IN RE PANDORA MEDIA, INC. 317 - law.uci.edu · A. ASCAP BackgroundTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT322 B. ... ASCAP and Publisher ... In re Application of MobiTV, Inc.,

317IN RE PANDORA MEDIA, INC.Cite as 6 F.Supp.3d 317 (S.D.N.Y. 2014)

225 F.Supp.2d 190, 213 (N.D.N.Y.2002)(‘‘In order to hold an individual liable un-der [the aiding and abetting provision], TTT

plaintiff must also show that the individualaided or abetted a primary violation of the[NYS]HRL committed by another employ-ee or the business itself.’’ (alterations inoriginal) (internal quotation marks omit-ted)). Because plaintiff’s underlying retal-iation claim under NYSHRL has been dis-missed or otherwise abandoned, any claimshe seeks to assert against Heifferon as anaider and abettor of such alleged retaliato-ry conduct fails as a matter of law.

Plaintiff’s claims under NYSHRLagainst Heifferon in her individual capacityare dismissed.

IV. CONCLUSION

For all of the foregoing reasons, Defen-dants’ motion for summary judgment dis-missing the Amended Complaint in its en-tirety is granted.

IT IS SO ORDERED.

,

In re Petition of PANDORAMEDIA, INC.

Related to United States ofAmerica, Plaintiff,

v.

American Society of Composers,Authors, and Publishers,

Defendant.

Nos. 12 Civ. 8035(DLC),41 Civ. 1395(DLC).

United States District Court,S.D. New York.

Signed March 14, 2014.

Filed March 18, 2014.Background: Customized Internet radioservice petitioned for determination of rea-

sonable fees and terms for through-to-the-audience (TTTA) blanket license to per-form musical compositions in repertoire ofperforming-rights organization (PRO),pursuant to consent decree. The court pro-hibited PRO from withdrawing rights frompetitioner to perform any compositionsover which PRO retained any licensingrights, 2013 WL 5211927.

Holdings: After conducting a bench trial,the District Court, Denise Cote, J., heldthat:

(1) TTTA blanket license rate of 1.85% ofrevenue was reasonable for every yearof license term and

(2) service was not entitled to rate of1.70% of revenue.

Ordered accordingly.

1. Copyrights and Intellectual PropertyO48.1

‘‘Non-interactive’’ digital music ser-vices are eligible for a compulsory or stat-utory licensing fee set by the CopyrightRoyalty Board (CRB) made up of Copy-right Royalty Judges appointed by the Li-brary of Congress, whereas interactiveservices must independently negotiaterates for sound recording licenses. 17U.S.C.A. § 114.


Through-to-the-audience (TTTA) blan-ket license rate of 1.85% of revenue ofcustomized Internet radio service was rea-sonable for every year of compulsory li-cense term for performance of musicalcompositions in repertoire of performing-rights organization (PRO), and service alsowas entitled to take deduction for anydirect payments made to publishers follow-ing their partial withdrawals from PRO,

318 6 FEDERAL SUPPLEMENT, 3d SERIES

since, among other things, there wasstrong basis to recognize presumption that1.85% rate would be reasonable rate, adop-tion of escalating rate would have been outof step with historical practice, and otherlicenses that had been used for comparisonwere not competitive, fair market rates.


When determining the reasonablenessof a compulsory licensing fee, a rate-set-ting court must attempt to approximatethe fair market value of a license, i.e., whata license applicant would pay in an arm’slength transaction; in so doing, the courtmust take into account the fact that aperforming rights organization (PRO), as amonopolist, exercises market-distortingpower in negotiations for the use of itsmusic.


When a rate-setting court determinesthe reasonableness of a compulsory licens-ing fee, fair market value is a hypotheticalmatter; the appropriate analysis ordinarilyseeks to define a rate or range of ratesthat approximates the rates that would beset in a competitive market.


In rate court compulsory licensingproceedings, a determination of the fairmarket value often is facilitated by the useof a benchmark, i.e., reasoning by analogyto an agreement reached after arm’slength negotiation between similarly situ-ated parties.


A rate-setting court may not take therates set by the Copyright Royalty Board(CRB) into account when determining thefair market rate for a public performancelicense from a performing rights organiza-

tion (PRO) to a customized Internet radioservice. 17 U.S.C.A. § 114(i).


Customized Internet radio service wasnot entitled to rate of 1.70% of revenuethat commercial radio stations had to pay(RMLC rate) for performance of musicalcompositions in repertoire of performing-rights organization (PRO), since RMLCrate applied to large-scale compulsory li-cense agreement that bound variety of li-censees in both terrestrial and internetradio sphere, internet radio sphere wasvery small, governing consent decree for-bad discrimination only among licenseesand service was not similarly situated toany RMLC licensee, and service was simi-larly situated to internet music servicescovered by license at rate of 1.85%.

Kenneth L. Steinthal, Joseph R. Wetzel,Jason Blake Cunningham, KatherineMerk, King & Spalding, LLP, San Fran-cisco, CA, Jeffrey Scott Seddon, King &Spalding, LLP, New York, NY, MaryKatherine Bates, King & Spalding, LLP,Atlanta, GA, Marc Brian Collier, Fulbright& Jaworski LLP, Austin, TX, for applicantPandora Media, Inc.

Jay Cohen, Eric Alan Stone, Darren W.Johnson, Amy E. Gold, Lynn Beth Bayard,Paul, Weiss, Rifkind, Wharton & Garrison,LLP, New York, NY, Richard H. Reimer,Christine A. Pepe, American Society ofComposers, Authors and Publishers, NewYork, NY, for the American Society ofComposers, Authors and Publishers.

OPINION & ORDER

DENISE COTE, District Judge.

TABLE OF CONTENTS


INTRODUCTIONTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT320 FINDINGS OF FACT TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT322

I. The American Society of Composers, Authors and Publishers TTTTTTTTTTTT322A. ASCAP Background TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT322B. The ASCAP Consent DecreeTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT323

II. The Evolution of the Radio Industry TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT323

III. The RMLC–ASCAP License Agreement for the Period 2010–2016 TTTTTTTT325

IV. PandoraTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT327

A. Pandora’s Music Genome ProjectTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT327B. Pandora Premieres TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT328C. Pandora’s Comedy ProgrammingTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT328D. Pandora’s Revenue TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT328E. Pandora’s Competitive Environment TTTTTTTTTTTTTTTTTTTTTTTTTTTTTT328

V. Pandora’s Licensing History with ASCAP TTTTTTTTTTTTTTTTTTTTTTTTTTTTT330

VI. The April 2011 ASCAP Compendium Modification TTTTTTTTTTTTTTTTTTTTTT331

A. Overview and Context TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT331B. Public Performance Rights for Compositions versus Sound

Recordings TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT332C. ASCAP–Publisher Negotiations Prior to the Compendium

Modification TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT333D. The Compendium Modification Allowing New Media

Withdrawals is Enacted TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT336E. ASCAP Provides Administrative Services for Withdrawing

PublishersTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT337

VII. A Second Compendium Modification in December 2012 the ‘‘StandardServices’’ AgreementTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT338

VIII. Pandora Negotiates Direct Licenses with EMI, Sony, and UMPG and

Fails to Negotiate an Agreement with ASCAP TTTTTTTTTTTTTTTTTTTTTTT339A. The Pandora–EMI License Negotiations TTTTTTTTTTTTTTTTTTTTTTTTTT339B. The Pandora–ASCAP License NegotiationsTTTTTTTTTTTTTTTTTTTTTTTT340C. The Pandora–Sony License Negotiations TTTTTTTTTTTTTTTTTTTTTTTTTT342D. The Pandora–UMPG License Negotiations TTTTTTTTTTTTTTTTTTTTTTTT347

IX. September 17 Partial Summary Judgment OpinionTTTTTTTTTTTTTTTTTTTTTT350

X. Other Licensing Agreements Put Forth as Benchmarks TTTTTTTTTTTTTTTTT351

A. The Pandora–SESAC License TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT351B. Apple’s iTunes Radio Licenses with Publishers and PROs TTTTTTTTTTT351

CONCLUSIONS OF LAW TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT353

I. ASCAP’s Rate Proposal of 1.85% for 2011 and 2012 TTTTTTTTTTTTTTTTTTTTT355

II. ASCAP’s Rate Proposal of 2.50% for 2013 and 3.00% for 2014 and2015 TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT355

A. Presumption of a Single Rate TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT356B. Pandora’s Direct Licenses with Sony and UMPG TTTTTTTTTTTTTTTTTTT357

1. ASCAP and Publisher Coordination TTTTTTTTTTTTTTTTTTTTTTTTTTT3572. The Pandora–Sony License TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3583. The Pandora–UMPG License TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT360


C. ASCAP’s Secondary Benchmarks: the SESAC and AppleLicenses TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT361

1. The Pandora–SESAC licenseTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3612. The Apple Licenses TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT362

D. ASCAP’s Theoretical Arguments and Motivations TTTTTTTTTTTTTTTTTT3631. An Increase in Competition TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3632. Demand for VarietyTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3643. Disparity Between Sound Recording and Composition FeesTTTTT3664. Cannibalization of Music SalesTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3675. Music IntensityTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT3686. Pandora’s Success TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT368

III. Whether Pandora is Entitled to the RMLC 1.70% RateTTTTTTTTTTTTTTTTTT369

IV. Publisher Concerns Regarding the Consent Decree and the Rate

Court TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT372 CONCLUSION TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT372

INTRODUCTIONPandora Media Inc. (‘‘Pandora’’) has ap-

plied for a through-to-the-audience blanketlicense to perform the musical composi-tions in the repertoire of the AmericanSociety of Composers, Authors and Pub-lishers (‘‘ASCAP’’) for the period of Janu-ary 1, 2011 through December 31, 2015.The parties having been unable to reachagreement on an appropriate licensing fee,pursuant to Article IX of the consent de-cree under which ASCAP operates—known as the Second Amended FinalJudgment (‘‘AFJ2’’), see United States v.ASCAP, Civ. No. 41–Civ–1395, 2001 WL1589999 (S.D.N.Y. June 11, 2001)—Pando-ra requested on November 5, 2012 thatthis Court set a rate for that licensing fee.

The parties disagree as to which are themost appropriate benchmarks for the li-cense rate here. Pandora asserts princi-pally that it is similarly situated to radiostations licensed through a 2012 agree-ment between the Radio Music LicenseCommittee (‘‘RMLC’’), which representscommercial radio stations, and ASCAP,and is therefore entitled to the rate in thatlicense. Pandora also points to a directlicense agreement between Pandora andEMI Music Publishing Ltd. (‘‘EMI’’) that

was entered into after EMI purported towithdraw its new media 1 licensing rightsfrom ASCAP in 2011.

ASCAP proposes a variety of bench-marks, including the direct licensingagreement into which Pandora enteredwith EMI, as well as Pandora’s direct li-censes with Sony/ATV Music PublishingLLC (‘‘Sony’’) and Universal Music Pub-lishing Group (‘‘UMPG’’) in the wake ofthose publishers’ putative withdrawals ofnew media licensing rights from ASCAP.ASCAP also puts forward other agree-ments between music rights holders andmusic users as secondary benchmarks.

The parties have proposed the followingrates, expressed as a percentage of reve-nue: ASCAP proposes a rate of 1.85% forthe years 2011 and 2012, 2.50% for 2013,and 3.00% for the years 2014 and 2015.Pandora proposes a rate of 1.70% for allfive years. This Opinion sets the rate forall five years at 1.85%.

The task at hand is to determine the fairmarket value of a blanket license for thepublic performance of music. As thisCourt explained in a prior rate court pro-ceeding:

1. New media is defined below, but the term refers generally to internet transmissions.


The challenges of [determining a fairmarket rate for a blanket music license]include discerning a rate that will givecomposers an economic incentive to keepenriching our lives with music, thatavoids compensating composers for con-tributions made by others either to thecreative work or to the delivery of thatwork to the public, and that does notcreate distorting incentives in the mar-ketplace that will improperly affect thechoices made by composers, inventors,investors, consumers and other economicplayers.

In re Application of MobiTV, Inc., 712F.Supp.2d 206, 209 (S.D.N.Y.2010), aff’dsub nom. ASCAP v. MobiTV, Inc., 681F.3d 76 (2d Cir.2012).

A bench trial was held from January 21through February 10, 2014. Without ob-jection from the parties, the trial was con-ducted in accordance with the Court’s cus-tomary practices for non-jury proceedings,which includes taking direct testimonyfrom witnesses under a party’s controlthrough affidavits submitted with the JointPretrial Order. The parties also servedwith the Joint Pretrial Order copies of allexhibits and deposition testimony that theyintended to offer as evidence in chief attrial.

Prior to trial, ASCAP presented affida-vits constituting the direct testimony fromten witnesses, including four ASCAP em-ployees, two music publishing executives,one composer, and three experts.2 TheASCAP employees are CEO John LoFru-

mento; Vice President for New Media andTechnology Matthew DeFilippis; Directorof Licensing Vincent Candilora; and Sen-ior Vice President Seth Saltzman. AS-CAP’s music publisher witnesses were Pe-ter Brodsky, the Executive Vice Presidentof Business and Legal Affairs at Sony;and Zach Horowitz, the Chairman andCEO of UMPG. ASCAP’s composer-wit-ness was Brett James. ASCAP’s expertswere Dr. Kevin Murphy, Dr. Orley Ashen-felter, and Robin Flynn. ASCAP also pro-vided designated deposition excerpts fromsix witnesses.3

Pandora provided affidavits constitutingthe direct testimony of eight witnesses,four of whom are current or former Pan-dora employees and four of whom are ex-perts. The current or former Pandoraemployees were founder and Chief Strate-gy Officer Timothy Westergren; formerCEO Joseph Kennedy; Chief TechnologyOfficer Thomas Conrad; and Chief Mar-keting Officer Simon Fleming–Wood.Pandora’s experts were Dr. Leslie Marx,Dr. Roger Noll, William Rosenblatt, andFred McIntyre. Pandora also providedthe designated deposition testimony of anumber of witnesses.4

The parties also offered deposition des-ignations of certain witnesses as joint ex-hibits.5 At the trial, the parties waivedtheir right to cross-examine several of thewitnesses. The witnesses who testified attrial were Brodsky, LoFrumento, DeFilip-pis, Murphy, Flynn, Marx, Rosenblatt,Horowitz, Saltzman, Noll, Conrad, Kenne-

2. ASCAP initially submitted testimony from afourth expert, Timothy Hanlon, on the issue ofa proper advertising costs deduction, but theparties settled this issue before trial.

3. The witnesses who had excerpts of theirdepositions offered by ASCAP were Tom Con-rad, Simon Fleming–Wood, Michael Herring,John Kennedy, John Trimble, and TimothyWestergren.

4. The witnesses who had excerpts of theirdepositions offered by Pandora were OrleyAshenfelter, Martin Bandier, Peter Boyle, Pe-ter Brodsky, Vincent Candilora, Matthew De-Filippis, Roger Faxon, Wayland Holyfield,John LoFrumento, Seth Saltzman, RaymondSchwind, and Paul Williams.

5. Those were the deposition designations forRichard Conlon, J.D. Connell, Zach Horowitz,Robert Rosenbloum, and William Velez.


dy, Fleming–Wood, and McIntyre. In ad-dition, Pandora called its outside counsel,Robert Rosenbloum, as a witness.

This Opinion constitutes the Court’sfindings of fact and conclusions of lawfollowing that trial. The factual findingsare principally set forth in the first sectionof this Opinion, but appear as well in thesecond section.

FINDINGS OF FACT

I. The American Society of Composers,Authors and Publishers

A. ASCAP Background

ASCAP is an unincorporated member-ship organization of music copyright hold-ers created and controlled by music writ-ers and publishers.6 Its function is tocoordinate the licensing of copyrightedmusical works, and the distribution of roy-alties, on behalf of its nearly 500,000 mem-bers. ASCAP members grant ASCAP thenon-exclusive right to license non-dramaticpublic performances of their music. AS-CAP licenses these works on behalf of thecopyright holders to a broad array of mu-sic users, including television networks, ra-dio stations, digital music services, col-leges, restaurants, and many other venuesin which music is performed.

Employing ASCAP to perform thesefunctions is efficient for both music usersand copyright holders. A music user canlicense an enormous portfolio of copyright-ed music through the execution of a singlelicense without having to contact eachcopyright holder. Copyright holders bene-fit from ASCAP’s expertise and resourcesin policing the market, negotiating licens-es, and distributing the revenue from avast array of licenses promptly and reli-

ably among the multiple owners of thepublic performance copyrights in eachwork. The ability of ASCAP and otherperforming rights organizations (‘‘PROs’’)to grant licenses covering a large numberof compositions creates significant econo-mies of scale in the market for musiclicensing.

ASCAP offers the option of blanket li-censes to users. A blanket license is alicense that gives the music user the rightto perform all of the works in ASCAP’srepertoire, the fee for which does not varydepending on how much of the music theuser actually uses. These blanket licenses

reduce the costs of licensing copyrightedmusical compositions. They eliminatecostly, multiple negotiations of the vari-ous rights and provide an efficientmeans of monitoring the use of musicalcompositions. They also allow users ofcopyrighted music to avoid exposure toliability for copyright infringement.

Buffalo Broadcasting Co. v. ASCAP, 744F.2d 917, 934 (2d Cir.1984) (Winter, J.,concurring).

ASCAP’s board of directors is com-prised of an equal number of composersand music publishers. The head of theASCAP board is typically a songwriter.The present head of ASCAP is composerPaul Williams.

ASCAP competes with two other UnitedStates PROs: Broadcast Music, Inc.(‘‘BMI’’) and SESAC, LLC. (‘‘SESAC’’),each of whom also offers blanket licenses.BMI, which is slightly smaller than AS-CAP, operates under a consent decree thatis similar to the one that governs ASCAP’slicenses. SESAC is a PRO that is notcurrently bound by any consent decree.7

6. A music publisher is an entity which coordi-nates licensing and other logistics pertainingto copyrighted compositions. Music publish-ers are distinguished from record labels,which coordinate licensing of the sound re-

cordings of performances of copyrighted com-positions.

7. There was reference at trial to ongoing anti-trust litigation concerning SESAC.


B. The ASCAP Consent Decree

Since 1941, ASCAP has operated undera consent decree stemming from a Depart-ment of Justice antitrust lawsuit. Thisconsent decree has been modified fromtime to time. The most recent version ofthe consent decree was issued in 2001 andis known as ‘‘AFJ2.’’ AFJ2 governs here.8

In an attempt to ameliorate the anti-competitive concerns raised by ASCAP’sconsolidation of music licenses, AFJ2 re-stricts how ASCAP may issue licenses in avariety of ways. First, AFJ2 provides amechanism whereby a court, known as therate court, will determine a reasonable feefor ASCAP licenses when ASCAP and anapplicant for a license cannot reach anagreement. AFJ2 § IX. This Court ispresently the ASCAP rate court. Second,AFJ2 requires ASCAP to grant a licenseto perform all of the musical compositionsin ASCAP’s repertoire to any entity thatrequests such a license. AFJ2 §§ VI,IX(E). And third, AFJ2 prevents ASCAPfrom discriminating in pricing or with re-spect to other terms or conditions between‘‘similarly situated’’ licensees. AFJ2§ IV(C). ASCAP members agree to bebound in the exercise of their copyrightrights by the terms of AFJ2. For example,the 1996 Agreement Between Sony andASCAP provides that ‘‘[t]he grant [ofrights to ASCAP] TTT is modified by andsubject to the provisions of [AFJ2].’’

In addition to operating under a consentdecree, ASCAP is governed by a series ofinternal rules and contracts. The mostimportant internal rule set for purposes ofthis litigation is the ASCAP Compendium.The ASCAP Compendium can be modifiedby the ASCAP Board and reflects many ofthe important rules that govern ASCAP’sobligations to its copyright holder mem-bers and vice versa.

II. The Evolution of the Radio Industry

Much of the focus at trial was on thequestion of whether Pandora can be prop-erly classified as ‘‘radio.’’ A description ofthe evolution of the radio industry willprovide context in understanding Pando-ra’s features and its place within the musicbusiness.

Radio is a form of media in which aprovider transmits audio programming toa listener, where the programming is notdirectly selected by the listener but isprogrammed by the provider. As a result,in the context of a music station, the listen-er does not choose the songs and does notknow what composition will be played next.This radio experience has remained con-stant through the years, regardless ofwhether radio programming is transmittedby broadcasting, through a cable, from asatellite, or over the internet.

Radio made its debut approximately acentury ago and has been a dominant forcein the music industry ever since. The firstcommercial radio station in the UnitedStates was located in Pittsburgh, Pennsyl-vania and was licensed in 1920. The origi-nal technological means for delivering ra-dio programming was by broadcasting an‘‘amplitude modulation,’’ or ‘‘AM’’ signal.By the 1930s, ‘‘frequency modulation’’ or‘‘FM’’ signal technology was developed.FM broadcasting offered better audioquality but over a smaller range.

Another important moment in the histo-ry of radio occurred with the passage ofthe Telecommunications Act of 1996.Pub.L. No. 104–104, 110 Stat. 56 (1996).Empowered by that legislation, the FCCeliminated most caps on the number ofstations that a single company could own.Following that change in the law, there

8. For background discussion of AFJ2, seegenerally Meredith Corp. v. SESAC LLC, 09Civ. 9177(PAE), 1 F.Supp.3d 180, 196–98,

2014 WL 812795, at *11–12 (S.D.N.Y. Mar. 3,2014).


was a large-scale expansion of group own-ership of stations. Many terrestrial radiostations are now owned by large conglom-erates, such as Clear Channel Communica-tions, Inc. (‘‘Clear Channel’’), which ownsover 800 stations.

