have the same “total concept and feel” or “aesthetic appeal” (another substantial similarity copyright standard in the Second Circuit).
Sheeran Should Settle. I’m well aware that many trained musicians (and amateurs) have weighed-in on Sheeran’s side of this case, and they may well be right. However, it’s unlikely Adam Neely or Rick Beato, or any knowledgeable musician, will end up on the jury in this case. Sheeran is more likely to end up with what one online wag described as a tone deaf judge and joe sixpack jury.
Assuming the plaintiffs are not grossly unreasonable, Sheeran would be better off settling this case, rather than risking an unfavorable outcome at trial that is likely to cost him more money than a settlement and damage his reputation.32
Sheeran seems to know he’s in trouble. After the judge denied his motion for summary judgment he took the unusual step of asking the judge to rehear the motion or, alternatively, certify an interlocutory appeal to the Second Circuit, a motion the judge promptly denied. This motion had virtually no chance of success, and served only to signal Sheeran’s desperation as the case proceeds toward trial.
Trial is scheduled for September 11, 2019.
[Update, July 2019]: The judge is delaying the trial of this case pending the Ninth Circuit’s en banc decision in Skidmore v. Led Zeppelin. That decision will probably not arrive until Spring 2020, so the trial is likely delayed by at least a year. Court order here.
[Update: May 2023]: After trial a jury rendered a decision in favor of Sheeran. Here is the Sheeran jury verdict. The jury only had to answer the first question on the verdict form –
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