In the 1990s, the first successful nationalcable radio network was launched, usingcable TV transmission lines. Over time,what came to be known as digital TV radiowas transmitted through means of cable,satellite,9 and telephone-company lines.Some of the major competitors in thismarket are Music Choice, SiriusXM Satel-lite Radio, Muzak, and DMX.10

Also in the 1990s, the nascent internetprovided a new means of radio transmis-sion. The introduction in the early 1990sof MP3 digital audio encoding and com-pression format permitted music to becompressed in way that facilitated distri-bution over the internet.11 In 1994, thefirst simulcast of an AM/FM broadcastoccurred over the internet. As of today,over 10,000 AM and FM stations streamonline. Internet radio includes not justthe simulcasting of signals broadcast byAM and FM stations, but also the creationof internet-only radio stations. Over time,some independent companies built directo-ries of internet radio stations. These di-rectories can contain tens of thousands ofradio stations. Thus, the internet has en-abled providers to present listeners with avast library of radio programming, thelikes of which has never been availablebefore.

Clear Channel and CBS Radio, two ma-jor commercial radio companies, launchedtheir own internet radio services in 2008and 2010, respectively. Clear Channel’sinternet radio service is called iHeartRa-dio, and began as a vehicle to simulcastClear Channel’s own stations.

The arrival of the internet as a radiodelivery platform has also permitted radioproviders to introduce a level of instanta-neous user interactivity for the first time.With the internet, each listener’s devicegets its own data stream, in contrast to thebroadcasting of a common signal across ageographic area. As will be explained ingreater detail below, this permits internetradio services to offer customized musicprogramming based on user feedback.Thus, while a listener to a customized ra-dio service cannot select and does notknow what song will be played next, thatlistener can often give feedback to thecustomized station to shape the nature ofthe music that will be played.

As of today, Pandora is the most suc-cessful customized radio service. But itwas not the first. Prior to Pandora’slaunch in 2005, LAUNCHcast and Last.fm,two customized radio services, began in1999 and 2002, respectively.12 Recently,three major competitors have emerged aschallengers to Pandora’s dominance. In2011, Clear Channel launched a customizedradio offering within its iHeartRadio ser-vice, called ‘‘Create Station.’’ Spotifylaunched a customized radio feature called

9. Satellite radio permits coast-to-coast nation-wide programming. It is primarily directedat the automotive market.

10. High Definition radio—a digital radiotechnology which piggybacks on existingAM/FM signals but cannot be received bytraditional radios—was approved by the FCCin 2002.

11. With the digital age, the music world hastransitioned from one in which music must be

purchased in physical form, whether a vinylLP or CD, to a digital world in which digitaldownloads and digital music streaming aremajor forces. Apple’s iTunes Store waslaunched in 2003 and established a main-stream market for the purchase of digital mu-sic files.

12. These services have been acquired, respec-tively, by MTV, Yahoo! and by CBS.


Spotify Radio in late 2011. And in Sep-tember 2013, Apple launched its custom-ized radio service called ‘‘iTunes Radio.’’ 13

In addition to programmed and custom-ized radio, the presence of digital technolo-gy and the internet have allowed for theemergence of a third means of deliveringmusic: ‘‘on-demand’’ streaming services.These services provide users with accessto large libraries of songs, from which theycan select exactly which song to play atany time. A leading on-demand service isSpotify, which had 24 million active usersglobally as of March 2013. Launched in2008 in Europe and in the United States in2011, Spotify has a library of over 20 mil-lion songs.14 Other popular services withon-demand offerings include Rhapsody andGrooveshark. The most popular on-de-mand services offer both advertising sup-ported and subscription options, but seekto persuade consumers to elect the sub-scription model.

Through its century of existence, radio’spopularity has remained robust. The ra-dio industry is a $15 billion industry. It isunderstood by those in the music businessto account for roughly 80% of the musiclistening experience in the United States.This percentage has remained roughlyconstant despite the rapid evolution intechnology. Thus, while the 80% figurewas once confined to listening to musicover AM/FM radios, that figure now in-

cludes music delivered over radio stationsplaying through TV cable systems andover the internet. Almost half of radiolistening occurs while the listener is in anautomobile. The other 20% or so of musiclistening in the United States is experi-enced by listeners who seek more controlover the music that they hear, whetherthrough the purchase and playing of arecord album or a CD, or the subscriptionto an on-demand digital music service suchas Spotify.

III. The RMLC–ASCAP License Agree-ment for the Period 2010–2016

Much of the radio industry obtains itslicense for the public performance of AS-CAP music through the RMLC, which is atrade association that represents the com-mercial radio industry. Between 2003 and2009, the RMLC paid ASCAP for publicperformance licensing rights in the form ofa ‘‘fixed fee’’ agreement.15 As a result ofthe deep recession that hit the country in2008, the RMLC’s members’ revenues con-tracted and the fixed fee license began toconstitute an increasingly high percentageof RMLC member revenue. Consequent-ly, in 2009, the RMLC began to negotiatenew licensing terms to apply to commer-cial radio stations effective January 1, 2010through December 31, 2016. The RMLCwanted a return to the 1.615% rate atwhich it had paid ASCAP before the fixed-

13. Spotify Radio and iHeartRadio’s ‘‘CreateStation’’ use personalization technology froma company called The Echo Nest. CBS’sLast.fm uses technology called ‘‘scrobbling.’’Although not part of the trial record, it hasbeen recently reported that Spotify has ac-quired The Echo Nest.

14. Despite the introduction of a customizedradio feature in late 2011, Spotify remains anoverwhelmingly on-demand service. UnderSpotify’s licensing agreement with ASCAP,which covers the period of [REDACTED],Spotify pays between [REDACTED] and [RE-DACTED] of its revenue, depending on cer-

tain conditions not otherwise relevant here.This licensing fee has marginal relevance tothis trial, however, since that fee is a compo-nent of a federal regulatory license rate of10.5%, which Spotify must pay to obtain bothpublic performance rights and mechanicalrights under 17 U.S.C. § 115. See 37 C.F.R.§ 385.12(b)(2). Any fluctuation in the publicperformance licensing fee has no impact onthe overall 10.5% rate which a service likeSpotify is required to pay.

15. The RMLC allocated the fees among indi-vidual radio stations according to a formulathat it developed.


fee arrangement was adopted. It alsowanted a license not only for new mediatransmissions by RMLC member stations,but also new media transmissions by ClearChannel which aggregates many stationsfor delivery over the internet and mobiledevices.

At one point in those negotiations, theRMLC offered ASCAP a dual rate struc-ture for new media and terrestrial broad-casts, under which the RMLC would pay aproposed rate of [REDACTED] of revenuefor terrestrial broadcasting and simulcast-ing of terrestrial radio over the internet,and a separate rate of [REDACTED] ofrevenue for other new media uses of theASCAP repertoire. The revenue for thelatter category of uses was miniscule incomparison with the revenue to be coveredat the [REDACTED] rate. RMLC licen-sees still derive almost all of their revenuefrom traditional broadcasting services.

ASCAP and the RMLC ultimatelyreached an agreement on terms for a li-cense that established separate rates forradio stations depending on their intensityof music use. The rate for Music FormatStations 16 was set at 1.70% of all revenue,including revenue derived from new mediauses.17 The RMLC and ASCAP memorial-ized their agreement in a binding letter ofDecember 21, 2011. And on January 27,2012, this Court approved the agreementand its terms became public.

It is of significance to the issues litigatedin this trial, that the 1.70% rate appliesboth to revenue derived from terrestrial

broadcasting and from internet transmis-sions by RMLC members. In addition,the 1.70% rate applies not only to simul-cast radio stations that are streamed overthe internet by terrestrial broadcastingRMLC members but also to programmedand customized internet radio stationsowned by RMLC members. One RMLCmember, Clear Channel, is licensed at thisrate under a ‘‘Group License’’ form, whichcovers new media royalty payments forrevenues not associated with an individualstation. Thus, iHeartRadio’s customizedradio Create Station feature, which com-petes head on with Pandora, is licensed atthe 1.70% rate. Until July of 2012, howev-er, there was no revenue generated by theCreate Station service.

In 2011, the year of Create Station’slaunch, as well as the year that ASCAPand the RMLC agreed to license terms,Create Station constituted just [REDACT-ED] of the listener hours on iHeartRadio.For the month of March of 2013, which isthe last month for which there was data attrial, it had grown to comprise approxi-mately [REDACTED] of its total listenerhours on iHeartRadio for that month.Thus, a rapidly increasing share of theiHeartRadio listeners are choosing thecustomized Create Station feature whenlistening to iHeartRadio. But from itsinauguration in September of 2011 untilJune of 2012, Clear Channel ran CreateStation as an advertising-free service. Itbegan to contribute revenue for the firsttime in July of 2012. Despite its growth in

16. The category ‘‘Music Format Station’’ isbroad. A station is defined as a Music For-mat Station if it has a featured performanceof ASCAP music in more than 90 of its‘‘Weighted Program Periods’’ in a given week.A Weighted Program Period is of 15 minutesduration, and there are 318 Weighted Pro-gram Periods in a week. So, a station is aMusic Format Station whether it plays ASCAPmusic anywhere between approximately 28%to 100% of the Weighted Program Periods. A

station that does not fall within the MusicFormat Station definition because it uses AS-CAP music less frequently pays at a rate start-ing at .0296% of revenue, plus a supplementalfee.

17. The agreement provided for a deduction of12% for gross revenues from ‘‘Radio Broad-casting’’ and a 25% deduction for gross reve-nues from ‘‘New Media Transmissions,’’ sub-ject to a cap.


audience, the contribution to digital reve-nue from the Create Station feature [RE-DACTED]. For the first three months of2013, it contributed substantially less than[REDACTED] to Clear Channel’s digitalrevenue, which itself is only a small compo-nent of Clear Channel’s entire revenuestream.

IV. Pandora

Pandora is the most successful internetradio service operating in the UnitedStates today. It is estimated to have ap-proximately 200 million registered usersworldwide 18 and an approximately 70%share of the internet radio market in theUnited States. Pandora launched its in-ternet radio service in 2005. Roughlyeight years later, it had achieved greatpopularity, streaming an average of 17.7billion songs per month in the fiscal year2013.

A. Pandora’s Music Genome Project

Pandora’s exponential growth and popu-larity can be directly attributed to its sub-stantial investment in its proprietary Mu-sic Genome Project (‘‘MGP’’) database andassociated algorithms. Pandora uses theMGP database to create customized inter-net radio stations for each of its customers.A Pandora customer creates a station by‘‘seeding’’ it with a song, artist, genre, orcomposer. That seed serves as a startingpoint to which Pandora then applies theinformation in its MGP database to matchthat seed with other songs that Pandora’salgorithms predict that the listener is like-ly to enjoy. The listener continues to givefeedback by giving a thumbs-up or

thumbs-down when a composition isplayed, or by signaling that a song shouldbe skipped.

The MGP contains a wealth of data forevery composition in its database.Trained music analysts, many of whomhave music related degrees or are musi-cians, listen to the compositions selectedfor inclusion in the database and registerthe composition in reference to as many as450 characteristics.19 For pop and rocksongs, for example, Pandora analyzes be-tween 150 to 200 musical traits. Rap hasabout 350 ‘‘genes,’’ and classical workshave between 300 to 500 MGP-defined at-tributes. As Pandora’s Conrad testified,‘‘[b]ecause Pandora utilizes trained musi-cologists to analyze songs, the MGP is ableto differentiate not only between an altoand tenor saxophone, but also betweenvarious styles of playing a tenor saxo-phone.’’ When a Pandora listener seeds astation or registers a thumbs-up reaction,Pandora records that feedback and drawsupon the MGP to locate other compositionsthat the listener is likely to enjoy. Con-versely, when the feedback is a ‘‘thumbsdown,’’ the song will not reoccur in theuser’s playlist, and songs sharing its at-tributes will appear less frequently.

Besides listening to as many as 100 oftheir own customized stations, Pandorausers can opt to listen to programmed‘‘genre’’ stations. The most popular Pan-dora genre stations include ‘‘Today’s Hits,’’‘‘Today’s Country,’’ and ‘‘Today’s Hip Hopand Pop Hits.’’ These genre stations arepopulated by songs which are hand select-ed by Pandora curators.

18. Pandora provides streaming internet mu-sic services in the United States, New Zea-land, and Australia.

19. The use of human beings to classify eachcomposition is unique to Pandora and has theadvantage of ameliorating what the industryrecognizes as the ‘‘cold start’’ problem. A

cold start problem exists when the recom-mendation system cannot draw on adequateinferences for a composition because the itemis new or obscure. Because of this limitation,the service may play the composition for lis-teners who do not like it or fail to play it forthose who might.


Pandora has a catalog of between ap-proximately 1,000,000 to 2,000,000 songs,somewhat less than half of which are li-censed through ASCAP. This number isconsiderably lower than the catalog size ofan on-demand service like Spotify, whichmust have the ability to play virtually anycomposition any customer might select.Successful on-demand services have cata-logs in the range of 20 million songs.

B. Pandora Premieres

Pandora has a small on-demand musicservice, but it is not part of this licenseapplication. The Pandora on-demand ser-vice is called Pandora Premieres. It fea-tures at any one point in time a few doz-en songs, each available for listening on-demand for a limited period of time.This is music that artists and music pub-lishers provide to Pandora for promotion-al purposes, typically before the commer-cial release of an album. This on-demandcomponent of Pandora’s service is not asignificant part of Pandora; it constitutesa ‘‘barely measurable portion of Pandoralistening.’’ Pandora secures the rights toplay the songs on Pandora Premiers bynegotiating direct licenses with the copy-right holders.

C. Pandora’s Comedy Programming

While Pandora is overwhelmingly a ser-vice that plays music, in 2011 it introducedcomedy offerings. The comedy contentconstitutes a very small percentage of Pan-dora’s played content.

D. Pandora’s Revenue

Pandora derives revenue from two prin-cipal sources: advertising and subscriptionfees. As of today, Pandora derives ap-proximately 80% of its revenue from thesale of display, audio and visual advertis-ing, and the remaining 20% or so from apaid subscription service without advertis-ing called ‘‘Pandora One.’’

Pandora’s revenue has grown exponen-tially since its inception. For fiscal year2009, Pandora reported revenue of approx-imately $19 million. By fiscal year 2013,Pandora’s revenue had risen to over $400million. As of today, however, Pandorahas yet to demonstrate sustained profita-bility.

Pandora’s payment of licensing fees forthe use of music consumes a very signifi-cant portion of its revenue. In 2013, Pan-dora’s content acquisition costs were closeto $260 million, or over 60% of its revenuefor that fiscal year. A very substantialportion of these costs are for the fees paidto record companies for licenses for soundrecordings, as described in more detailbelow.

E. Pandora’s Competitive Environ-ment

Pandora’s competitive environment isdictated by the nature of its service. Pan-dora is a radio service, albeit a customizedradio service. Unlike traditional broadcastAM/FM radio, in which one program isplayed for many listeners, Pandora’s digi-tal radio service provides the opportunityto have a unique program created for theenjoyment of each listener. This distinc-tion between programmed and customizedradio has been referred to as the one tomany, versus the one to one distinction.But, despite that differentiation, made pos-sible by digital technology, Pandora is ra-dio. The listener does not control whatsong will next be played and doesn’t knowwhat that next song will be. As with otherforms of radio, the listener may be intro-duced to new music she has not heardbefore. There is an industry term fordistinguishing among types of listening ex-periences: lean-back versus lean-forward.Like radio, Pandora is a lean-back service,in contrast to the on-demand lean-forwardservices like Spotify.


Not surprisingly, therefore, Pandoracompetes aggressively with other radiostations for listeners. It competes directlywith internet radio stations, whether theyare programmed music streaming servicesor customized radio stations. But, becausethe internet radio market is comparativelysmall and because Pandora already holds asignificant share of that market, Pandoraexpects its increased audience, listeninghours, and advertising revenue to comelargely at the expense of terrestrial radio.While Pandora has a 71% share of theinternet radio market, it has less than an8% share of the overall radio market.

Pandora is attempting to make itselfubiquitous, so that its listeners have Pan-dora available to them throughout theirday, whether they are at home, at work, inthe car, or somewhere else. As Pandoraexplained in a 2013 SEC 10–Q filing, ‘‘[o]nekey element of our strategy is to make thePandora service available everywhere thatthere is internet connectivity.’’ Pandorahas consequently expanded its service tosmartphones, tablets, and televisionstreaming devices. And because almosthalf of radio listening takes place in cars,Pandora has negotiated agreements to in-tegrate its service into new cars built by anumber of auto companies.

Besides competing with traditional radiofor listeners, Pandora also competes withtraditional radio for advertising dollars.Most terrestrial radio advertising revenuecomes from local advertising. To competefor these advertising dollars, Pandora has

hired a large in-house local advertisingsales force. And to improve its ability tocompete for advertising dollars with ter-restrial radio stations, Pandora contractswith third party Triton Digital, a firm thatcollects radio audience data on both a localand national level, in order for radio adver-tising buyers to better understand thereach of advertisements run on Pandora.

Despite this intensive effort to build ad-vertising revenue, Pandora is still unableto play as many minutes of advertising perhour as its broadcasting competitors.Therefore, as of today, Pandora plays onaverage approximately 15 songs per houras compared to terrestrial radio’s roughly11 songs per hour.20 While Pandora’s freeradio service now runs less audio advertis-ing per hour than do terrestrial radio sta-tions, this gap may lessen as Pandora’sbusiness matures.

In accordance with the above, in its pub-lic filings with the SEC Pandora identifiesits principal competitors as broadcast radioproviders, including terrestrial radio pro-viders such as Clear Channel and CBS,satellite radio providers such as Sirius XM,and online radio providers such as CBS’sLast.fm and Clear Channel’s iHeartRadio.But, while programmed radio and custom-ized radio are Pandora’s primary competi-tion, Pandora also competes with interac-tive,21 on-demand internet music services.22

Its identified competitors in this marketinclude Apple’s iTunes Store, RDIO, Rhap-sody, Spotify, and Amazon.

20. While there is general agreement aboutthese numbers, they may not be an altogetheraccurate description of the difference in alistener’s experience of music. Listeners tobroadcast radio stations frequently switch sta-tions in search of more music when an adbegins. Moreover, even ads contain music.

21. The music industry’s use of the term ‘‘in-teractive’’ is explained below.

22. Pandora points out a cost advantage thatbroadcast and satellite radio have over Pan-dora. Broadcast radio pays no royalties forterrestrial broadcasts of sound recordings;satellite radio pays 9% of revenue for satellitetransmission of sound recordings; and Pan-dora paid 55.9% of its revenue for internettransmission of sound recordings in 2012.


V. Pandora’s Licensing History withASCAP

On July 11, 2005, Pandora first enteredinto an agreement with ASCAP for a blan-ket license to publicly perform the compo-sitions in the ASCAP repertoire. Thislicense was in effect from 2005 to 2010,when Pandora exercised its option to can-cel it. The license which ASCAP issued toPandora during this span of years was aform license.

Pandora was licensed by ASCAP from2005 to 2010 under the ASCAP Experi-mental License Agreement for InternetSites & Services—Release 5.0 (‘‘5.0 Li-cense’’). ASCAP first adopted the 5.0 Li-cense in 2004.23 As of 2004, internet radiohad been in existence for roughly tenyears, customized internet radio had beenin existence for approximately five years,and on-demand services had been in exis-tence at least three years.24 With itsadoption of this form license, ASCAPmade two important distinctions. First, itraised the rate for new media licenses,reflecting a judgment that those servicesmade more intensive use of music thanbroadcast radio. Second, it made a dis-tinction between interactive and non-inter-active new media services. It did not,however, make any distinction betweenprogrammed and customized internet mu-sic services.

The 5.0 License allowed non-interactiveusers to choose between three rate sched-ules.25 Schedule A of the 5.0 License,which Pandora chose, required it to paythe higher of 1.85% of revenue or a per-session rate. The 1.85% rate representedan increase in ASCAP’s form license ratefrom the previous rate. The predecessorto the 5.0 License had an equivalent ratefor this schedule of 1.615%.26 ASCAP’sform license for interactive services pro-vided for a substantially higher licenserate of 3.0%.27

The interactive/non-interactive distinc-tion in the ASCAP form license agree-ments is borrowed from 17 U.S.C. § 114’s(‘‘Section 114’’) use of the term interactivein the context of the licensing of soundrecording rights (Section 114 and soundrecording rights are discussed below).Because ASCAP considers its music to bemore valuable to the services it classifiesas interactive, it has licensed them at ahigher rate than non-interactive services.

As noted, under the 5.0 License Pandorawas required to pay the greater of eitherthe percentage of revenue correspondingto its applicable rate, or a fee based on aconcept known as ‘‘sessions.’’ A ‘‘session’’is defined in the license as ‘‘an individualvisit and/or access to [the] Internet Site orService by a User.’’ Any visit that exceed-ed one hour in length began a new ses-

23. ASCAP created a ‘‘New Media’’ depart-ment in 1995 to address the licensing of mu-sic over the internet. Although the meaningof the term new media may depend on thecontext, ASCAP generally considers new me-dia to include any music user that operates‘‘primarily over the Internet, through wirelessdevices, or through other emerging digitaltechnologies.’’

24. The Rhapsody on-demand service was in-augurated in 2001.

25. The 5.0 License defined non-interactiveservices as ‘‘site[s] TTT from which ‘Users’may not download or otherwise select partic-

ular musical compositions, unless such com-positions are sixty (60) seconds or less induration.’’

26. The 1.615% rate that ASCAP had appliedto internet radio before its adoption of the 5.0License was ASCAP’s rate for a terrestrialradio license in the era before the RMLClicense adopted a flat rate.

27. Interactive services are defined as thosewhich ‘‘transmit[ ] and/or provide[ ] access totransmissions of content comprising or con-taining music to ‘Users’ at their request ordirection.’’


sion.28 At some point in 2010, Pandorarecognized that it had been calculating ses-sions incorrectly, and that it had substan-tially underpaid ASCAP. It paid ASCAPover $1 million to account for that error.If the payments Pandora was required tomake to ASCAP, when measured by theper session rate, are converted into a flatpercentage of Pandora’s annual revenue,the effective rate for the years 2005through 2010 ranged from a high of 3.63%in 2006 to a low of 1.91% in 2007. Butthere is no evidence that any party be-lieved that Pandora was obligated to payabove the 1.85% rate until 2010.

Pandora’s systems do not track its cus-tomers’ use of its services with any meas-ure that corresponds to the 5.0 Licensedefinition of a session, and it was a com-plex undertaking for Pandora to calculatethe amount it owed to ASCAP using thatmeasure.29 As a result of its dissatisfac-tion with this sessions component of itslicense, on October 28, 2010, Pandora senta letter to ASCAP terminating its licenseand applying for a new license, pursuant tothe terms of AFJ2, to run from January 1,2011 through December 31, 2015.

Upon making a written request to AS-CAP, Pandora obtained, pursuant to AFJ2§ V’s requirement that ‘‘ASCAP is herebyordered and directed to issue, upon re-quest, a through-to-the-audience license toTTT [inter alia ] an on-line user,’’ the rightto perform all of the compositions in AS-CAP’s repertoire for that period, with onlythe proper payment rates to be deter-mined, either through negotiation or bythe rate court. Having been unable toagree with ASCAP on the proper price forthe license after roughly two years of ne-

gotiation, and spurred by Sony’s impend-ing withdrawal from ASCAP (as discussedbelow), on November 5, 2012, Pandorafiled with this Court a petition for determi-nation of reasonable licensing fees pursu-ant to AFJ2. See AFJ2 § IX.

VI. The April 2011 ASCAP CompendiumModification

A. Overview and Context

In 2011, ASCAP modified its Compendi-um to permit its members to selectivelywithdraw from ASCAP the right to licenseworks to new media entities. This was anunprecedented event. Never before hadASCAP granted partial withdrawal rightsto its members. As this Court would holdin 2013, the modification violated the termsof AFJ2. AFJ2 requires that ASCAP li-cense to any applicant all of the works inits repertoire, and consequently if a pub-lisher leaves a composition in ASCAP’srepertoire for some licensing purposes AS-CAP is required to license that work toany applicant. See In re Pandora Media,Inc., 12 Civ. 8035(DLC), 2013 WL 5211927,at *1 (S.D.N.Y. Sept. 17, 2013). In theyear and a half that followed the adoptionof the modification of the Compendium,three of the four largest music publisherswithdrew their new media rights from AS-CAP. EMI’s withdrawal was followed bythe withdrawal of Sony and then UMPG.Each of these publishers thereafter negoti-ated direct licenses with Pandora. Thosenegotiations and licenses have been a cen-tral feature of this litigation, and are dis-cussed in detail below.

To place the Compendium modificationin broader context, it was simply one of

28. For example, if a customer used a licensedservice once for forty minutes and once forfifteen minutes, that was measured as twosessions. Similarly, if a customer used theservice for 61 minutes, that was counted astwo sessions.

29. As a consequence, Pandora and ASCAPagreed that Pandora could use a sample ofusage to arrive at a reasonable estimate of theamount it owed.


the many ripple effects that have followedthe onset of the digital age in the musicbusiness, and the industry’s attempt torecover from the concomitant decline insome types of music sales. The modifica-tion of the Compendium came in responseto pressure from ASCAP’s largest musicpublishers. These publishers were fo-cused principally on the disparity betweenthe enormous fees paid by Pandora torecord companies for sound recordingrights and the significantly lower amountit paid to the PROs for public performancerights to compositions. The modificationwas enacted despite significant concernabout the impact of this change on AS-CAP, its writers and its independent pub-lishers.

B. Public Performance Rights forCompositions versus Sound Re-cordings

A brief overview of the distinction be-tween public performance rights in soundrecordings and public performance rightsin compositions is necessary to providecontext for the discussion of the motiva-tions of the largest publishers in effectuat-ing the Compendium modification. Aright to the public performance of a soundrecording is the right to control the per-formance of one recording of a perform-ance of a song. By contrast, a right ofpublic performance in a composition is theright to control the use of the underlyingmusical composition itself. The latterright has been long recognized; but theright of public performance of a soundrecording is a relatively new phenomenonand is restricted to digital services. Thelicensing fees for sound recordings arepaid to an entity called SoundExchange,which collects and distributes these fees tothe holders of sound recording copyrights.

[1] In 1995, Congress passed the Digi-tal Performance in Sound Recordings Act(‘‘DPSRA’’), which provided for the first

time a public performance copyright insound recordings. See 17 U.S.C. §§ 106,114 (‘‘Section 114’’). Section 114 did notrequire all music users to obtain a licenseto perform a sound recording, but onlyservices that ‘‘perform the [sound record-ing] publicly by means of a digital audiotransmission.’’ 17 U.S.C. § 106(6) (em-phasis added). Section 114 differentiatesamong services that are, in the meaning ofthe statute, ‘‘interactive’’ and ‘‘non-interac-tive.’’ An interactive service is defined asa service ‘‘that enables a member of thepublic to receive a transmission of a pro-gram specially created for the recipient, oron request, a transmission of a particularsound recording TTT which is selected byor on behalf of the recipient.’’ 17 U.S.C.§ 114(j)(7). If a digital service does notprovide users with this level of control it isnon-interactive. The distinction betweeninteractive and non-interactive services ismeaningful because ‘‘non-interactive’’ digi-tal music services are eligible for ‘‘a com-pulsory or statutory licensing fee set bythe Copyright Royalty Board [‘‘CRB’’]made up of Copyright Royalty Judges ap-pointed by the Library of Congress,’’ seeArista Records, LLC v. Launch Media,Inc., 578 F.3d 148, 151 (2d Cir.2009),whereas interactive services must indepen-dently negotiate rates for sound recordinglicenses. Pandora is a non-interactive ser-vice within the meaning of Section 114.

Importantly for purposes of this pro-ceeding, Congress also provided that thisrate court (and the BMI rate court) maynot take into account sound recording li-censing fees in setting a rate for the licens-ing of the compositions themselves. TheDPSRA provides that ‘‘[l]icense fees pay-able for the public performance of soundrecordings TTT shall not be taken into ac-count in any TTT proceeding to set oradjust the royalties payable to copyrightowners of musical works for the public


performance of their works.’’ 30 17 U.S.C.§ 114(i).

Ultimately, the CRB decided that themarket for sound recording rights was ma-terially different from the market for thepublic performance rights to musical com-positions, and set rates for compulsory li-cense fees for sound recordings at ratesmany times higher than the prevailingrates for the licensing of the public per-formance of the compositions. Conse-quently, Pandora pays over half of its rev-enue to record companies for their soundrecording rights, and only approximatelyfour percent to the PROs for the publicperformance rights to their songs.

The disparity between rates for the pub-lic performance of compositions versussound recordings does not exist for most ofASCAP’s revenue streams since, as justexplained, the need to acquire sound re-cording licenses only applies to serviceswho conduct digital audio transmissions.Thus, there is no disparity at all when itcomes to most of ASCAP’s business, in-cluding its general licensing program andits licensing of cable TV, broadcast TV,and terrestrial radio. Because only newmedia music services must acquire soundrecording licenses, the PROs end up re-ceiving far more money from public per-formance rights license fees for composi-tions than do the record companies frompublic performance license fees for soundrecordings.

C. ASCAP–Publisher NegotiationsPrior to the Compendium Modifi-cation

Against this backdrop, music publishersassessed their options. In September2010, music publisher EMI advised AS-CAP that it was contemplating withdraw-

ing entirely from ASCAP. EMI Chief Ex-ecutive Roger Faxon has explained thatEMI wanted to withdraw because it be-lieved that it was inefficient to license eachright in the musical works and recordingsit administered through different institu-tions. Faxon wanted EMI to be able to‘‘unify the rights in the compositions thatwe represented so that a single negotiationwith TTT a customer who wanted the rightscould encompass all rights TTT necessaryto empower their business.’’ Faxon alsosaid that EMI was dissatisfied with the‘‘delays’’ in ASCAP’s procedures and AS-CAP’s high operational costs.

Spurred by the potential loss of one ofthe four largest music publishers, ASCAPbegan in 2010 to explore a proposal toamend its Compendium to allow membersto withdraw from ASCAP only the right tolicense works to new media users. It was,after all, only new media users who neededto acquire both a public performance andsound recording license. Not all of theASCAP board was in agreement on thisproposal. Large publishers were in gener-al enthusiastic about such a change, butthe songwriters and independent publish-ers were less so.

As noted, the largest publishers werefixated on the higher rates that recordcompanies—often their corporate affili-ates—were receiving from internet musicproviders, of which Pandora was the mostprominent, for sound recording rights un-der Section 114’s compulsory license re-gime when compared to the rates thatPandora and others were paying for publicperformance rights under AFJ2. The ma-jor publishers viewed AFJ2 as preventingthem from closing the gap between the

30. Publishers lobbied for this provision inCongress because they were concerned thatthe sound recording rates would be set belowthe public performance rates for compositions

and drag down the latter. ASCAP also sup-ported the enactment of the provision, for thesame reason.


composition rates and the sound recordingrates. In the words of Sony’s Brodsky:

We were struck by the vast disparitybetween what record companies receivedfrom digital music services for the soundrecording rights that they conveyed andwhat was paid for the performanceright.

This concern over the discrepancy be-tween the revenues generated for recordlabels and those generated for music pub-lishers is repeated in many of the commu-nications related to the adoption of theCompendium modification and the subse-quent withdrawals by the publishers ofnew media rights from ASCAP. In manyof those exchanges they focus their atten-tion directly on Pandora. For example, anemail from ASCAP General Counsel JoanMcGivern to LoFrumento of July 30, 2010,brought up the possibility of permittingpartial withdrawals from ASCAP as ameans to attempt to close the gap in Pan-dora’s payments:

I spoke to Peter Brodsky at Sony lateyesterday. He would like to meet withus TTT to discuss—why publishers arenot receiving as much as their recordlabels from Pandora and what optionsSony might have, such as trying to li-cense Pandora directly, withdrawing itsrights, etc.

Similarly, an email of July 31, 2010 fromMcGivern to other top ASCAP officialsconfirms Sony’s focus on the gap in thepayments made by Pandora:

Peter Brodsky at Sony, asked that wemeet with him and two [outside lawyers]to discuss our Pandora license, and inparticular, why publishers and writersare not receiving as much from Pandoraas it is paying to SoundExchange.

ASCAP’s DeFilippis responded to thisemail by explaining that he had already

had conversations with Brodsky about thesame issue ‘‘about 2 months ago’’ and that‘‘[h]e seemed to understand the basic rea-sons, i.e., CRB set rates, ASCAP/BMImarket share.’’ 31

The publishers believed that AFJ2 stoodin the way of their closing this gap. Theybelieved that because the two PROs wererequired under their consent decrees toissue a license to any music user whorequested one, they could not adequatelyleverage their market power to negotiate asignificantly higher rate for a license topublically perform a composition.

On occasion the publishers offered a sec-ond rationale for executing the new mediawithdrawals: the high cost of litigating acase in rate court. Martin Bandier, theCEO of Sony, cited this rationale in anemail to Sony employees, in which he con-tended that ‘‘litigating a rate is an expen-sive and inefficient way to license our rep-ertoire to new digital services.’’

Against the backdrop of the urgency feltby the largest music publishers to closethe gap between payments for compositionrights and sound recording rights, otherASCAP members had their own separateconcerns. Songwriters, and at least someindependent music publishers, were con-cerned about the damage that might bewrought from the Compendium modifica-tion and the partial withdrawal of rightsfrom ASCAP. Songwriters trusted AS-CAP to account reliably and fairly for therevenues ASCAP collected and to distrib-ute the portion of revenues owed to writ-ers promptly and fully. Songwriters wereconcerned about the loss of transparencyin these functions if publishers took overthe tasks of collection and distribution oflicensing fees. They were concerned aswell that the publishers would not manage

31. The references in these two communica-tions to SoundExchange and the CRB arereferences to the entities that distribute fees

from and set the rate for sound recordingrights licenses.


with as much care the difficult task ofproperly accounting for the distribution offees to multiple rights holders, and mighteven retain for themselves certain monies,such as advances, in which writers believedthey were entitled to share. Overall, theywere concerned about the increasing con-centration of the publishing industry andthe willingness by some, particularly Sony,to engage in direct licensing outside theframework of the PROs. These concernsripened as the writers learned that Sonyintended to follow EMI’s lead and takeadvantage of the Compendium modifica-tion to partially withdraw from ASCAP.

Some of this tension is captured in anemail sent by ASCAP-member and com-poser [REDACTED] to LoFrumento onSeptember 6, 2012. In that email, [RE-DACTED] explained the conflicts that heperceived between the major publishersand writers of ASCAP:

[W]riters and (the major) publishers dif-fer. Writers, I believe are concernedwith the health and well being of AS-CAP. As small business owners we aredependent upon ASCAP for our suc-cessTTTT Today’s publishers (the majors)are executives not owners. Their focusis on the well being of their company,their investors and their own perceivedperformance all of which is reflected inthe quarterly bottom line. In their vi-sion of the future, ASCAP plays an in-consequential role.

[REDACTED] was not alone amongwriters in his concern about the publish-ers’ plan for new media withdrawals.Writer [REDACTED] wrote in an email ofAugust 28, 2012 to LoFrumento, thatthere was a ‘‘disintegration of trust be-tween writers and publishers,’’ and that‘‘the new breed of publishers was under-

stood by writers to be motivated primarilyby profits, and that writers would not lookpositively on ASCAP becoming a clearing-house for processing direct licensing royal-ties.’’ [REDACTED] concluded by ex-pressing his opinion about ‘‘the vital roleASCAP plays in protecting writers fromthe shark-infested waters of the musicbusiness.’’ 32

Tension between the major publishersand the writers of ASCAP is not surpris-ing given that the two groups’ interestsare not perfectly aligned. To balance theircompeting interests, ASCAP’s internalrules are premised on equality in decision-making between writers and publishers.As LoFrumento testified:

[ASCAP’s] rules are geared towardsequality between writers and publishers.[For example] [o]ur rules say that if youget a stream of revenue that was anadjustment for the past, we normally goback to the past and make that adjust-ment. There is not necessarily the samecredibility that a publisher who got ex-tra money would say, oh, well, this is fortwo years ago, well, let’s go back andmake that distribution. It’s not a cer-tainty what they would actually do withit.

As significantly, ASCAP provides writerswith transparency. Again, in the words ofLoFrumento:

Major, major driving issue is [that] withASCAP [the writers] get transparencyTTTT [They] know our rules and we takethe money that we collect, take off ouroverhead and split it fifty-fifty. Ourwriters get that part of the fifty percent,the publishers get the other parts. It’san equal division TTTT The writer’sgreatest fear is that in the world of

32. The [REDACTED] and [REDACTED]emails addressed as well their concern withthe direct licensing activities of Sony, exem-plified by its license with DMX. See In re THP

Capstar Acquisition Corp., 756 F.Supp.2d 516,552 (S.D.N.Y.2010), aff’d sub nom. BMI v.DMX Inc., 683 F.3d 32 (2d Cir.2012).


publishers collecting the money thesplits will not be reflective of how AS-CAP splits the money.

Finally, the writers were concerned thatto the extent that the major publisherspulled their significant resources out ofASCAP, the writers would have to shoul-der a larger burden in paying for activitieslike licensing, advocacy, and litigation. Inthat vein, [REDACTED] urged LoFru-mento to ‘‘not let ASCAP become the ‘ac-counting firm’ for the publishers who wantto withdraw rights.’’

The large publishers were well aware ofthe discomfort that at least some writersfelt with the new media withdrawals andmade the following argument to convincethem to come on board: if the major pub-lishers could get higher license rates bydirect negotiations with new media compa-nies outside of ASCAP then those ratescould be used in rate court litigation toraise the ASCAP license fees. The pub-lishers found an ally on this issue in writerand ASCAP chairman Williams, whoagreed with the new media rights with-drawal strategy. His email illustrates thestrategy he pursued to get writers to sup-port the publishers’ partial withdrawal ofrights from ASCAP:

My job is to make this transition assmoothly as possible in the board roomTTT to assuage the fears of the writers

who may see this as an ASCAP deathknoll TTTT [W]e are in fact giving [themajor publishers] the right to negotiate.The end result being that they will set ahigher market price which will give usbargaining power in rate court.

As an internal debate swirled, the AS-CAP Board authorized management onSeptember 16, 2010 to ‘‘examine alterna-tive means of licensing digital media and toengage antitrust counsel.’’ In March 2011,ASCAP notified the Department of Justiceof its consideration of a proposal to allowthe withdrawals of new media licensingrights from ASCAP.33

D. The Compendium Modification Al-lowing New Media Withdrawals isEnacted.

On April 27, 2011, the ASCAP Boardadopted a resolution to amend its Compen-dium to allow a member to withdraw fromASCAP its rights to license music to newmedia outlets, while allowing ASCAP toretain the right to license those works toother outlets. Six songwriter members ofthe Board abstained from the vote, butthere was no vote in opposition.

The Compendium modification was exe-cuted by creation of Compendium Rule1.12. It allowed any ASCAP member, onsix months notice,34 to ‘‘modify the grant ofrights made to ASCAP TTT by withdraw-

33. The ASCAP submission to the DOJ focusedon three issues which ASCAP believed mightrequire amendments to AFJ2. The third of theissues it mentioned was the proposal toamend the Compendium to allow a publisher(the submission focused on EMI) to ‘‘reserveexclusively to itself the right to license partic-ular on-line users.’’ In an oblique referenceto the higher rates for a license for the publicperformance of a sound recording, the sub-mission disclosed that EMI had concludedthat ‘‘the consent decree is not giving it ade-quate value for its repertory, especially ascompared to revenues they derived from oth-er, similar rights.’’ The first two issues, towhich it devoted a far lengthier discussion,

were problems created by the rise of ‘‘carveout’’ licenses, and other challenges associatedwith online licensing.

34. With respect to the timing of a publisher’swithdrawal of rights, the modified Compendi-um provided that:

A [new media withdrawal] TTT will be effec-tive on the first day following the last day ofthe calendar quarter in which the anniver-sary date of the Member’s election falls (the‘‘Effective Date’’), upon submission of anexecuted copy of such [withdrawal] to AS-CAP no more than nine months nor lessthan six months from the calendar quarterin which the anniversary date falls.


ing from ASCAP the right to license theright of public performance of certain New[M]edia Transmissions.’’ The modifiedCompendium defines ‘‘New Media Ser-vices’’—i.e., entities which make ‘‘New Me-dia Transmissions’’ and which would bepurportedly subject to a decrease in theirASCAP rights as the result of publisherwithdrawals—as

any standalone offering by a ‘MusicUser’ TTT by which a New Media Trans-mission of musical compositions is madeavailable or accessible (i) exclusively bymeans of the Internet, a wireless mobiletelecommunications network, and/or acomputer network and (ii) to the public,whether or not, in exchange for a sub-scription fee, other fee or charge.35

In the Compendium modification, ASCAPprovided that ASCAP would

continue to have the right to licensesuch works only to those New MediaServices which are licensed under Li-censes–in–Effect on the Effective Dateof the Membership Modification, andonly for the duration of such Licenses–in–Effect.

One effect of the Compendium modifica-tion was that major publishers could pull awriter’s works out of the PRO that thewriter had decided to join. Although pub-lishers had in the past considered a workto belong to the repertoire of the PRO towhich the writer of the work belonged, infact, it was a publisher that generally hadcontractual control over the licensing deci-sions for the work. With the withdrawalof rights from the PRO, the withdrawingpublisher unilaterally removed the workfrom the PRO insofar as new media licens-ing rights were concerned.

The Compendium modification also al-lowed the withdrawing publishers to re-join ASCAP at any point, eliminating any

risk to the publisher if a withdrawalproved to be a bad idea. Section 1.12.6 ofthe Compendium provided that: ‘‘[a]nyMember may terminate its MembershipModification at any time upon written no-tice to ASCAP, and thereby grant back toASCAP the rights previously withdrawn.’’(Emphasis added.)

To manage the withdrawal process, theCompendium modification mandated, inSection 1.12.4, ASCAP’s creation of a listof works subject to any publisher’s with-drawal by ‘‘[n]o later than ninety daysbefore the Effective Date’’ of the with-drawal. The publisher was required tonotify ASCAP of any errors or omissions‘‘within ten days of receipt of the List ofWorks.’’ Thus, ASCAP and the publisherwould both have a list of works that wouldbe affected by the withdrawal well in ad-vance of the effective date of the with-drawal.

E. ASCAP Provides AdministrativeServices for Withdrawing Publish-ers.

EMI publicly announced in early May of2011, within days of the adoption of theCompendium modification, that it would bewithdrawing new media rights from AS-CAP. The turmoil caused by EMI’s deci-sion was widespread. Confronted with thereality of losing this major publisher, onMay 5, ASCAP’s LoFrumento made a pro-posal to EMI. He offered ASCAP’s ser-vices in distributing the EMI revenues toASCAP members and to other songwritersand publishers who would be entitled toshare in the revenues. LoFrumento ar-gued at the time that

ASCAP is uniquely positioned to handlethe distribution of these rights becauseit already distributes royalties from theonline licensees; its operating ratio re-

35. At trial, the publishers agreed that theCompendium modification does not apply todigital downloads. The publishers and AS-

CAP do not appear to have a position yet onwhether it applies to satellite radio.


mains one of the lowest in the world andcertainly the lowest in the US; its tech-nology is leading edge and its databasesare authoritative; and finally, its staff istruly professional.

LoFrumento also advised EMI’s Faxonthat ASCAP had been flooded with inqui-ries since EMI’s announcement from bothforeign and domestic rights holders andorganizations. As he explained, manywriters were concerned that EMI wouldnot distribute royalties as carefully, accu-rately, and promptly as they had reliedupon ASCAP to do.

Ultimately, EMI and other withdrawingpublishers agreed to let ASCAP handlethe distribution of royalties collected forthe new media direct licenses that theynegotiated. They executed ‘‘Administra-tion Agreements’’ for this purpose. AS-CAP charged a fee of [REDACTED] forthis service, which represented a very sub-stantial discount from its ordinary chargeto members. Essentially, ASCAP set arate based on the direct costs associatedwith these functions. ASCAP was con-cerned that without a low rate, the with-drawing publishers would be tempted touse competing PROs to perform the ad-ministration services.

As a result of the publishers’ partialwithdrawals from ASCAP, the burden on

remaining ASCAP members to pay for allof the other functions that ASCAP per-forms for its members, including in Lo-Frumento’s words at trial, ‘‘membership,legislative, legal, senior management, [and]international costs,’’ increased. On theother hand, because ASCAP continued toadminister the distribution of licensingrevenues, the writers could continue tohave confidence that they would actuallyreceive the monies owed them by the with-drawing publishers. Finally, the Adminis-tration Agreements meant that the with-drawing publishers faced little downside inwithdrawing new media rights. Theycould continue to enjoy the benefits ofhaving ASCAP perform burdensome back-office tasks while licensing internet musicentities directly.

VII. A Second Compendium Modifica-tion in December 2012: the ‘‘Stan-dard Services’’ Agreement

At the urging of Sony, another changeto the Compendium, executed in December2012, further reduced the burdens on with-drawing publishers. The modification al-lowed the publishers to target large newmedia entities for direct licensing negotia-tions and to effect withdrawals of rightsfrom ASCAP solely with respect to thoselarge licensees.36

36. By the Fall of 2012, there was increasingdissent within ASCAP about the wisdom ofthe 2011 Compendium modification. At aSeptember Board meeting, the writer mem-bers of the Board urged that ASCAP reversethe modification and reject Sony’s pendingrequest that the option to withdraw new me-dia rights be further modified to allow a pub-lisher to target its withdrawal and limit it tothe rights needed by large music users only.The writers did not want ASCAP to assistSony as it weakened ASCAP. Much of thisanger was engendered by Sony’s direct licens-ing program generally, including the licensingof DMX.In June of 2012, the Court of Appeals for theSecond Circuit had affirmed rate court deci-

sions that set rates for ASCAP and BMI li-censes with DMX that were comparable toDMX’s direct license rates, with certain ad-justments. DMX Inc., 683 F.3d at 47. Thedecision also required ASCAP to provide ablanket license that was subject to carve-outsto account for an applicant’s direct licensingprogram. Id. at 44. DMX is a commercialmusic service provider that supplies back-ground and foreground music to public ven-ues such as restaurants, frequently throughthe transmission of music via satellite trans-mission. To succeed in its direct licensingcampaign with music composers and publish-ers, DMX decided that it was necessary tosign at least one major music publisher. In2007, it entered into such a license with Sony


The December 2012 amendment permit-ted a member that was withdrawing underSection 1.12 of the Compendium to indi-cate that it wished to leave to ASCAP theright to license certain new media servicesthat paid to ASCAP license fees of lessthan $5,000 per year. Where the with-drawing member indicated that it was onlywithdrawing new media rights ‘‘in part,’’ASCAP continued to license new mediaservices for the member that were definedin the Compendium as ‘‘Standard Ser-vices.’’ As a consequence, smaller newmedia entities could avail themselves of anASCAP license so long as they acceptedASCAP’s 5.0 License (or its successor li-censes) without negotiation.

ASCAP’s DeFilippis offered the follow-ing explanation for the adoption of theStandard Services exception for the with-drawal of new media licensing authority:

Given the rapidly changing marketplaceand the low barriers to entry, new digi-tal music services launch quite frequent-ly. Many will never gain traction withlisteners or generate substantial reve-nue. From the perspective of the with-drawing music publishers, they lackedthe necessary staff and infrastructure totrack the thousands of small music usersthat wished to license their music.

Sony’s Brodsky stated that Sony wantedthis revision to the Compendium so thatSony’s withdrawal could be limited ‘‘to justthe music services that we wanted to enterinto direct deals with.’’ 37

VIII. Pandora Negotiates Direct Licens-es with EMI, Sony, and UMPGand Fails to Negotiate an Agree-ment with ASCAP.

A. The Pandora–EMI License Negoti-ations

Upon learning in May 2011 of EMI’swithdrawal of its new media licensingrights from ASCAP, Pandora immediatelybegan to negotiate with EMI for a licenseto its catalog. The negotiations were notcontentious and the contours of the licensewere quickly settled. Indeed, in their veryfirst substantive discussion, which oc-curred on June 6, EMI confirmed that itwould be using 1.85% as the headline rate,and hoped to have the agreement effectiveas of January 1, 2012. The collegial toneis reflected in handwritten notes by Pando-ra’s Rosenbloum. Rosenbloum colorfullyrecorded that EMI was ‘‘not looking toscrew anyone.’’

EMI’s Faxon testified that the rate inthe EMI–Pandora license was ‘‘freelyagreed to.’’ EMI was less concerned withthe precise rate than the flow of revenueinto EMI. Because the ASCAP deductionsfrom gross receipts would be smaller, EMIviewed the license terms with Pandora as a‘‘substantial improvement.’’

The 1.85% rate in the Pandora–EMIagreement was the same rate that wasavailable to Pandora under ASCAP’s 5.0License for a non-interactive service. AJuly term sheet with EMI reflected thisrate and an expectation that the agree-ment would have a two year term. It alsoreflected calculations premised on EMI’sestimate that it had approximately a 20%market share at the time.

by offering a substantial advance and an ad-ministrative payment. Id. at 38.

37. During the negotiations over this Compen-dium amendment, ASCAP’s counsel commu-nicated to Sony that there were antitrust con-cerns with the carve-out proposal.


During the ensuing months, the partiesdiscussed the size of an advance that Pan-dora would pay to EMI, among otherthings. Meanwhile, Pandora continued topay its licensing fees to ASCAP.

The licensing agreement, although notexecuted until March 16, 2012, covered thetwo-year period January 1, 2012 to Decem-ber 31, 2013. Pandora agreed to a licensethat provided EMI with a pro-rata shareof 1.85% of Pandora’s revenues.38 TheEMI agreement did not contain any ‘‘per-session’’ component like that included inthe ASCAP 5.0 License. It required Pan-dora to pay a non-refundable advance of[REDACTED], which Pandora was confi-dent would be exceeded by its payments toEMI over the course of the license. Inaddition, the EMI agreement permittedPandora to take up to a [REDACTED]adjustment to revenue for advertising ex-penses.39 This adjustment included com-missions paid to internal advertising salespersonnel, but only if Pandora were able toobtain an adjustment for internal advertis-ing expenses in connection with an agree-ment from another major music publisheror PRO.

Finally, the agreement included a most-favored-nation clause, or ‘‘MFN,’’ for thebenefit of Pandora. The agreement con-templated a prospective decrease in theheadline rate from 1.85% to as low as1.70% if Pandora succeeded in obtaining alower rate for licensing a repertoire aslarge or larger than EMI’s catalog. Itsimilarly allowed for an increase in theadvertising expense adjustment up to [RE-DACTED].

The reference to the 1.70% rate wasprompted by the recently announced set-tlement of rate court litigation betweenASCAP and the RMLC in January 2012.As described above, that license providedfor a blanket license rate of 1.70% of reve-nue and a 25% deduction for advertisingexpenses in connection with new media.

B. The Pandora–ASCAP License Ne-gotiations

As noted above, Pandora had terminatedits license with ASCAP on October 28,2010 because of its concern over the calcu-lation of the per-session rate in the 5.0License, and had applied at that time for anew license for the calendar years 2011through 2015. It remained an applicantfor such a license throughout 2011 and2012, as ASCAP adopted its modificationto the Compendium and as EMI withdrewnew media rights from ASCAP.

On September 16, 2011, Pandora execut-ed an interim license agreement with AS-CAP effective as of January 1, 2011. Itadopted the 5.0 License rate of 1.85% with-out any per session fee. The agreementnoted the parties’ competing positions onseveral issues, including Pandora’s positionthat the adjustment for advertising ex-penses should apply to its internal adver-tising expenses.

Roughly a year later, on September 28,2012, Pandora learned that Sony was alsowithdrawing its new media rights fromASCAP. With its discussions with ASCAP‘‘languish[ing]’’, and with Sony’s withdraw-al from ASCAP due to take effect at yearend, which was just weeks away, Pandora

38. EMI and ASCAP estimated ASCAP’s mar-ket share as 47%. The parties determined therevenue base against which the 1.85% wouldbe applied by calculating Pandora’s revenue,multiplying it by the percentage of tracksplayed that embodied EMI’s catalog, and mul-tiplying that number by ASCAP’s estimated

47% market share. This calculation requiredEMI to provide Pandora with a list of itsworks, which it did monthly until Sony ac-quired EMI.

39. [REDACTED].


filed this rate court petition on November5.

Pandora’s filing in rate court angeredsome in the ASCAP community, particu-larly the major publishers. They ex-pressed their outrage not only to Pandora,but also to its outside counsel, the law firmGreenberg Traurig, LLP. The day afterthe rate court filing, UMPG’s Horowitzcalled one of Pandora’s attorneys atGreenberg Traurig. As Horowitz prompt-ly memorialized in an email to ASCAP’sLoFrumento, Horowitz

told [Pandora’s outside counsel], as a‘‘friend’’ of the firm, that I thought boththe firm and Pandora are completelytone deaf. That whether his firm hasthe legal right to rep Pandora in litiga-tion, the firm has lost huge goodwill withwriters and artists by doing so. Andthat filing now for a rate court proceed-ing against ASCAP TTT had the effect ofunifying artists, writers, and PROsagainst Pandora.

Horowitz also gave some advice to Lo-Frumento regarding ASCAP’s negotiatingstance with Pandora. His advice boileddown to two words: be strong. Horowitzwrote:

My take: [Pandora’s outside counsel]and Pandora are scared. They justwant to settle with ASCAP and settlefast. Be strong. Time is on your side.Pandora is now under intense pressureto settle with ASCAP. They have to putthis behind them. You can really pushPandora and get a much better settle-ment as a result. They are reeling.They will pay more, a lot more than theyoriginally intended, to do that.

Horowitz forwarded this same email toother ASCAP board members, includingSony’s Martin Bandier, and BMG MusicPublishing’s Laurent Hubert. Besidesthese ASCAP Board members, Horowitzsent the email to David Israelite of theNational Music Publishers Association

(‘‘NMPA’’), which is a music industry tradegroup based in Washington, D.C. LoFru-mento assured Horowitz that he was ap-proaching Pandora with the mindset Horo-witz advocated.

Horowitz continued to apply pressure onPandora. He called Pandora’s outsidecounsel a second time, about a week afterhis first call, and reported once more toLoFrumento. As Horowitz explained toLoFrumento on November 14, Pandora’soutside counsel ‘‘has been spending hourson fallout from their repping Pandora.They are embarrassed. [Pandora’s coun-sel] said they will withdraw from reppingPandora in the next few weeks if the [ratecourt litigation with ASCAP] doesn’t set-tle.’’

Not surprisingly, given the fallout fromPandora’s filing of the rate court petition,and with the deadline for Sony’s withdraw-al from ASCAP approaching, the negotia-tions between Pandora and ASCAP inten-sified. Had those negotiations succeeded,of course, this rate court action would havebecome moot.

By the end of November, Pandora be-lieved that it had reached an agreement onterms with ASCAP, although it understoodthat the agreement needed final approvalfrom ASCAP. Pandora emailed a termsheet to Pandora on November 29. AS-CAP had assured Pandora that if theyfinalized their agreement before the end of2012, the license would cover the Sonyrepertoire since the Sony withdrawal fromASCAP was only effective as of January 1,2013.

LoFrumento decided to reject the li-cense that his team had negotiated withPandora. He knew that either way hefaced litigation. He knew that if he exe-cuted the license, Sony would sue ASCAP.Sony had threatened to sue ASCAP in theevent any license agreement with Pandorathat encompassed the Sony repertoire was


executed before the end of 2012.40 Sonyhad also notified ASCAP that it might notuse ASCAP for administration services ifASCAP issued a license to Pandora. Lo-Frumento was already facing rate courtlitigation with Pandora. Given the pres-sure being exerted on him by both Sonyand UMPG, LoFrumento was only willingto execute a license with Pandora thatincluded a headline rate of at least 2.5%,and he knew Pandora was not willing topay that much.

LoFrumento advised the Law and Li-censing Committee of ASCAP’s Board ofDirectors on December 12 that he intend-ed to reject the terms Pandora and AS-CAP had negotiated. Everyone under-stood that that meant that the rate courtproceeding would go forward. None ofthe Committee members asked for a de-scription of terms Pandora and ASCAPhad negotiated or to discuss LoFrumento’sdecision.41

Thus, in mid-December 2012, ASCAPset itself on a course to have its rate forlicensing Pandora set in this rate courtproceeding, despite the cost associatedwith that litigation. The decision wasmade in the midst of great turmoil, uncer-tainty and pressure. The partial with-drawals of new media rights by majorpublishers, who collectively controlledabout 50% of ASCAP’s music, threatenedto make ASCAP a weaker organization.Sony and UMPG had also made clear toLoFrumento that they wanted to negotiatedirect licenses with Pandora and opposedASCAP entering into a final license withPandora. There was, of course, a chancethat by placating the major publishers,they might later exercise their option to

rejoin ASCAP for all purposes. LoFru-mento also had to consider the writers whohad become restive and were doubtfulabout the supposed benefits of the publish-er withdrawals. In the midst of all of this,LoFrumento cast the lot of ASCAP withthe withdrawing major publishers andchose to let the rate court decide the dis-pute between Pandora and ASCAP. OnDecember 14, ASCAP surprised Pandoraand rejected the terms they had negotiat-ed.

C. The Pandora–Sony License Negoti-ations

Since the Fall of 2010, Sony had beendiscussing with ASCAP the possibility of awithdrawal of rights so that it could direct-ly negotiate with Pandora. In July 2012,Sony notified ASCAP that it would exer-cise its right under the modified Compen-dium to withdraw new media rights. Inlate September, Pandora (along with therest of the world) learned that Sony wouldbe withdrawing new media rights fromASCAP effective January 1, 2013. As al-ready described, Sony worked with AS-CAP during late 2012 to effect a secondchange to the Compendium that wouldpermit a partial withdrawal of new mediarights from ASCAP. Under the StandardServices exception, Sony allowed ASCAPto retain licensing authority for smallernew media services while assuming re-sponsibility for the direct licensing of larg-er entities such as Pandora.

As of the Fall of 2012, Sony was theworld’s largest music publisher. It ownedor controlled between 25% and 30% of themarket. It had taken this frontrunner

40. Sony’s attitude to a negotiated Pandora–ASCAP license had been clear for months. Inan email of October 4, Sony (which by thattime controlled EMI) refused Pandora’s re-quest to disclose the terms of the Pandora–EMI license to ASCAP.

41. Prior to that meeting, LoFrumento haddiscussed with a few committee members theterms on which Pandora and ASCAP hadagreed in principle and which he intended toreject.


position in the summer of 2012, when itbecame responsible for licensing EMI’s ca-talog.42 Combined, the Sony and EMIcatalogs contain roughly 3 million songs.

While the effective date of the withdraw-al came as a surprise to Pandora, Pandorahad been aware that the withdrawal was apossibility ever since ASCAP adopted theCompendium modification. Indeed, in theSpring of 2012, Pandora wrote to the Fed-eral Trade Commission in opposition toSony’s acquisition of EMI and referred tothis very possibility. Noting that a Sonywithdrawal from the PROs would requirePandora to negotiate directly with Sonyand that Pandora would be faced with achoice of either paying higher rates ‘‘orcontinuing to operate without Sony’ssongs,’’ Pandora’s Kennedy expressed con-cern that the combination of the Sony andEMI catalogs would give Pandora ‘‘nochoice’’ but to enter into a direct licensefor the content. While Pandora ‘‘couldsurvive without access to Sony’s musicalcontent,’’ it ‘‘could not survive without ac-cess to the combined Sony and EMI cata-logues.’’

The first substantive discussion betweenPandora and Sony occurred in a telephonecall on October 25 between Sony’s Brodskyand Pandora’s Rosenbloum.43 Sonypromptly set the tenor for the negotiationswith a not-too-veiled threat. Brodsky stat-ed ‘‘[i]t’s not our intention to shut downPandora.’’ In his many years of negotiat-ing music licenses, Rosenbloum testifiedthat had never before heard such a threat.In some ways, this threat put on the tableno more than what was obvious. Sony’sworks were already being played on Pan-dora; they were incorporated in the MGP.Unless Pandora could do without those

works and remove them from its reper-toire by January 1, Pandora had to obtaina license from Sony or face crippling copy-right infringement claims. Sony was inthe driver’s seat and the clock was ticking.

The remainder of the conversation waslargely devoted to Sony’s statement ofthe reasons why it needed Pandora topay for the public performance of musicat a substantially higher rate. The prin-cipal reason was the ‘‘massive unfair dis-parity’’ between what Pandora was payingthe record labels for sound recordingrights and what it was paying the musicpublishers for composition rights. Brod-sky explained that if the labels were get-ting 50% of Pandora’s revenue, then itwould be ‘‘fair’’ for music publishers toget 12% of the revenue, although Brodskyacknowledged that Pandora could not af-ford to pay that much. As Brodsky em-phasized, it was the ‘‘differential’’ betweenthe rates paid to the labels and the pub-lishers that was the problem, and thatPandora was really just caught in themiddle of a tug of war between the labelsand publishers. Brodsky admitted that ifthe labels were getting only 25% of Pan-dora’s revenue, then Pandora’s current in-dustry-wide rate of 4% for the licensingof rights to publicly perform compositionswould probably be alright and therewouldn’t be any need to increase it.

Brodsky identified a second, subsidiaryreason for needing Pandora to pay more.Referring to the writers’ skepticism overthe motives of the publishers in withdraw-ing from the PROs, Brodsky added thatSony had to show the writer-members ofthe PROs that there was some ‘‘reasonablejustification’’ for Sony’s withdrawal. At

42. Sony Corporation and other investors pur-chased EMI Music Publishing companies inJune 2012. With that purchase, Sony/ATVundertook the administration of EMI, whichremains a separate entity.

43. EMI’s Michael Abitbol was also a partici-pant in the call.


the end of the call, Rosenbloum threw outthe possibility that Pandora might pay a‘‘modest’’ increase to Sony for a year asthey all waited to see what happened tothe rates Pandora was paying the labels.

Following this conversation, Pandora de-cided on a two-prong strategy. It wouldintensify its efforts to get an ASCAP li-cense before the end of the year. Tobring ASCAP to the negotiating table itfiled its petition in this rate court for anASCAP license on November 5. Secondly,Pandora attempted to obtain leverage inits negotiations with Sony. It requested alist of the Sony catalog so that it couldtake the Sony works off, or at least threat-en to take them off, of the Pandora serviceif no deal could be reached. In his yearsof negotiating licenses, this was the firsttime that Rosenbloum had ever requesteda list of works from a publisher.

Pandora’s first request for the list cameon November 1, 2012, in an email fromRosenbloum to Brodsky. Rosenbloum ad-vised Brodsky that:

I wanted to follow up with you about ourconversation last week regarding Pando-ra. As I mentioned, given the uncer-tainties around Sony/ATV’s and EMI’sposition with respect to webcastingrates, Pandora has decided that it needsto be prepared to take down all Sony/ATV and EMI content in the event weare unable to agree on rates by the endof this year. In that regard, please letme know if you can provide us with anelectronic listing of Sony/ATV and EMIrepertoire.On a related note, as the end of the yearis rapidly approaching, we look forwardto receiving a rate proposal as soon aspossible (to the extent that EMI andSony/ATV are still interested in movingforward with a direct license agree-ment).

Brodsky received this request for a listof the Sony works, but never responded.

In their telephone conversations duringthe month of November, Rosenbloum reit-erated the request for a list of works onseveral occasions but never got any re-sponse. Rosenbloum repeated the requestonce more at a breakfast meeting that heand Pandora’s Kennedy had with Sony’sBrodsky and Bandier on November 30.Again, Sony did not respond.

The list of Sony works was potentiallyimportant for several purposes, and Pan-dora referred to those several purposes inits discussions with Sony. In addition towanting to be able to remove the Sonyworks from its service if Pandora and Sonycould not come to terms, Pandora neededthe list so that it could understand how toapportion any payments between the EMIand Sony catalogues since the paymentswould apparently be made at two differentrates. Pandora also wanted the list so itcould evaluate whether the substantial,non-refundable advance that Sony was de-manding would likely be recouped.

Sony had a list readily at hand, since theCompendium required that a publisherand ASCAP work together during the 90day period before the effective withdrawaldate to confirm precisely which workswere being withdrawn. Sony understoodthat it would lose an advantage in its nego-tiations with Pandora if it provided the listof works and deliberately chose not to doso. Brodsky’s explanation at trial that hedid not provide the list because he believedthat negotiations were proceeding smooth-ly and did not want to impose an unneces-sary ‘‘burden’’ on Sony’s staff is not credi-ble. The negotiations were not goingsmoothly; the list had already been pre-pared and its production imposed no bur-den. As Brodsky recognized in his testi-mony, the list was ‘‘necessary’’ to Pandorain the event the parties did not reach adeal. Sony decided quite deliberately towithhold from Pandora the information


Pandora needed to strengthen its hand inits negotiations with Sony.

Ultimately, Sony made an offer to Pan-dora in early December. Still hoping toreach an agreement with ASCAP whichwould obviate the need for license fromSony, Pandora did not respond to the offeror to a follow-up email of December 6.

On Friday, December 14, with twoweeks left in the year, and one week re-maining before the music industry took itsannual holiday break, ASCAP notifiedPandora that it would not execute theagreement they had negotiated. The fol-lowing Monday, Pandora urgently madetwo renewed written requests for the listof Sony’s works, one to Sony and anotherto ASCAP.

Since the repeated requests from Pan-dora’s outside counsel Rosenbloum hadgone unanswered, Pandora’s general coun-sel Delida Costin sent her own email toBrodsky on December 17 requesting thelist of works.44 Not wishing to empowerPandora, Sony never responded.45

That same day, Pandora also asked AS-CAP for the list of Sony works in ASCAP’srepertoire. It would have taken ASCAPabout a day to respond to Pandora’s re-

quest with an accurate list of the Sonyworks. But, ASCAP, like Sony, stone-walled Pandora and refused to provide thelist.

In making the request to ASCAP, Pan-dora’s counsel wrote that ‘‘Pandora mustprepare for the possibility of being unli-censed by Sony/ATV or ASCAP for[Sony’s] works effective January 1st, so itis important that we get this informationfrom ASCAP as soon as possible.’’ Thisrequest set off a flurry of emails withinASCAP. ASCAP ultimately decided tocontact Sony to see if it would give itspermission to share the list of works. OnWednesday, December 19, ASCAP notifiedSony of Pandora’s request and that itwould be providing Pandora with the list ofSony works that ASCAP had previouslygiven to Sony in connection with its with-drawal of rights. Not surprisingly, givenits own refusal to share the list with Pan-dora, Sony did not give ASCAP permissionto provide the list.46 As a result, neitherSony nor ASCAP provided the list ofworks to Pandora.

If either Sony or ASCAP had providedPandora with a list of the Sony works,Pandora would have been able to removeSony’s compositions from its service within

44. Costin wrote:While we remain hopeful that we will reachmutually acceptable terms, we also findourselves in a position where we must pre-pare for the possibility that we are unableto obtain a license prior to January 1, 2013,which is the date that has been signaled asthe effective date of the Sony/ATV with-drawal of certain of its compositions forcertain uses. I am writing, therefore, torequest that Sony/ATV identify the specificmusical compositions that it intends towithdraw from each of [the PRO’s] licenseauthority effective as of January 1, 2013.

45. Brodsky testified that Sony did not providePandora with a list of works because, whenhe contacted Rosenbloum regarding Ms. Cos-tin’s request, Rosenbloum replied that ‘‘therewas no need for Sony/ATV to provide such a

list of works because we were very close tofinalizing a deal.’’ Rosenbloum denies evertelling Brodsky any such thing. Brodsky alsotestified that Rosenbloum did not make oralrequests for the list of works in between theNovember 1 written request and the requestduring the breakfast meeting on November30. While Rosenbloum was entirely crediblein his testimony on these issues, Brodsky wasnot.

46. ASCAP personnel shared their amusementwith each other over Sony’s decision to with-hold the list from Pandora. In one email,DeFilippis asked ASCAP’s counsel RichardReimer ‘‘Why didn’t Sony provide the list toPandora,’’ to which Reimer replied ‘‘Ask metomorrow,’’ to which DeFilippis responded‘‘Right. With drink in hand.’’


about a week.47 Although ASCAP at-tempted at trial to show that Pandoracould have used public sources of informa-tion to identify the Sony catalog, it failedto show that such an effort would haveproduced a reliable, comprehensive list,even if Pandora had made the extraordi-nary commitment necessary to try to com-pile such a list from public data.

The terms of the Pandora license withSony were negotiated in four businessdays during the single week that ran be-tween ASCAP’s rejection of the Pandoraterm sheet and the start of the holidaybreak. On December 18, Brodsky sentRosenbloum a term sheet. As proposed inthat document, the license term would beone year, starting January 1, 2013. Itrequired Pandora to pay a non-refundablebut recoupable advance of [REDACTED]and a non-refundable [REDACTED] ad-vance as an administrative fee. The royal-ty rate was set at Sony’s pro-rata share ofan industry-wide rate of 5%. Sony under-stood this to be a 25% increase over thethen prevailing industry rate of approxi-mately 4%. In his March 2013 report to hisBoard of Directors, Sony’s Bandierbragged that Sony had leveraged its sizeto get this 25% increase in rate.

The term sheet also allowed Pandora totake an adjustment for advertising ex-penses of up to [REDACTED]. Thiswould include a deduction for Pandora’sinternal advertising sales personnel ‘‘to theextent deducted from revenue in connec-tion with the calculation of performance

right license fees under Licensee’s agree-ments with other major music publishers’’or PROs.

On a December 21 draft of the agree-ment, Rosenbloum wrote to Sony that, tothe extent Pandora was willing to concludethe license without receiving ‘‘actual data’’from Sony, it ‘‘at least’’ needed confirma-tion of the approximate percentage of theASCAP repertoire that consisted of Sonyand EMI compositions. Sony’s Brodskyresponded to this request not by giving alist but with a rough estimate that theSony/EMI share of the ASCAP repertoirewas 30%.

Although the agreement was predomi-nately on Sony’s terms, the December 21draft agreement did include a change inPandora’s favor regarding the adjustmentfor advertising sales from a previous draftof the agreement. Unlike a draft deliv-ered from Sony to Pandora on December18 which only allowed for a deduction frominternal advertising costs if Pandora got asimilar deduction from another PRO orpublisher, the December 21 agreement al-lowed for a reduction of up to [REDACT-ED] that included both outside commis-sions and direct internal costs of such saleswithout reference to another agreementwith a PRO or publisher. The partiesexecuted a Binding Heads of Agreementon December 21, 2012.

By mid-January 2013, and despite theexistence of a confidentiality agreement,Sony leaked the key terms of the Pandoralicense to the press.48 The headlines in

47. Pandora needed the publishers’ list ofworks before it could take any steps to re-move them from the Pandora service. OncePandora had the list, it could quite quicklyremove any song with an identical title andeliminate the copyright infringement risk. Itwould take Pandora more than a week, how-ever, to identify which songs with identicaltitles but from other publishers could be rein-troduced into the Pandora playlist.

48. Although Brodsky denied knowing thatanyone at Sony had leaked the terms of thelicense to the press, the evidence is that Sonydid just that. Despite reporting dutifully thatSony had ‘‘declined’’ to comment on theterms of the deal, the articles referred toanonymous industry insiders as their sourceand quoted Bandier’s analysis of the deal.While Pandora had absolutely no interest inseeing the 25% hike in its rates known toother licensors, Sony hoped that its rate


three articles said it all: ‘‘Sony/ATV ‘NowHas the Power to Shut Pandora DownTTT’ ’’; ‘‘Sony/ATV gets 25 percent in-crease in Pandora royalties’’; and ‘‘Sony/ATV’s Martin Bandier on new ‘quite rea-sonable’ Pandora deal.’’ A New York Postarticle featured a photograph of Sony’sBandier in shirt sleeves with a large cigarin his mouth, as it reported that Sony had‘‘wrangled a 25 percent increase in royal-ties’’ for a one year license. Bandier wasquoted as saying that ‘‘[a]t the end of theday, we got a terrific deal for our songwri-ters. Our thinking has been vindicated.’’In his interview with Billboardbiz, report-ed on January 18, Bandier explained thatthe rates ‘‘are quite reasonable. Whenyou compare it to the rate record compa-nies are getting, it was really miniscule.’’One article reported: ‘‘[m]any other pub-lishers were rooting for Sony to deliver ahigher rate TTT so that if [the PRO’s] dealwith Pandora heads to rate court, thejudge will consider the Sony rate the mar-ket rate and raise performance royaltiesaccordingly.’’ The press coverage focusedon Sony’s leverage in negotiations due toits outsize market power: ‘‘Look a littlecloser, and this is ultimately a very lopsid-ed negotiation TTTT Pandora absolutelyneeds Sony’s catalog to run an effectiveradio service. And if they don’t pay whatSony/ATV wants, they can’t use it, bylaw.’’

D. The Pandora–UMPG License Ne-gotiations

Pandora did not have to wait long forthe next publisher to leave ASCAP anddemand a yet higher rate for a directlicense. In February 2013, Pandora

learned that UMPG was scheduled to with-draw its new media licensing rights fromASCAP effective July 1, 2013.

UMPG’s Horowitz had notified ASCAP’sLoFrumento at the end of November 2012that UMPG intended to withdraw new me-dia rights from ASCAP. Horowitz toldLoFrumento that the ASCAP rate forPandora was ‘‘too low.’’ In making thisassertion he referred to Spotify’s 10.5%rate.49 Horowitz added that he believedSony would be getting a much better ratefrom Pandora than ASCAP would achieve.Horowitz asked ASCAP for a waiver of theCompendium’s notice period; he wanted towithdraw effective January 1, 2013. AS-CAP denied the waiver request.

The negotiations between UMPG andPandora were even more contentious thanthe negotiations between Sony and Pando-ra. After difficult conversations in Marchin which UMPG asked for an industry-wide headline rate of 8%, Pandora essen-tially placed the negotiations on hold.While a license agreement was executed inJune, it was for a six month term only andwas contingent on several events.

The negotiations between these partieswere conducted principally by Horowitzfor UMPG and Rosenbloum and Kennedyfor Pandora. Kennedy and Horowitzknew each other fairly well. They hadbeen dealing with each other for years inconnection with sound recording rights.Horowitz had run the ‘‘label’’ side of Uni-versal’s business until April 2012, when hewas transferred to the music publishingside of the organization. Horowitzbrought into these 2013 negotiations with

would be a jumping off point for the nextpublisher’s negotiations with Pandora, and itwas. Pandora had its attorneys call Sony tocomplain of the breach of their confidentialityagreement.

49. Unlike Pandora, Spotify is an on-demandservice. As an on-demand music service, its10.5% rate is set by a licensing board andcovers mechanical rights and a public per-formance right. The public performanceright rate constitutes an offset from the over-all 10.5% rate.


Pandora, therefore, a thorough grasp ofthe history behind the requirement thatPandora pay a substantial portion of itsrevenue to obtain sound recording rights,and perhaps as significantly, a desire toshow that he could be similarly effective inachieving an enhanced payment from Pan-dora for composition rights.

In their first substantive meeting, whichoccurred on March 22, Horowitz quizzedKennedy at some length about the state ofPandora’s business. Horowitz then movedto a discussion of Pandora’s need for alicense from UMPG, uttering what Kenne-dy took to be an implicit threat. Horowitzsaid ‘‘we want Pandora to survive.’’

Like Sony, Horowitz justified a substan-tial increase in the rate Pandora needed topay by stressing the disparity between therates at which Pandora paid for soundrecording rights and public performancerights for compositions. Showing confi-dence that he knew the material terms ofthe Sony–Pandora license, Horowitz re-peatedly asked Kennedy, (as Kennedyparaphrased) ‘‘how did you get Marty[Bandier] at Sony to agree to such a lowpayment?’’

Avoiding invitations to discuss the spe-cific terms of the Sony license, Kennedyexplained to Horowitz that Pandora felt itshould be treated just like entities coveredby the ASCAP–RMLC license. Kennedyargued that Pandora was competing forlisteners with, and taking listeners from,radio companies covered by the RMLCdeal. Those radio services, includingiHeartRadio, would be paying the PROsfor many years into the future at a ratelower than the roughly 4% range that Pan-dora had been paying the PROs.

Kennedy indicated a preference for ne-gotiating with the PROs, but added that, ifUMPG wanted to negotiate directly withPandora, then UMPG should provide Pan-dora with a list of the withdrawn composi-tions and UMPG’s proposal for a rate.

Horowitz said he was ‘‘not sure’’ he wasable to provide Pandora with a list, andindicated that Pandora should just make adeal based on UMPG’s representation ofits overall market share.

Rosenbloum had his own detailed con-versation with Horowitz about a week la-ter, on March 29. Horowitz and DavidKokakis of UMPG asked what Rosenbl-oum thought the next steps were in com-mencing formal license discussions. Ro-senbloum responded that UMPG neededto provide a proposal and a list of UMPGworks so that Pandora could ‘‘better un-derstand the scope of rights at issue’’.Horowitz responded that UMPG was pre-pared to provide a list so long as it wascovered by non-disclosure agreement(‘‘NDA’’).

In their conversation, Horowitz ex-pressed amazement at the Sony rate forPandora, and indicated that he felt anindustry-wide rate of 8% of revenue wouldbe reasonable, particularly in light of whatPandora was paying to the record labelsfor sound recording rights. Rosenbloumwas aghast. He told Horowitz that in his20 years in the music industry he hadnever encountered a situation in which alicensor suggested that rates should effec-tively double overnight, going from 4% to8%. Rosenbloum observed that Sony ‘‘wasapparently more willing to adopt a busi-nesslike approach’’ and that Sony’s Bandi-er ‘‘understood Pandora’s realities.’’ Skip-ping over the fact that UMPG wanted itsrate to serve as a benchmark for all futurePRO licenses, Horowitz responded that the8% rate would not have such a significantimpact on Pandora because UMPG’s mar-ket share was only about 17%.

Horowitz bluntly reminded Rosenbloumthat Pandora did not have much negotiat-ing leverage. Rosenbloum describedHorowitz as asking


what Pandora would do if we could notreach an agreement as to rates (suggest-ing that they have all of the leverage). Itold him if UMPG is unwilling to movefrom its 8% figure it might be creating asituation where Pandora would have nochoice other to take down all UMPGrepertoire. [Horowitz] indicated that hedefinitely was not seeking such a resultTTTT It was at that point in the conver-sation that the tone began to change abit and [Horowitz] became somewhatless ‘‘positional’’ in his approach.

In late April 2013, UMPG provided toPandora a complete list of the UMPGworks in the ASCAP repertoire, but in away that prevented Pandora from usingthe information to remove UMPG composi-tions from its service. The list was subjectto an NDA. The list itself was the veryinformation that the NDA deemed confi-dential.50 The NDA provided that:

[Pandora] has requested that Universalprovide to [Pandora] titles of songs inUniversal’s music catalog controlled byASCAP, corresponding writer namesand corresponding shares owned or con-trolled by Universal and such writers, allof which Universal deems to be confi-dential (‘‘Confidential Information’’).

The NDA then restricted Pandora’s use ofthe list. It provided that

[Pandora] agrees not to use any Confi-dential Information for any purpose ex-cept to evaluate and engage in discus-sions concerning a potential businessrelationship between the Parties.

Pandora correctly interpreted this provi-sion as forbidding it from using the list toremove the UMPG works from its ser-vice.51

On May 21, Pandora’s Rosenbloum andHorowitz met. While Horowitz expressedhis admiration for Pandora and assured itsrepresentatives that UMPG wanted it tothrive, he did not move much from hisinitial proposal for a 8% industry rate, onlyrevising it downward to 7.5%. Rosenbloumresponded by reminding Horowitz thatASCAP had agreed to a 1.70% ASCAPrate with a generous advertising deductionfor Pandora’s competitor, iHeartRadio.

Pandora believed that UMPG’s rate re-quest was unreasonable, and that UMPGwould be inflexible in any negotiations.Therefore, instead of engaging furtherwith UMPG, Pandora went on the offen-sive. First, Pandora purchased KXMZ–FM, a terrestrial radio station in RapidCity, South Dakota. With this purchase,Pandora hoped to shoehorn itself into theASCAP–RMLC license. Then, Pandorabelieved, it would be in a position to arguethat it was entitled to the RMLC 1.70%rate.52 The agreement of purchase is dat-

50. Upset by Sony’s public disclosure of thePandora license terms, Pandora requested anNDA that would bar UMPG from revealingthe terms of any license. UMPG refused toinclude any such restriction in the NDA.

51. While Horowitz took the position at trialthat he had believed in 2013 that Pandorawas free to use the UMPG list of works toremove those works from the Pandora ser-vice, despite the requirement that Pandoraexecute the NDA, that testimony was notcredible. Horowitz was intimately involvedin these negotiations and is a strong execu-tive. He had no desire to strengthen Pando-ra’s hand. If Horowitz had intended to give

Pandora the ability to use the list of works toremove the works from its service, then therewould have been no need for any NDA. Theonly confidential information described in theNDA was the list of works. Nor was thecreation of the NDA a trivial matter. Thenegotiations over the NDA were carefullymanaged. At trial, Horowitz opined thatUMPG had no legal obligation to provide alist of works to Pandora.

52. Pandora’s purchase of KXMZ–FM remainspending. ASCAP has petitioned the FCC todeny the transfer of the station’s FCC licenseto Pandora.


ed June 5, 2013. Second, on June 11,Pandora moved in this Court for partialsummary judgment. Its motion arguedthat any purported new media withdrawalsby publishers following the 2011 ASCAPCompendium modification did not affectthe scope of the ASCAP repertoire subjectto Pandora’s application for an ASCAPlicense.

During this interim period, as it workedon these two projects, Pandora did notrespond to emails from Horowitz. In hisemails to Pandora, Horowitz expressed in-creasing levels of anxiety and exasperationabout Pandora’s ‘‘radio silence.’’ 53 Then,on the heels of announcements of its pur-chase of a radio station and the filing ofthe summary judgment motion, Pandorareached out to UMPG. In an understate-ment, Pandora observed in a June 13 emailthat ‘‘[a]s you may have read or heard, thisweek Pandora made a couple of announce-ments that are related to our discussionsregarding a direct license with UMPG.’’Pandora expressed optimism that it wouldwin the summary judgment motion andrecognition of its entitlement to the RMLClicense, all before July 1. But, it added,

In the unlikely event we don’t have adecision on either of these points by July1, it is our preference to continue toperform works in the UMPG catalog.To help facilitate that, we propose ac-cepting UMPG’s 7.5% of revenue offeron a provisional basis starting July 1,2013, pending the Court’s rulings, withthe understanding that if the ASCAPrate court subsequently rules in Pando-ra’s favor that Pandora will immediatelythereafter—and on a retroactive basisback to July 1, 2013—license the right toworks in the UMPG repertory through

ASCAP at whatever rate the rate courtdecides.

The parties memorialized a six monthlicense agreement on July 1, 2013. Theagreement provided for an industry rate of7.5%, with no deduction for advertisingexpenses, which would be contingent onthe two contingencies outlined in the June13 email from Pandora. The agreementprovided that ‘‘in the event that a finaldecision not subject to any further appealis rendered in the pending ASCAP RateCourt TTT [that] UMPG’s July 1, 2013withdrawal from ASCAP of [New Medialicensing rights] TTT is not effective’’ or if‘‘Pandora’s acquisition of the KXMZ–FMqualifies Pandora for the RMLC–ASCAPlicense’’ then the agreement would ‘‘be ofno further force or effect.’’

UMPG refused Pandora’s request thatthe agreement reflect that it was non-precedential and could not serve as abenchmark in rate court proceedings. In-stead, both parties reserved their rights onthe question of whether the agreementcould serve as a benchmark in this ratecourt proceeding.

IX. September 17 Partial SummaryJudgment Opinion

On September 17, 2013, Pandora’s mo-tion for partial summary judgment wasgranted. See In re Pandora Media, Inc.,2013 WL 5211927. The Opinion held, in-ter alia, that AFJ2 prohibited ASCAPfrom withdrawing from Pandora the rightsto perform any compositions over whichASCAP retained any licensing rights.Consequently, the publishers’ purportedwithdrawals of only new media rights un-der the Compendium modification were

53. On June 6, Horowitz wrote to Rosenbloumthat he was ‘‘calling [about] Pandora. Wehaven’t heard anything TTT There’s almost notime left. Very odd process.’’ And on June11, Horowitz wrote to Rosenbloum that hewas ‘‘disappointed that Pandora has chosen

not to respond to our proposal’’ and that‘‘[w]e are confused by Pandora’s unwilling-ness to respond in any way to our repeatedinquiries for direction, even if to simply ad-vise us that it no longer desires to license ourmusic.’’


held inoperative. The Court found thatAFJ2 prohibited a regime in which pub-lishers allowed ASCAP to license a compo-sition to some music users but not others.AFJ2 required each work that was in theASCAP repertoire to be available to anyuser who requested a blanket license. Thepublishers, of course, remained free towithhold works from ASCAP entirely.54

X. Other Licensing Agreements PutForth as Benchmarks

There are two other sets of licenseswhich ASCAP argues are ‘‘confirmatory’’benchmarks for the reasonableness of AS-CAP’s proposal for its license with Pando-ra. One is Pandora’s own license withSESAC. The other are licenses held byPandora’s competitor Apple iTunes Radio.A description of these licenses will con-clude this section of the Opinion.

A. The Pandora–SESAC License

Since 2007, Pandora has had a blanketlicense from the PRO SESAC for the rightto publicly perform musical compositionsin the SESAC repertoire. Pandora andSESAC each have the option to terminatethe license each year, but neither has exer-cised that option.

SESAC is the smallest of the threePROs. It is an invitation-only organization.SESAC proclaims that it is a selectiveorganization, taking pride in having a rep-ertory based on ‘‘quality, rather thanquantity.’’

Pandora’s SESAC license rate increasesannually by the greater of [REDACTED]percent or an amount tied to the percentincrease in [REDACTED]. The annual

rate escalation has been justified as amechanism to account for SESAC’s grow-ing repertoire. The rate in the SESAClicense started at [REDACTED] of Pando-ra’s revenue in 2007, and the rates fromthe period of 2011 to 2015 (assuming the[REDACTED] increase) therefore start at[REDACTED] in 2011 and escalate to[REDACTED] in 2015. [REDACTED].

Calculating the implied rate applicableto ASCAP depends on what SESAC’s mar-ket share in compositions is—a figure thatis impossible to know with certainty. SE-SAC does not publicly report its revenueor its catalogue of compositions. There isno public consensus as to what share of thetotal number of musical compositions arein the SESAC repertoire. Pandora’s Ken-nedy testified that based on SESAC’s rep-resentations during negotiations, he under-stood the SESAC PRO share to be 10% in2007.55 Pandora had no ability to confirmthat number, but it is a number that hasappeared in court decisions. See, e.g., Mob-iTV, Inc., 712 F.Supp.2d at 221; UnitedStates v. ASCAP (Application of Youtube,et al.), 616 F.Supp.2d 447, 453 (S.D.N.Y.2009). Using the 10% figure for SESACand a 45.6% figure for ASCAP, and mak-ing no adjustments for an increase in SE-SAC’s share and a concomitant decline inASCAP’s share, the parties calculate animplied ASCAP rate of [REDACTED] in2011, [REDACTED] in 2012, [REDACT-ED] in 2013, [REDACTED] in 2014, and[REDACTED] in 2015.

B. Apple’s iTunes Radio Licenses withPublishers and PROs

In September of 2013, Apple launchedits iTunes Radio service. From a user

54. After the Opinion was rendered, the pub-lishers sought intervention nunc pro tunc forthe sole purpose of appeal. The motion wasgranted but the publishers were limited in thearguments they could raise. See In re Pando-ra Media, Inc., 12 Civ. 8035(DLC), 2013 WL6569872, at *10 (S.D.N.Y. Dec. 13, 2013).

55. SESAC’s vice president for new media li-censing confirmed in his deposition that inthe context of unrelated negotiations SESAChad used a 10% figure to describe its marketshare.


perspective, iTunes Radio operates likePandora. Both are customized radio.Users seed an iTunes Radio station byidentifying a song, artist, or genre. Theyprovide feedback by signaling ‘‘Play MoreLike This’’ and ‘‘Never Play This Song’’.And like Pandora, iTunes Radio uses analgorithm to select songs that users arelikely to enjoy in light of their initial selec-tion and feedback.

Apple’s iTunes Radio is available in afree, advertising-supported format, andthrough a program called ‘‘iTunes Match,’’in which users pay an annual fee for abundle of services, one of which is accessto iTunes Radio without advertising.Through a subscription to iTunes Match,subscribers have access to their entire per-sonal music library or ‘‘locker’’,56 allowingthem to stream music wherever they are.iTunes Radio is only available within theApple ecosystem.

Pandora considers iTunes Radio a majorcompetitor. Upon its launch, Pandoratracked the impact of iTunes Radio onPandora closely. While it appears that thelaunch of iTunes Radio in the Fall of 2013had a measurable (albeit relatively small)impact on Pandora, after a short period oftime that impact appeared to decline.Pandora has continued to grow despite thepresence of iTunes Radio. This may bedue to several reasons, including uniquecharacteristics of Pandora’s service, theavailability of a Pandora app on Appledevices,57 and the fact that iTunes Radio isonly available on Apple devices.

Apple negotiated licenses for its iTunesRadio service in order to announce thelaunch of the service at its Worldwide De-

velopers Conference in June 2013. Itslicense agreement with Sony is dated June6, 2013, and is identical in its materialterms to the other licenses that Appleentered with publishers. The whereasclauses of the agreement with Sony em-phasize the complementary relationshipbetween iTunes Radio and the sale of mu-sic through the iTunes Store. The clausesexplain inter alia that the parties to theagreement wish to deter piracy and com-pensate songwriters appropriately for thedigital distribution of their compositions,and that Apple wants to create an adver-tising-supported internet radio service toenhance ‘‘recommendations features of theiTunes Store for the purpose of promotingsales of eMasters.’’ 58

Apple simultaneously negotiated a li-cense agreement for the public perform-ance rights to the ASCAP repertoire. TheASCAP license covers a [REDACTED].Based on an industry-wide rate of 10%, theparties agreed that Apple would pay AS-CAP a share of [REDACTED] of theiTunes Radio advertising revenue, as thatterm was defined in their agreement.

The revenue base for the Apple licensefee includes none of the subscription reve-nue from the iTunes Match service. Inaddition, the revenue base does not includeany contribution from the sale of Appleproducts promoted through iTunes Radio,including the sale of music tracks soldthrough the iTunes Store. The revenuebase does not include any attributed valuefor that advertising on iTunes Radio thatpromotes Apple’s music products.59 In thelicense agreement, however, Apple com-mitted that it would ‘‘use good faith, com-

56. A locker service stores a customer’s digitalmusic in the cloud, and permits the customerto access the music through multiple devices.

57. Approximately forty percent of Pandora’slisteners access Pandora through their Appledevices.

58. eMasters are defined as sound recordingsavailable for download from the iTunes Store.

59. [REDACTED].


mercially reasonable efforts to sell the Ad-vertising to third parties,’’ and also agreedto attribute revenue at a reasonable ratefor the advertising of Apple non-musicproducts that appeared on iTunes Radio.

For several reasons, it would be a diffi-cult task to make the necessary adjust-ments to the terms of the Apple license tocalculate an equivalent rate for an ASCAPlicense issued to Pandora, and none of thetrial experts attempted to do so.60 Be-cause iTunes Radio launched only a shorttime before trial, data about the service isscarce. Moreover, the differences in therevenue bases; the use of iTunes Radio topromote sales of Apple products, whichhas no equivalent for Pandora; and theabsence any means of capturing imputedrevenue for the advertising of Apple’s mu-sic products, all add to the difficulty of thetask.61

The ASCAP license had other featuresas well. The parties agreed to a minimumfee amount of [REDACTED] in the eventthat iTunes Radio failed, or ran primarilyApple advertisements. The agreementcontained an advertising deduction of [RE-DACTED] for external advertising ex-penses only. Finally, the license providedfor a ‘‘Most Favored Nations’’ clause forthe benefit of ASCAP.62

Using this same industry-wide rate of10%, Apple also negotiated direct licenseswith publishers Sony, Warner/Chappell,EMI, and BMG. Unlike Pandora’s agree-ments with music copyright holders, which

only included the right to publicly performworks in their repertories, the Apple li-censes with the publishers provided Applewith both the right to publicly perform thecompositions in the publishers’ reperto-ries, as well as the right to ‘‘[e]ncode, re-produce, and otherwise use the PublisherMaterials solely to the extent reasonablynecessary to effectuate, implement and fa-cilitate the foregoing Performances ofPublisher Materials.’’

CONCLUSIONS OF LAW

[2–4] Pandora requests that this ratecourt set a fee for its license with ASCAP.Section IX of AFJ2 requires the ratecourt to set a ‘‘reasonable’’ fee for a re-quested license, but that term is not de-fined in AFJ2. Governing precedent dic-tates, however, that in determining thereasonableness of a licensing fee, a court‘‘must attempt to approximate the ‘fairmarket value’ of a license—what a licenseapplicant would pay in an arm’s lengthtransaction.’’ MobiTV, Inc., 681 F.3d at82. ‘‘In so doing, the rate-setting courtmust take into account the fact that AS-CAP, as a monopolist, exercises market-distorting power in negotiations for theuse of its music.’’ Id. The Second Circuithas recognized that, because music per-formance rights are largely aggregated inthe PROs which operate under consentdecrees, ‘‘there is no competitive marketin music rights.’’ ASCAP v. Show-time/The Movie Channel, 912 F.2d 563,

60. ASCAP’s expert did attempt to make one‘‘rough’’ adjustment to address the absencefrom the Apple revenue base of any subscrip-tion income from iTunes Match. Using thepercentage of revenue derived from Pandora’ssubscription service to estimate the amount ofiTunes Match subscription revenue, Dr. Mur-phy concluded that even if Apple’s share ofsubscriber hours was twice as large as Pando-ra’s, the Apple license rate implies an ASCAPrate for the Pandora license which exceedswhat ASCAP is seeking here.

61. There is a suggestion in the record that theApple negotiations over a public performancelicensing fee may have been influenced by itsoverall obligation to pay for music content,including its ability to negotiate more favor-able rates with record labels. There was in-sufficient evidence, however, to permit anyreliable finding in this regard.

62. [REDACTED].


577 (2d Cir.1990). Consequently, fairmarket value is a ‘‘hypothetical’’ matter.Id. at 569. In such circumstances, ‘‘theappropriate analysis ordinarily seeks todefine a rate or range of rates that ap-proximates the rates that would be set ina competitive market.’’ Id. at 576.

Helpfully, both ASCAP and Pandorahave endorsed the same definition of ‘‘fairmarket value,’’ drawn from a recent text-book:

A widely used description of fair marketvalue is the cash equivalent value atwhich a willing and unrelated buyerwould agree to buy and a willing andunrelated seller would agree to sell TTT

when neither party is compelled to act,and when both parties have reasonableknowledge of the relevant available in-formationTTTT Neither party being com-pelled to act suggests a time-frame con-text—that is, the time frame for theparties to identify and negotiate witheach other is such that, whatever it hap-pens to be, it does not affect the price atwhich a transaction would takeplaceTTTT The definition also indicatesthe importance of the availability of in-formation—that is, the value is based onan information set that is assumed tocontain all relevant and available infor-mation.

Robert W. Holthausen & Mark E. Zmijew-ski, Corporate Valuation 4–5 (2014).

[5] In rate court proceedings, a deter-mination of the fair market value ‘‘is oftenfacilitated by the use of a benchmark—that is, reasoning by analogy to an agree-ment reached after arm’s length negotia-tion between similarly situated parties.’’United States v. BMI (In re Application ofMusic Choice), 316 F.3d 189, 194 (2d Cir.2003) (‘‘Music Choice II’’ ). Rate courtshave been provided with guidance in theiranalysis of the parties’ proposed bench-marks:

In choosing a benchmark and determin-ing how it should be adjusted, a ratecourt must determine the degree ofcomparability of the negotiating partiesto the parties contending in the rateproceeding, the comparability of therights in question, and the similarity ofthe economic circumstances affecting theearlier negotiators and the current liti-gants, as well as the degree to which theassertedly analogous market under ex-amination reflects an adequate degree ofcompetition to justify reliance on agree-ments that it has spawned.

United States v. BMI (In re Application ofMusic Choice), 426 F.3d 91, 95 (2d Cir.2005) (‘‘Music Choice IV’’ ) (citation omit-ted); accord DMX Inc., 683 F.3d at 45.

‘‘[T]he burden of proof [is] on ASCAP toestablish the reasonableness of the fee itseeks.’’ AFJ2 § IX(B). ‘‘Should ASCAPnot establish that the fee it requested isreasonable, then the Court shall determinea reasonable fee based upon all the evi-dence.’’ AFJ2 § IX(D).

ASCAP and Pandora have each pro-posed a set of benchmarks for assessingthe appropriate rate for an ASCAP licenseto Pandora. Interestingly, they bothagree that the Pandora license with EMIis a valid benchmark. Their sets of pro-posed benchmarks share no other commonelement.

As already noted, ASCAP relies princi-pally on the three direct licenses negotiat-ed between Pandora and EMI, Sony, andUMPG in the wake of the April 2011 Com-pendium modification. ASCAP arrives atproposed rates of 1.85% for 2011–2012 (thePandora–EMI license rate), 2.50% for2013, and 3.00% for 2014–2015. This is thefirst time that ASCAP has sought a licenserate of over 1.85% from any non-interac-tive internet music service.

Pandora recognizes the Pandora–EMIlicense agreement as a suitable bench-


mark, as well as the historical ASCAP–Pandora license rate of 1.85% under the5.0 License. But, in addition to its analy-sis of appropriate benchmarks, Pandoraargues that it is ‘‘similarly situated’’ to theRMLC licensees and is accordingly enti-tled by the terms of AFJ2 to the RMLC1.70% rate.

In summary, ASCAP has carried itsburden of demonstrating that its rate pro-posal of 1.85% is reasonable for the years2011 and 2012. It has failed to carry itsburden of demonstrating that its rate pro-posals of 2.50% and 3.00% for the years2013 and 2014–2015, respectively, are rea-sonable. Pandora has failed to show thatit is entitled to the 1.70% RMLC rate asthe result of being similarly situated, with-in the meaning of AFJ2, to the RMLCmember radio stations.

In conducting an independent inquiryinto a reasonable rate, this Court is guidedby the following parameters. First, hav-ing determined a reasonable rate for thefirst years of the five-year license period,there is a presumption that that rate willcontinue to be a reasonable rate for theentire license period. Second, the histori-cal division between interactive and non-interactive internet music services requiresthat Pandora be licensed well below the3.0% rate at which ASCAP licenses inter-active music services. Third, the circum-stances under which Sony imposed uponPandora an implied ASCAP headline rateof 2.28% confirm that any reasonable ratefor an ASCAP–Pandora license is below2.28% by a measurable margin. For theseand the other reasons described below, the1.85% license rate is the reasonable ratefor the entirety of the five year term of theASCAP–Pandora license.

I. ASCAP’s Rate Proposal of 1.85% for2011 and 2012

For the years 2011 and 2012, ASCAPproposes a rate of 1.85%. ASCAP’s bench-mark for this proposal is the Pandora–EMI license (which is for the years 2012and 2013), which provided for a headlinerate of 1.85%. For confirmation that 1.85%is a reasonable rate, ASCAP relies on thefact that it is the same rate under whichPandora was licensed under the 5.0 Li-cense from 2005 to 2010.

Pandora agrees. It admits that a head-line rate of 1.85% is within a range ofreasonable rates in the event that Pandorais not entitled to the 1.70% rate in theASCAP–RMLC license. According toPandora, the 1.85% rate is the ‘‘upperbound of a range of reasonable rates forPandora.’’ Since AFJ2 only requires AS-CAP to demonstrate that its rate proposalis ‘‘reasonable,’’ Pandora’s concessionmakes further discussion unnecessary.63

II. ASCAP’s Rate Proposal of 2.50% for2013 and 3.00% for 2014 and 2015

ASCAP proposes a rate of 2.50% for2013, and 3.00% for 2014 and 2015. AS-CAP predicates these rates principally onthe Pandora–Sony license, which coversthe year 2013 and yields an industry widerate of 5.0% and an ASCAP implied rate of2.28%; and on the Pandora–UMPG li-cense, which covered the six month periodfrom July 1 to December 31, 2013, andyielded an industry wide rate of 7.50% andan implied ASCAP rate of 3.42%. ASCAPalso puts forth, as confirmatory bench-marks, the SESAC–Pandora license andApple’s licenses with the PROs and pub-lishers in connection with its iTunes Radioservice.64 In addition to these benchmarks

63. Pandora’s argument that it is entitled tothe rate in the RMLC license is addressedbelow.

64. At points in this litigation ASCAP also cit-ed the Spotify–ASCAP license as a potential

benchmark, but it did not press this bench-mark at trial. In all events, the Spotify li-cense is a manifestly poor benchmark becauseit is a license for an overwhelmingly on-de-mand service and the public performance rate


there have been other justifications offeredat trial for a license rate that exceeds the1.85% rate dictated by the 5.0 License andthe EMI license. ASCAP has offered atwo-part theoretical argument in the formof Dr. Murphy’s opinions regarding in-creasing competition among internet radioproviders and the need for variety in mu-sic. There were also two other theoreticalarguments raised in the record and at trial(although not initially put forward by AS-CAP) for an elevated rate: the potentialfor cannibalization of music sales by Pan-dora, and the gap between what Pandorapays record labels for sound recordingrights and what it pays the PROs andpublishers for composition rights. Finally,Pandora’s success is a factor that has beenpresent, implicitly, throughout the trial.

ASCAP has not carried its burden ofshowing that its proposed rates for 2013,2014, and 2015 are reasonable. To beginwith, rate court precedent and ASCAP’sown licensing history establish a presump-tion that a five-year license should have asingle rate. ASCAP has not rebutted thatpresumption. ASCAP has also failed todemonstrate that Pandora’s direct licenseswith Sony and UMPG constitute fair mar-ket benchmarks. The infirmities in theseproposed benchmarks are not overcome byreliance on either the Pandora–SESAC li-cense or the Apple licenses for its iTunesRadio service. Finally, none of ASCAP’stheoretical arguments support an upwarddeparture from the 1.85% rate to the2.50% and 3.00% rates that ASCAP alsoseeks.

A. Presumption of a Single Rate

Having accepted ASCAP’s proposal of arate of 1.85% as a reasonable rate for thefirst two years of the Pandora license(2011 and 2012), there is a strong basis torecognize a presumption that the rate of

1.85% would also be a reasonable rate forthe last three years of the Pandora license(2013 through 2015). Indeed, the twobenchmarks that support adoption of aheadline rate of 1.85% continued beyondthe year 2012. The successor form licenseto ASCAP’s 5.0 License still has the head-line rate of 1.85%, and there was no evi-dence offered at trial to suggest that AS-CAP is planning to alter that rate for non-interactive new media music services. Asfor the EMI license, it was for the period2012 and 2013. Since ASCAP agreed thatthe EMI rate was reasonable for the year2012, it is presumptively reasonable for2013 as well. Indeed, ASCAP agrees thatit remains a reasonable benchmark.

Also, adoption of an escalating rate overthe term of a five year license would beout of step with historical practice. AS-CAP has never negotiated nor issued a fiveyear license with an escalating rate, andrate court jurisprudence is devoid of anyexample of an escalating ASCAP rate for asingle license term. The sole example inthis record of an escalating rate is theSESAC license with Pandora. In thatcase, however, SESAC’s escalating ratewas justified by a mutual assumption thatSESAC’s market share would increaseover the term of the license. Even accept-ing that the SESAC license, with itsunique features, could be informativeabout a reasonable rate for an ASCAPlicense, the justification for an escalatingrate for SESAC suggests that the ASCAPrate should be a declining rate since SE-SAC’s growth would come at the expenseof ASCAP and BMI.

There appear to be good reasons whyASCAP and the industry generally adopt asingle rate for the term of a license. Ab-sent some unusual circumstances, the val-ue of music to a user is assumed to remainconstant through the term of a license.

need not be closely negotiated since it is sim-ply a component of an overall 10.5% rate for

mechanical rights. See 17 U.S.C. § 115; 37C.F.R. § 385.12(b)(2).


And an escalating rate is not necessary forthe licensor to share in the success of thelicensee: with a single rate as a percent-age of revenue a joint interest is createdbetween the parties in the growth of thelicensee’s business. Adoption of a singlerate facilitates business planning, encour-ages reliance on historical data, and dis-courages resort to contested projections.Likely for these reasons, and others, thereis a well developed practice that supportsthe adoption here of a headline rate of1.85% for not just the first two years, butalso for the last three years of the license.

ASCAP has failed to overcome any pre-sumption that exists in favor of a unitaryrate. But, even without such a presump-tion it has not carried its burden to estab-lish that the rates of 2.50% and 3.00% arereasonable.

B. Pandora’s Direct Licenses withSony and UMPG

ASCAP has not shown that either thePandora–Sony or the Pandora–UMPG li-censes are good benchmarks for its licensewith Pandora. Sony and UMPG each ex-ercised their considerable market power toextract supra-competitive prices. TheUMPG agreement is a particularly flawedbenchmark, for the several reasons dis-cussed below. In addition, the evidence attrial revealed troubling coordination be-tween Sony, UMPG, and ASCAP, whichimplicates a core antitrust concern under-lying AFJ2 and casts doubt on the proposi-tion that the ‘‘market under examinationreflects an adequate degree of competitionto justify reliance on agreements that ithas spawned.’’ Music Choice IV, 426 F.3dat 95 (citation omitted).

1. ASCAP and Publisher Coordination

Pandora has shown that the Sony andUMPG licenses were the product of, at thevery least, coordination between andamong these major music publishers andASCAP. Sony and UMPG justified theirwithdrawal of new media rights from AS-CAP by promising to create higher bench-marks for a Pandora–ASCAP license andpurposefully set out to do just that. Theyalso interfered with the ASCAP–Pandoralicense negotiations at the end of 2012.UMPG pressured ASCAP to reject thePandora license ASCAP’s executives hadnegotiated, and Sony threatened to sueASCAP if it entered into a license withPandora. With only a few business daysremaining in the year 2012, ASCAP re-fused to provide Pandora with the list ofSony works without Sony’s consent, whichSony refused to give. Without that list,Pandora’s options were stark. It couldshut down its service, infringe Sony’srights, or execute an agreement with Sonyon Sony’s terms. Then, despite executinga confidentiality agreement with Pandora,Sony made sure that UMPG learned of allof the critical terms of the Sony–Pandoralicense. And LoFrumento admitted at tri-al that ASCAP expected to learn the termsof any direct license that any music pub-lisher negotiated with Pandora in muchthe same way.

There is no need to explore which if anyof these actions was wrongful or legiti-mate. Nor is there any reason to explorehere the several justifications that ASCAP,Sony, and UMPG have given for at leastsome of this conduct.65 What is importantis that ASCAP, Sony, and UMPG did notact as if they were competitors with each

65. Among other things, ASCAP asserts that itwas pure of heart. It points out that it deniedUMPG the waiver from the notice period thatUMPG sought when it gave notice of its intentto withdraw new media rights from ASCAP.LoFrumento also explained that, while heconsidered the pressure exerted by UMPG

and Sony, he rejected the term sheet negotiat-ed with Pandora because of his own indepen-dent judgment. And Sony’s Brodsky deniedat trial being involved in or knowing who hadleaked the confidential license terms that ap-peared in the early 2013 press reports.


other in their negotiations with Pandora.Because their interests were alignedagainst Pandora, and they coordinatedtheir activities with respect to Pandora,the very considerable market power thateach of them holds individually was magni-fied. But, since the UMPG and Sony li-cense agreements constitute poor bench-marks even in the absence of coordination,it is not necessary to engage more deeplywith the implications of this evidence.

2. The Pandora–Sony License

The Pandora–Sony license was for theyear 2013. It was premised on a 5% in-dustry-wide rate, which implies a 2.28%headline rate for an ASCAP license. AS-CAP has not shown that this rate reflectsthe fair market value of an ASCAP licensewith Pandora.

When Pandora inaugurated its service in2005, it obtained a blanket license fromASCAP and fully expected to continue tobe able to do so throughout the life of itsbusiness. It was entitled under that AS-CAP license to full access to the ASCAPrepertoire and to use any composition inthe ASCAP repertoire as frequently as itwished. This included compositions towhich Sony held public performancerights. Pandora had no incentive there-fore to identify Sony works or to steer itslisteners toward or away from thoseworks.

Once the Compendium modification hadbeen adopted, and Sony had withdrawn

new media rights from ASCAP effectiveJanuary 1, 2013, however, the identity ofthe Sony works suddenly became signifi-cant to Pandora.66 Because of the natureof its music service, Pandora had more ofan ability to substitute one work for anoth-er than many other music services. Itcertainly had more flexibility than an on-demand service, which needed to play vir-tually any composition its listeners de-manded. It even had, at least theoretical-ly, more flexibility than many programmedradio services. For instance, it would bedifficult for a terrestrial Top 40 radio sta-tion to thrive without access to each week’stop 40 hits. Thus, with a list of the Sonyworks, Pandora would have informationnecessary to remove Sony works from itsservice or steer listeners away from Sonyworks, or at least to threaten to do so.67

Both Pandora and Sony treated knowl-edge of Sony’s catalogue as a significantbargaining chip in their license negotia-tions. Pandora repeatedly asked for it,orally and in writing, and Sony pointedlyignored those requests and stopped AS-CAP from providing the list to Pandora.Sony knew that it held the upper hand, asit acknowledged when it conveyed to Pan-dora that it was not its intention to ‘‘shutdown’’ Pandora.

By withholding the list, Sony deprivedPandora of significant leverage in theirnegotiations.68 Pandora was faced with

66. ASCAP suggests that Pandora could havebegun to pester Sony for a list of its works assoon as Pandora learned of the Compendiummodification. There is no reason to find thatany business executive would have consideredthat wise.

67. After it executed the license with Sony,Pandora had no incentive to steer listenersaway from Sony works; Sony had demandeda sizable but recoupable advance.

68. Since Sony controlled about 30% of themarket (counting the EMI repertoire), it

would have been difficult for Pandora to oper-ate for any length of time without access toany Sony composition. Nonetheless, thethreat of being removed, substantially re-moved, or even incrementally removed from aservice as popular as Pandora would be a riskthat Sony would need to weigh with care.Sony’s determined refusal to provide the listdespite repeated requests over the license ne-gotiation period is testament to the impor-tance Sony itself placed on this bargainingchip.


three options: shut down its business, facecrippling copyright infringement liability,69

or agree to Sony’s terms. Accordingly,the agreement fails the parties’ agreed-upon definition of fair market value: thatneither party to the negotiation be ‘‘com-pelled to act.’’

Dr. Murphy argues that the Sony li-cense nonetheless can constitute a compet-itive price because in a competitive mar-ketplace, a copyright owner would not belikely to offer Pandora information thatwould enable it to operate without thepublisher’s works. Dr. Murphy reasonsthat, given this expectation of commonbusiness practice, Sony’s refusal to providethe list of works to Pandora should not beread as constituting undue compulsionsuch that the Sony 2.28% rate is not a fairmarket rate. This analysis is too divorcedfrom the world in which Pandora and Sonywere actually functioning to be helpful.

First, their marketplace is not the‘‘atomistic’’ marketplace from which Dr.Murphy’s theoretical framework is de-rived. In a competitive, atomistic market,if one of many rights holders refuses toshare critical information, then the musicuser can see if a competitor will be morecooperative. Instead, Pandora and Sonyoperated in a highly concentrated market.

Second, Pandora had built its businesswith the understanding that it could obtaina blanket license from ASCAP. It hadalready, therefore, incorporated the Sonyrepertoire into its MGP. Unlike a newentrant into a market, it was not free (atleast, without a list of the Sony works) toattempt to create a business model that

made no or more limited use of Sony mu-sic.

For any economic model to be usefulhere, it must account for the circumstancesthat created Pandora’s need for Sony’srepertoire information. Even if Sony hadprovided the list of its works to Pandora,Sony would have retained enormous bar-gaining power; 70 by withholding the list,Sony deprived ASCAP of a chance to ar-gue in any persuasive way that the Sony–Pandora license reflects a fair marketprice.

ASCAP next argues that, even if Pando-ra’s possession of the Sony list of workswas necessary to create a valid bench-mark, Pandora could have obtained thisinformation from sources other than AS-CAP and Sony. But, Sony did not act in2012 as if Pandora had a reliable alterna-tive source of information available to it(other than ASCAP), and ASCAP failed attrial to prove that such an alternative ex-isted.

ASCAP also asserts that Pandora didnot actually require a list of Sony works tonegotiate a fair market rate license withSony since it had no list of EMI workswhen it negotiated the EMI license, andthe EMI license is endorsed by both par-ties to this litigation as a suitable bench-mark. The negotiations that Pandora con-ducted with EMI are not comparable.Pandora did not need a list of EMI workssince it learned in its first substantivemeeting with EMI that EMI was not seek-ing an increase in Pandora’s license rate.EMI immediately offered to let Pandorapay for an EMI license at the 1.85% head-line rate in the ASCAP 5.0 License.

69. Statutory copyright damages are up to$150,000 per work. See 17 U.S.C.§ 504(c)(2).

70. This Opinion does not take a position onwhether a fair market price would have re-sulted if Sony had provided a timely list of its

works to Pandora in 2012. In judging theextent to which any future benchmark pro-vides guidance about fair market value, thetotality of the circumstances that surroundthe creation of that future license will have tobe considered.


ASCAP makes two additional argumentsin support of its contention that the Pando-ra–Sony license reflects a fair market val-ue for a Pandora license. First, as evi-dence that the license was the product ofmeaningful give and take between the par-ties, ASCAP contends that Sony made ameaningful concession regarding the ad-vertising deduction when it allowed Pando-ra to deduct internal advertising costs.There was little evidence offered at trialon negotiations over this term of the li-cense. ASCAP certainly did not show thatSony resisted it or was reluctant to agreeto it. After all, EMI had already agreedto such a deduction in the event anothermajor publisher or a PRO accepted it.Given this record, this single modificationof a draft agreement in the course of afour-day negotiation period does not alterthe conclusion that Pandora was compelledto enter into a license on Sony’s terms.

ASCAP also argues that Pandora’s wit-nesses have admitted that the effectiverate for Pandora of the Sony license, afterthe deduction of internal advertising costsis taken into account, was only a ‘‘modest’’increase over the effective rate of the AS-CAP license and was not ‘‘out of con-trol.’’ 71 But even if this were true, itwould not cure the primary concern withthe Sony license as a benchmark, which isthe coercive process by which it was nego-tiated. In any event, some of Pandora’scharacterizations of the Sony rate weremade to contrast it with the exorbitantUMPG license rate, and not as an indepen-dent assessment of its reasonableness.

In sum, the combination of the loomingJanuary 1, 2013 deadline and the lack ofinformation about the Sony cataloguemeant that Pandora was compelled to con-clude a licensing agreement with Sony atthe end of 2012. The presence of such

compulsion renders the 2.28% rate a poorbenchmark. Since Sony achieved the2.28% rate in such circumstances, it isreasonable to infer that the fair marketvalue for Pandora’s license is materiallylower than 2.28%.

3. The Pandora–UMPG License

UMPG and Pandora executed a six-month license for the last half of 2013 thathad an industry-wide rate of 7.5%, and animplied ASCAP rate of 3.42%. ASCAP hasfailed to show that this license is a usefulbenchmark for an ASCAP license withPandora.

As already described, there were virtu-ally no meaningful negotiations betweenPandora and UMPG because UMPG, con-trolling roughly 20% of the music market,began with and insisted upon a demandthat bore no relation to the then-existingmarket price. One of Pandora’s principalcompetitors was covered by the RMLC ata rate of 1.70%; Pandora had been cov-ered under the 5.0 License and had recent-ly executed a license with EMI that en-compassed the year 2013 at a 1.85% rate;and Sony had obtained a hike to an impliedASCAP rate of 2.28%. But, UMPG’s 7.5%industry-wide rate implied an ASCAP rateof 3.42%. This was even higher than theASCAP rate for interactive music services,which was set at 3.00%. If there was oneprinciple regarding rate structure onwhich the parties agreed at trial it wasthat the rate for customized radio shouldbe set below the rate for on-demand inter-active services.

UMPG’s leap in rate, demanded within amatter of weeks following the Sony negoti-ations, was so astounding that it drovePandora to buy a radio station and to file asummary judgment motion challenging the

71. While the implied ASCAP headline rate ofthe Sony–Pandora license is 2.28%, the neteffective rate of the Sony–Pandora license,

calculated in light of the [REDACTED] deduc-tion for internal advertising costs, is [RE-DACTED].


legality of the Compendium modification.Given UMPG’s bargaining stance, includ-ing its unwillingness in Pandora’s eyes toproceed in a businesslike manner, Pandoraagreed to a contingent, short-term license,and placed its fate in the hands of theongoing rate court proceedings.72 In suchcircumstances, this license rate cannot besaid to represent a bargain arrived at by awilling buyer and seller.

Moreover, UMPG not only demanded anextraordinarily steep increase above theprevailing market rate, but also deprivedPandora, as Sony had, of critical leveragein their negotiations. Although UMPGprovided Pandora with a list of its works,UMPG insisted on doing so under theumbrella of an NDA. The NDA accompa-nying the list would appear to any reason-able reader to prohibit Pandora from usingthe list to take down UMPG works fromits service.73 At the very least, the NDAraised the specter that UMPG would suePandora if it used the list to do so. Forthis additional reason, the UMPG licenserate is not a useful benchmark.74

C. ASCAP’s Secondary Benchmarks:the SESAC and Apple Licenses

ASCAP has offered the Pandora licensewith SESAC and the Apple iTunes Radiolicenses as confirmatory of the Sony andUMPG license rates. Without the Sonyand UMPG license agreements as bench-marks, however, these confirmatory bench-marks lose their utility. Nonetheless,since the parties devoted attention to theselicenses, they will be discussed. In short,there is insufficient data about the SESACrepertoire and the Apple iTunes Radiobusiness model to make the adjustmentsrequired to support an increase of rateabove 1.85%.

1. The Pandora–SESAC license

The Pandora license with SESAC hadan escalating rate that runs from an im-plied rate for ASCAP of [REDACTED] to[REDACTED], assuming that SESAC hasa 10% market share and ASCAP has a45.6% market share.75 Of course, even atits upper range, the SESAC license rate islower than the implied Sony rate of 2.28%

72. As described above, the UMPG agreementwas contingent on the outcome of (1) Pando-ra’s summary judgment motion that the pub-lisher withdrawals had no effect on its ASCAPlicense application, and (2) a determinationthat Pandora is entitled to the RMLC rate asthe result of its purchase of a terrestrial radiostation. Pandora succeeded with the firstmotion in this Court, which means that theUMPG license will have no effect unless thatdecision is reversed on appeal.

73. Pandora is correct that the NDA unambig-uously prohibited Pandora from using the listto take down UMPG works from its service.‘‘Whether a contract is ambiguous is a ques-tion of law.’’ VAM Check Cashing Corp. v.Fed. Ins. Co., 699 F.3d 727, 729 (2d Cir.2012)(citation omitted).

74. ASCAP contends that Pandora’s failure toobject to the NDA on this ground is evidencethat the complaint about the NDA’s terms isan after-the-fact concoction. To the contrary,UMPG’s insistence on an NDA addressed ex-

clusively to the list of works was reasonablytaken by Pandora as further evidence that anyefforts to negotiate with UMPG would be fu-tile.

75. ASCAP contends that the implied rate forASCAP should be even higher. ASCAP uses a7% figure rather than a 10% figure, relying onmaterials obtained in discovery, to show thatSESAC’s share of PRO revenue (as opposed toits share of compositions) in 2011 was 7%.Holding this measure of SESAC’s sharesteady, and again making no adjustments forany growth of SESAC’s share and concomi-tant decline in ASCAP’s, ASCAP calculatesthat the 7% figure yields an implied ASCAPrate of [REDACTED] in 2011, [REDACTED]in 2012, [REDACTED] in 2013, [REDACTED]in 2014, and [REDACTED] in 2015. But it isnot the industry practice to use share of PROrevenue as the relevant number in calculatingimplied rates. Moreover, the relevant figureis what Pandora thought the SESAC marketshare constituted at the time it entered intothe agreement.


and implied UMPG rate of 3.42% for AS-CAP licenses to Pandora. There are sev-eral reasons, however, that the SESAClicense terms provide minimal guidancehere.

The SESAC license has historically beena benchmark of limited value because thepublic knows little about the size of theSESAC repertoire. See MobiTV, 712F.Supp.2d at 254. As such, it is difficult toadjust a SESAC license rate to arrive withconfidence at an implied ASCAP rate.This problem is exacerbated by the factthat SESAC’s small size, when comparedto ASCAP and BMI, not only amplifiesany error in a projection, but also reducesthe incentive to resist SESAC’s rate re-quests. While the cost associated withresistance may not be justified when alicense fee is relatively small, the willing-ness to incur those costs will necessarilygrow with the size of the anticipated pay-ments.

Second, Pandora’s contemporaneous un-derstanding of the SESAC repertoire andthe rate undercut any suggestion that itsupports an ASCAP rate above 1.85%. SE-SAC argued that an escalating rate in theSESAC license was appropriate to accountfor SESAC’s anticipated growth in marketshare.76 There was no evidence presentedat trial to suggest that the ASCAP marketshare is growing. Indeed, to the extentthe SESAC share is growing, ASCAP’sshare would be presumed to be declining.Thus, if this principle were applied even-handedly, for the latter years of the AS-CAP–Pandora license, the ASCAP ratemight move below 1.85%.

In addition, Pandora believed that theinitial SESAC rate reflected an approxi-mate SESAC market share of [REDACT-ED], despite SESAC’s representation thatits market share figure was 10%. The

escalating rate was intended to recapturethe initial underpayment over time.

Therefore, for each of these reasons, theSESAC license with Pandora is of limitedutility in assessing the appropriate rate fora Pandora–ASCAP license. If it were tobe used at all, it does not suggest a rateabove 1.85% for an ASCAP license.

2. The Apple Licenses

As it was announcing the inauguration ofiTunes Radio, Apple entered into a set oflicenses with ASCAP and music publisherspremised on an industry-wide rate of 10%.This implies an ASCAP rate of [REDACT-ED]. This rate is substantially in excessof the 1.85% rate of the Pandora–EMIlicense, as well as the implied rates of2.28% and 3.42% for the Sony and UMPGlicenses with Pandora, respectively.There are at least two reasons why theApple licenses for its iTunes Radio serviceprovide little guidance for an ASCAP–Pan-dora license.

First, iTunes Radio is a service offeredby Apple to complement its iTunes Storeand iTunes Match. Through these latterservices, Apple sells digital downloads andoperates a locker system so that subscrib-ers may access their music from any oftheir Apple devices. The integration ofthese services, seamlessly, within the Ap-ple ecosystem generates synergies. As aconsequence, Apple conducted negotiationsfor its licenses for the public performanceof compositions within the context of abusiness model that has no analogue forPandora.

Second, the Apple revenue base for itslicenses has several exclusions that may beimportant. Although Apple advertises itsmusic offerings over iTunes Radio, none ofthat imputed advertising revenue is cap-tured in the revenue base. The revenue

76. Through this discussion of the SESAC li-cense, this Opinion should not be read to

endorse a rate structure in which an increas-ing market share justifies an increase in rate.


base also excludes any contribution fromthe iTunes Match subscription fees. Noneof the revenue from the sales of down-loads, purchases that can be made by click-ing on a buy button while listening toiTunes Radio, is captured. And the listgoes on. And because iTunes Radiolaunched only a short time before trial,data about the service is scarce and no onewas in a position to undertake the exceed-ingly difficult task of making adjustmentsto the terms of the Apple license to calcu-late an equivalent rate for an ASCAP li-cense issued to Pandora. Consequently,the Apple licenses do not provide a basisto find with any confidence that a rateabove 1.85% is a fair market rate for anASCAP license issued to Pandora.

D. ASCAP’s Theoretical Argumentsand Motivations

In addition to offering benchmarks, ei-ther ASCAP or its witnesses presentedfive arguments in support of either a high-er rate for a Pandora license than it hadhistorically paid, or an escalating ratewithin a single Pandora license. Thesetheoretical arguments seek to justify AS-CAP’s request for an otherwise hard-to-explain sharp rate increase from 1.85% in2011 and 2012 to 2.50% and 3.00% in theyears between 2013 and 2015. First, Dr.Murphy identified increased competitionamong internet music users, and listeners’preference for variety in music, to supportASCAP’s license request. Second, UMPGand Sony both justified their demands fora higher rate from Pandora because of theextreme gap between the size of paymentsmade by Pandora for rights to the publicperformance of compositions and sound re-cordings. Third, there is theoretical andhistorical support for imposing a higherrate on a music service that cannibalizes

the sale of music, and this justificationarose at trial. Fourth, ASCAP has em-phasized a purported difference in the in-tensity of music use between internet mu-sic services like Pandora and terrestrialradio services. Finally, although unstated,the publishers and ASCAP appear to be-lieve that Pandora’s license rate should beincreased because Pandora is currently asuccessful internet radio service. Each ofthese reasons for a hike in rates will bediscussed in turn.

1. An Increase in Competition

Dr. Murphy posits, on behalf of ASCAP,that an increase in the demand for publicperformance rights in musical works onthe internet would lead to an increase inmarket prices in a competitive market.Dr. Murphy and ASCAP list a number ofrecent customized radio services whichhave emerged in support of the relevanceof this theory here. They tender this ob-servation to support an increase in thePandora licensing rate from 1.85% in 2012to 3.00% by 2015. This theory of economicbehavior in a competitive market is sountethered to actual music industry mar-ket conditions and historical evidence thatit provides minimal assistance when thetask at hand is to set the rate for this fiveyear Pandora–ASCAP license.

First, Dr. Murphy does not grapple withthe history of music on the internet andthe licensing rates for that music, and theimplications of that history for his theory.There has been a sizable and growing in-ternet radio industry since the mid–1990s.At first, these were simulcast stations. In-ternet-only radio arrived shortly thereaf-ter. Customized radio entered the arenain the late 1990s.77 There has been in-creasing competition in the radio and in-ternet music spheres for a long time with-out corresponding rises in licensing rates

77. On-demand services have also existedsince at least 2001, when Rhapsody waslaunched. While not the most direct competi-

tors with radio, they are in the same generalmarket.


attributable to increased competition. AS-CAP adopted its 5.0 License for internetmusic in 2004. Since that year, rightthrough until today, ASCAP has utilized asingle rate—1.85%—for the most music-intensive internet services. ASCAP li-censed Pandora itself under the 1.85% ratefor the entire period of 2005–2010, despitethe purported increase in competitionwithin the field of internet radio, includingcustomized radio, over that period. EMIchose to adopt the 1.85% rate for Pandorafor the years 2012 and 2013. As recentlyas 2012, ASCAP accepted a blended rateof 1.70% for terrestrial and internet ra-dio.78 This stability in rates over a decadein the internet music market is unex-plained by Dr. Murphy’s observation, andindeed runs contrary to it. In particular,ASCAP has made no showing that compe-tition within the internet music marketincreased so dramatically within the singleyear in which the Sony and UMPG licens-es were negotiated, that an increase inrate from 1.85% (which ASCAP agrees isthe correct rate for the year 2012) to3.42% (the ASCAP rate implied by theUMPG license in 2013) was reasonable.

In addition, there are theoretical gaps inDr. Murphy’s theory. For one, the laws ofsupply and demand teach us that the priceof a commodity will increase as demandincreases, but only to the extent that sup-ply is held constant. Dr. Murphy did notattempt to address whether a growth inmusic supply may also have contributed toa stability in rates over many years, andwhether any tendency to raise rates withina competitive market is tempered by theexpectation that supply would increase insuch a circumstance. Moreover, Dr. Mur-phy’s theory is also difficult to apply to amarket in which the price of music isexpressed as a percentage of revenue. In

that market, an increase in demand doesnot necessarily result in an increase inrate. The rights holder participates in thegrowth of revenue by application of a sta-ble rate to an expanding revenue base. Inlight of all of the above, Dr. Murphy’scompetition theory does not persuasivelysuggest that the rate for Pandora’s licenseshould rise above 1.85% in the final threeyears of its license with ASCAP, nor thatthe Sony or UMPG license rates are nec-essarily fair market rates.

2. Demand for Variety

Dr. Murphy offers a second theoreticalargument in support of ASCAP’s request-ed fee structure. He contends that, allelse being equal, ‘‘listeners prefer morevariety to less.’’ From this observation, heconcludes that the demand for variety in-creases the competitive market price ofrights to publicly perform musical worksand justifies an increased rate for a Pando-ra license.

As was true with Dr. Murphy’s firsttheoretical assumption, this theory comesundone when applied to the real world.Dr. Murphy’s claim that listeners prefervariety above all is unsupported and can-not form the basis for an upward depar-ture from a rate of 1.85%. Dr. Murphy didnot conduct any research or analysis intoconsumer listening behavior to arrive athis conclusion that listeners prefer varietyabove all. And it is likely that once acertain minimal variety threshold isreached listeners don’t actually prioritizeextra variety. The record evidence sug-gests that, as a general matter, listenersare not so eclectic in their tastes that theaddition of a song to a music service willnecessarily provide added value. Listen-ers often like to hear music that theyalready know that they like, or music verysimilar to music they already like.

78. As one more example, for ten years,through two five year terms, the rate for me-chanical rights for on-demand services has

been set at the same level: 10.5%. See 37C.F.R. § 385.12(c).


Confronted with this fact, Dr. Murphyemphasized instead the need a music ser-vice has for variety so that it can satisfythe many distinct individual tastes of itslisteners. But, even if the price of a li-cense were driven by the extent to which amusic service requires a large library ofcompositions, ASCAP’s license fee requestwould not be supported. First, there wasno change in the nature of the Pandoraservice between the years 2012 and 2013,when measured by an exhibited demandfor variety in its repertoire, to support theshift in rate from 1.85% to 2.50% andhigher, as proposed by ASCAP. This isespecially notable in light of the fact thatPandora, as a blanket licensee, faced nomarginal cost from adding songs from theASCAP repertoire to its MGP and pre-sumably would add every song in the AS-CAP repertoire to its service if demand forvariety were a primary driver. Instead,its business model has allowed it to usejust a fraction of the repertoire.

As significantly, even if Pandora wereshown to demand variety above all, the‘‘variety’’ metric certainly does not supporta fee for Pandora’s service that is as highas the 3.0% fee ASCAP charges on-de-mand music users in its form license. Andit is even unlikely to justify a higher ratethan the fee ASCAP uses for programmedinternet music.

By a large order of magnitude, custom-ized music services like Pandora have low-

er demonstrated demand for an extensivelibrary of music than do on-demand ser-vices. Although Pandora has access to thefull repertoire of each of the PROs, itsMGP includes only about one million com-positions.79 In contrast, on-demand ser-vices need to be able to play roughly twen-ty times as many compositions. Spotifyhas somewhere in the neighborhood of 20million tracks. After all, on-demand ser-vices essentially promise their membersthat they can listen to any song they wantanytime they want. Consequently, even ifone accepted Dr. Murphy’s theory of vari-ety, ASCAP’s rate would have to be setwell below the 3.0% rate applicable to on-demand services under ASCAP’s form li-cense.

Even when it comes to programmed ra-dio stations, ASCAP did not show thatthose stations could succeed with fewerlicenses or smaller libraries than Pandora.Take just one example: a Top 40 station.To be successful, a Top 40 station wouldneed licenses from every holder of rightsto Top 40 songs. This would in all likeli-hood necessitate deals with all three PROsas well as any major publishers with worksoutside of the PROs. Pandora, in contrast,has the ability to substitute songs.80 ItsMGP enables it to play songs with charac-teristics its listeners enjoy rather thaneach popular song in a category. As atheoretical matter, this flexibility in pro-gramming gives Pandora more flexibilityin licensing negotiations.81 If the demand

79. There was evidence at trial that Pandoramay recently have added as many as a millionmore compositions to its music service forsome purposes.

80. For example, Pandora conducted experi-ments in the Summer of 2013 called the ‘‘La-bel Experiments,’’ in which it determined thatit could substitute away from certain recordlabels with little negative response from Pan-dora users.

81. ASCAP did not attempt to show at trialthat Pandora’s need for an extensive library ofcompositions was greater than, to take anexample, Clear Channel’s iHeartRadio, whichASCAP licenses at a rate of 1.70%. ASCAP didoffer evidence from a surveyor of major com-mercial radio stations, which it used to arguethat Pandora performs a wider variety ofsongs from a wider selection of artists thanterrestrial radio. Given Pandora’s ability tosubstitute songs within a genre, however, thesurvey may show little more than Pandora’sflexibility.


for variety were a driving factor in licens-ing negotiations, therefore, Pandora’s li-cense rate should probably not be set high-er than broadcast radio’s 1.70%, andshould perhaps be lower.

Dr. Murphy’s theory also has very littleutility in the world in which ASCAP andPandora operate. It does not help to dis-tinguish among types of music services ina concentrated industry, and where blan-ket licenses exist. To be successful, everymusic service needs a license with everyPRO. And where their works are not cov-ered by PRO licenses, every music servicewill ultimately need a license with bothSony and UMPG, which together controlabout half of the U.S. market. Thus, it isdifficult to see how demand for varietycould assist in distinguishing betweenrates for different types of music serviceswhen all types of music services mustmake the same licensing deals to survive.Moreover, with a blanket license a musicuser receives the right to every work inthe repertoire, whether it avails itself ofthe opportunity to play all the works ornot. As a result a music service with ahigh demand for variety can satisfy thatdemand by playing more of the songs cov-ered by its blanket license.

In sum, Dr. Murphy’s contention that ademand for variety in music can explainthe upward adjustments in the Pandora–ASCAP license rates must be rejected. Itdoes not fit the world in which Pandoraoperates or the Pandora business model.If anything, resort to this theory under-cuts ASCAP’s request for an increase in alicense rate for Pandora.3. Disparity Between Sound Recording

and Composition Fees

It is worth observing that there is noevidence in the record that any of thelicensing negotiations in this industry have

been driven by either of the rationalesproffered by Dr. Murphy. There was noevidence that ASCAP, EMI, Sony, UMPG,or any other licensor negotiated with anymusic user on the ground that their ser-vice required a larger catalogue or thatthere had been a recent surge in competi-tion in the market.82 But, there was ampleevidence of the actual driving force behindthe Sony and UMPG withdrawal of newmedia rights from ASCAP and their nego-tiations with Pandora. That driving forcewas the music publishers’ envy at the ratetheir sound recording brethren had ex-tracted from Pandora through proceedingsbefore another rate setting body, the CRB.

[6] ASCAP has not offered any theo-retical support for raising the rate forpublic performance of a composition by acomparison to the rate set for sound re-cording rights. There may be several rea-sons for this, but first and foremost is thestatutory prohibition on considering soundrecording rates in setting a rate for alicense for public performance of a musicalwork. See 17 U.S.C. § 114(i) (‘‘Licensefees payable for the public performance ofsound recordings TTT shall not be takeninto account in any TTT proceeding to setor adjust the royalties payable to copy-right owners of musical works for the pub-lic performance of their works.’’). Thus,this Court may not take the rates set bythe CRB into account in determining thefair market rate for a public performancelicense from ASCAP to Pandora.

Despite this statutory prohibition, oneobservation may be safely made. Unhap-piness about the gap between what Pando-ra pays record companies and what it paysthe PROs drove the modification to theASCAP Compendium, the publishers’withdrawals from ASCAP, and the Sony

82. It is also worth noting that there is noevidence that ASCAP has taken action to li-cense customized radio at a higher rate than

programmed radio in any context outside ofPandora.


and UMPG negotiations with Pandora.The corporate rivalries over digital agerevenues explain a great deal of this histo-ry. In any event, the record is devoid ofany principled explanation given by eitherSony or UMPG to Pandora why the ratefor sound recording rights should dictateany change in the rate for compositionrights.

4. Cannibalization of Music Sales

There is agreement between the partiesthat it is appropriate to require a higherlicensing fee from a music service that actsas a substitute for the sale of a musicalwork, when compared to one that does not.To the extent that a music service is areplacement for sales, it is said to canni-balize the sales; to the extent it encour-ages sales, it is said to be promotional.

The reasons for this distinction arise, atleast in part, from a separate stream ofrights belonging to composers. Compos-ers have a copyright interest in the repro-duction and distribution of musical works,an interest that is referred to as ‘‘mechani-cal rights.’’ 17 U.S.C. §§ 106(1) & (3); 17U.S.C. § 115. The licensing regime formechanical rights is complex, and its de-tails need not be described here. It issufficient to observe that when hard copies(e.g., vinyl records, CDs) or digital down-loads of compositions are sold, the compos-ers receive mechanical rights payments.On-demand services, as well, are requiredto pay mechanical rights. As describedearlier, Spotify pays a 10.5% fee for bothmechanical rights and the right to publiclyperform a musical work.

The parties have argued about the ex-tent to which Pandora and services like itare promotional or cannibalistic. There isapparently no industry consensus on thisquestion. It is worth noting, however, thatwhat evidence was presented at trial sug-gests that Pandora is promotional.

To begin with, radio has traditionallybeen considered promotional. The recordindustry has long sought to have its musicplayed on radio stations.83 Pandora is noexception. Record labels have taken ad-vantage of Pandora Premieres to featurenew work in advance of release, with thehope that that exposure will engendersales. Pandora itself has buy buttons thatpermit listeners to buy digital downloadsfrom Amazon and Apple, and they usethem with some frequency.84 There is noevidence that artists have taken steps toprevent Pandora from playing the artist’swork. As significantly, one of Pandora’sprincipal competitors—iTunes Radio—wascreated to complement Apple’s iTunesStore and promote sales in that digitalstore.85

In contrast, on-demand streaming ser-vices like Spotify are widely consideredcannibalistic and are licensed at a higherrate accordingly. After all, a listener hasno need to purchase a digital downloadwhen the listener has any song that shewants to hear instantaneously availablethrough Spotify. For this very reason,some prominent performers have acted toprevent Spotify from playing their record-ings. In sum, while this metric—whethera service is promotional or cannibalistic—could justify a differentiation of rates be-

83. There is a well-documented history of rec-ord promoters going so far as to use bribes,or ‘‘payola,’’ to increase the number of timessongs are played on a radio station.

84. Pandora’s ‘‘buy button’’ resulted in over $3million per month in music sales on Amazonand the iTunes Store during 2013.

85. The preamble to Apple’s licenses with pub-lishers for its iTunes Radio service providesthat ‘‘[w]hereas, Apple wishes to enter intothis Agreement with Publisher to enable Ap-ple to create an advertising supported Inter-net radio service, which will further enhancethe music discovery and recommendationsfeatures of the iTunes Store for the purpose ofpromoting sales of eMasters.’’


tween services, ASCAP failed to show thatPandora is anything other than promotion-al of sales.86

5. Music Intensity

ASCAP argued at trial that Pandora’slicensing fee should exceed the RMLCrate of 1.70% because its channels usemusic more intensively than terrestrial ra-dio stations. Music intensive broadcaststations play, on average, 11 songs perhour; Pandora’s stations play 15 or so.This difference is attributable at least inpart to the difficulty of placing advertisingon internet radio, which is a challenge thatPandora is addressing through its substan-tial investment in an in-house advertisingdepartment. In any event, ASCAP hasnot shown that this current differentialjustifies any increase in the last threeyears of the Pandora license above the1.85% rate it has requested for the firsttwo years.

First, assuming that the purported mu-sic intensity differential justifies an up-ward departure for Pandora’s rate, AS-CAP has already created that differential.Its 5.0 License rate for internet musicservices like Pandora is 1.85% whereas itsRMLC license rate for Music Format sta-tions is 1.70%. And the form license ratefor new media services escalated from theprior ASCAP form license rate of 1.615%to reflect ‘‘the maturation of the new me-dia marketplace and ASCAP’s observationthat many of these services were using alarge amount of ASCAP [m]usic.’’

Second, it is not clear, in all events, thatany rate differential is justified on the

basis of music use. As described above,the habits of terrestrial radio listeners andthe presence of music in advertising maymake any differential largely illusory.Moreover, ASCAP does not have a historyof fine-tuning its rates in the way suggest-ed here. The RMLC license rate for mu-sic intensive services covers a far broaderrange of music usage than the differentialbetween 11 and 15 songs per hour.

Finally, ASCAP agrees that Pandora’srate for 2011 and 2012 should be 1.85%.And it has presented no evidence that themusic intensity of Pandora’s services willchange in any material way for the lastthree years of the license term. For thisreason, as well, the music intensity metriccannot provide a basis to justify the hike inrates to 2.50% and 3.00% that ASCAPseeks.

6. Pandora’s Success

There is one final motivation for AS-CAP’s requested rates that must be ac-knowledged. The backdrop for this ratecourt dispute is the arrival of the digitalage in the music industry, the resultingdisruption to the business models of themusic industry, and Pandora’s current suc-cess in the digital radio market.

A rights holder is, of course, entitled toa fee that reflects the fair value of itscontribution to a commercial enterprise.It is not entitled, however, to an increasedfee simply because an enterprise has foundsuccess through its adoption of an innova-tive business model, its investment in tech-nology, or its creative use of other re-

86. ASCAP relies on an annual 2012 study bya firm called NPD which showed that Pando-ra users tend to purchase less music than dousers of on-demand services like Spotify.But this does not show that Pandora is morecannibalistic of music sales than on-demandservices (or that it is cannibalistic at all).Correlation does not equal causation, and thedisparity may be fully explained by the selfselection of music users into on-demand ser-

vices versus customized or programmed ra-dio services. Users of on-demand servicestend to be music ‘‘super fans’’ who knowwhat they want to listen to and use on-de-mand services as supplements to purchasedmusic collections. Users of customized radioservices like Pandora tend to be more casual,or ‘‘lean back’’ music listeners, who are lesslikely to purchase music for their own collec-tions.


sources. It appears that Sony, UMPG,and ASCAP (largely because of the pres-sure exerted on ASCAP by Sony andUMPG) have targeted Pandora at least inpart because its commercial success hasmade it an appealing target.

Pandora has shown that its considerablesuccess in bringing radio to the internet isattributable not just to the music it plays(which is available as well to all of itscompetitors), but also to its creation of theMGP and its considerable investment inthe development and maintenance of thatinnovation. These investments by Pando-ra, which make it less dependent on thepurchase of any individual work of musicthan at least some of its competitors, donot entitle ASCAP to any increase in therate it charges for the public performanceof music. To the extent Pandora prospersbecause of its innovations and because ofits separate investment in an initiative todevelop advertising revenue, ASCAP andits members will prosper through the in-creased revenue stream that is generatedby the application of an appropriate rate toPandora’s revenue base.

Moreover, market share or revenue met-rics are poor foundations on which to con-struct a reasonable fee. Internet radioremains in its infancy. There is little like-lihood that the landscape of today willremain unaltered. Indeed, remarkablechanges occur with lightning speed in thedigital age.

As of today, ASCAP has two sets ofrates for internet radio: those in theRMLC license (which are available to own-ers of broadcast radio stations) and thosein its form licenses. Neither set of rateshas a separate schedule for customizedradio. ASCAP may or may not wish toexplore the creation of a separate ratestructure for customized radio services likePandora. It is unnecessary to reach the

issue of whether such a separate ratestructure would be justified, much lesswhat the spread in rates should be be-tween programmed radio and customizedinternet radio. Suffice it to say that AS-CAP has not shown that Pandora’s partic-ular success in expanding its audience andrevenue justifies in any way an increase inrate from the 1.85% rate which ASCAPseeks for the years 2011 and 2012 to thehigher rates ASCAP seeks in the threesucceeding years.

III. Whether Pandora is Entitled to theRMLC 1.70% Rate

[7] Before concluding that the rate foran ASCAP license to Pandora for the fiveyears from 2011 through 2015 should be1.85%, it is necessary to address Pandora’scontention that it is similarly situated tothe RMLC licensees and entitled to theRMLC license rate of 1.70% under theanti-discrimination provisions of AFJ2. SeeAFJ2 §§ IV(C), IX(G). Pandora has notshown that a ruling in this Opinion thatrequires ASCAP to license Pandora at arate of 1.85% from 2011 to 2015 will violatethe anti-discrimination provisions of AFJ2.

There are several provisions in AFJ2that concern similarly situated licenseesand impose upon ASCAP the duty to treatthem in a non-discriminatory manner.AFJ2 § IV(C) enjoins and restrains AS-CAP from ‘‘[e]ntering into, recognizing,enforcing or claiming any rights under anylicense for rights of public performancewhich discriminates in license fees or otherterms and conditions between licenseessimilarly situated.’’ Section IX(G) ofAFJ2 further provides that ‘‘[w]hen a rea-sonable fee has been determined by theCourt,’’ ASCAP must ‘‘offer a license at acomparable fee to all other similarly situat-ed music users who shall thereafter re-quest a license of ASCAP.’’ 87

87. See also AFJ2 §§ VIII(A) (prohibiting discrimination in the types of licenses offered);


AFJ2 defines ‘‘similarly situated’’ licen-sees as ‘‘music users or licensees in thesame industry that perform ASCAP musicand that operate similar businesses anduse music in similar ways and with similarfrequency.’’ AFJ2 § II(R). It lists thefactors that are relevant to a determina-tion of whether licensees are similarly situ-ated as including, but not limited to, ‘‘thenature and frequency of musical perform-ances, ASCAP’s cost of administering li-censes, whether the music users or licen-sees compete with one another, and theamount and source of the music users’revenue.’’ Id.

The licensees to which Pandora seekscomparison are those covered by theRMLC license. The current RMLC li-cense was approved in early 2012 and runsthrough the year 2016. As described inmore detail above, it allows RMLC mem-bers to pay at a rate of 1.70% of therevenue derived from radio stations thatprincipally play music. The RMLC mem-bers own commercial radio stations. Withthe advent of the internet, many of theRMLC members have simulcast their pro-gramming for their terrestrial stations onthe internet. Some have also created in-ternet-only radio stations. Of the top 20internet radio services, as measured by theTriton Digital firm, 16 of the 19 servicesthat are not Pandora are owned by RMLCentities. Clear Channel’s internet radiooffering, known as iHeartRadio, includes acustomized internet radio service calledCreate Station. Create Station began op-eration in 2011 and was initially run as acommercial free service. By late 2012, itwas running with advertising and generat-ing revenue. The Create Station feature

is a direct competitor with Pandora and isa growing component of the iHeartRadiooffering.

Although Pandora contends that it issimilarly situated to all RMLC licensees, itemphasizes its similarity to Clear Chan-nel’s iHeartRadio generally, and more spe-cifically to customized radio offerings byRMLC members Clear Channel and CBS,the Create Station and Last.fm services,respectively.88 Pandora has shown that itsservice is indistinguishable for licensingpurposes from these components of ClearChannel and CBS.

More generally, Pandora has shown thatit is radio and competes with programmedradio, including terrestrial radio, for listen-ers and advertising dollars. Its most di-rect competitors within the radio industryare other internet radio services, especiallycustomized radio services. Although ter-restrial radio stations generally play aboutfour fewer songs per hour than Pandora,Pandora has shown that this difference isnot material given the broad categories ofmusic use in the ASCAP–RMLC license.In any event, ASCAP has not offered anyevidence to suggest that the internet radiostations of RMLC members use music lessintensively than Pandora. Indeed, for thatperiod of time in which Clear Channel ranits Create Station feature as an ad-freeservice, it was a more music intensive ser-vice than Pandora. And ASCAP has notsuggested that there is any distinctionamong any of these services in terms ofASCAP’s cost of administering their li-censes.

Of the factors which AFJ2 lists as perti-nent to an analysis of similarity, the only

IX(F) (presumption of setting interim rates atsame level as those between ASCAP and licen-sees similarly situated to an applicant).

88. The parties debate the significance of dictain In re Applications of Salem Media of Cali-fornia, et al., 981 F.Supp. 199, 201 (S.D.N.Y.

1997), which questioned whether the compar-ison in a similarly-situated analysis in thecontext of a multi-member license should beto the median licensee or to any given licen-see. Because of the conclusion drawn herein,it is unnecessary to resolve that question.


factor which may provide a basis for dis-tinguishing between Pandora and othercustomized internet radio services run byRMLC members is the amount of revenue.But, while it appears that Pandora is earn-ing significantly more revenue than theRMLC customized radio services, all of theinternet music services at issue here arerun as commercial stations.

ASCAP emphasizes the degree to whichPandora markets itself as an improvementon traditional radio. It is true that thedigital delivery of music has permitted thecreation of customized radio stations thatare unique to individual listeners. But,despite that development, customized radioretains the essential characteristics of ra-dio. The radio service programs and de-livers the music and the listener does notknow which song will be played next. Forpurposes of analyzing the non-discrimina-tion prohibitions of AFJ2, of course, whatmatters is the degree to which the RMLClicensees are similarly situated to Pandora,and it is uncontested that RMLC licenseesprovide both programmed and customizedinternet radio services.

In light of these similarities, the ques-tion that is fairly presented by Pandora’sapplication is whether it is entitled byAFJ2 to the RMLC rate.89 The answer tothat question, while close, is no. Pandorais not entitled to the 1.70% RMLC rate forat least three reasons.

First, the RMLC rate applies to a large-scale license agreement that binds a vari-ety of licensees in both the terrestrial and

the internet radio sphere. Moreover, therevenues from terrestrial radio swampthose from the internet services. Second,while Pandora’s service is, for the purposeof this analysis, identical to services of-fered by some RMLC members, AFJ2 for-bids discrimination among licensees, andPandora has not shown that it is similarlysituated to any RMLC licensee. Pandorarelies heavily on comparison with ClearChannel’s iHeartRadio’s customized Cre-ate Station feature. But Clear Channel isthe licensee, and the Create Station fea-ture constitutes a very small part of ClearChannel’s business at present. Third, Pan-dora is as similarly situated to internetmusic services covered by the 5.0 Licenseat the rate of 1.85%. Since this Opinionsets the rate for the Pandora license at1.85%, it is difficult, if not impossible, tofind that there is any violation of AFJ2due to a discrimination in rates.

What this discussion may underscore isa lack of coherence in the present ratestructure of ASCAP licenses. This is un-derstandable given the evolving nature ofthe radio market. Any change in ratestructure (for instance, to create a ratestructure for customized music services)would have to be made with care based ona thorough understanding of the marketand the uses of music in the market, in-formed by a desire not to discriminateamong similarly situated licensees or be-tween similar services simply because of adifference in the mode of distribution.90

After all, if there is no commercially legiti-mate reason for a distinction in rates, then

89. As AFJ2 requires, nothing in this Opinionmay be construed as affecting the presentASCAP–RMLC license. See AFJ2 § IX(G)(‘‘[A]ny license agreement that has been exe-cuted between ASCAP and another similarlysituated music user prior to such determina-tion by the Court shall not be deemed to be in

any way affected or altered by such determi-nation for the term of such license agree-ment.’’).

90. If ASCAP revises its rate structure it willno doubt be attuned to the need to treat majorcompetitors in a market fairly.


the distinction would not survive in a com-petitive market.

IV. Publisher Concerns Regarding theConsent Decree and the Rate Court

There is one remaining issue to address.ASCAP, Sony, and UMPG witnesses ex-pressed frustration with the Consent De-cree and the rate court process, both intheir communications with each other andin their trial testimony. LoFrumento ex-plained that this frustration arrived withthe digital age and reflects a fear that therecord industry will grab all of the avail-able revenue from the digital transmissionof music. According to ASCAP, AFJ2 andits processes, in particular the requirementthat ASCAP issue a license to any appli-cant, hamper ASCAP’s ability to negotiatea fair market rate. Sony and UMPG wit-nesses asserted that they had to withdrawtheir licensing rights from ASCAP in or-der to negotiate effectively with Pandoraand achieve appropriate parity with soundrecording licensing rates. They expressedskepticism that the rate court proceedingscould determine a fair market value for aPandora license.

The Court is sensitive to ASCAP’s con-cerns and understands that the uniquecharacteristics of the market for musiclicensing and the Consent Decree regimeproduce challenges for all parties. But,for the reasons already discussed, ASCAPdid not show that the upshot of the negoti-ations conducted by either Sony or UMPGwith Pandora was a competitive, fair mar-ket rate.

CONCLUSION

The headline rate for the ASCAP–Pan-dora license for the years 2011 through2015 is set at 1.85% of revenue for everyyear of the license term. Pandora is enti-tled to take a deduction for any direct

payments to publishers made followingtheir partial withdrawals from ASCAP.

SO ORDERED.

,

PEEKSKILL CITY SCHOOLDISTRICT, Plaintiff,

v.

COLONIAL SURETY COMPANY,Defendant.

No. 11 Civ. 341(SHS).

United States District Court,S.D. New York.

Signed March 18, 2014.

Background: School district broughtbreach of contract claim against surety foran electrical contractor, after the contrac-tor filed for bankruptcy and ceased workon a school’s construction. The suretymoved for summary judgment.

Holdings: The District Court, Sidney H.Stein, J., held that:

(1) the limitations period was not tolled bythe district’s motion to dismiss a prioraction that was voluntarily dismissed;

(2) an order granting the district addition-al time to file an answer in a prioraction did not toll the limitations peri-od;

(3) the limitations period was not equita-bly tolled; and

(4) the district could not challenge the dis-missal of the prior action in the subse-quent action.

Motion granted.

Documents

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