Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 1 of 21 Page ID #:25051 1 2 3 4 5 6 7 DANIEL M. PETROCELLI (S.B. #97802) dpetrocelli@omm.com CASSANDRA L. SETO (S.B. #246608) cseto@omm.com O’MELVENY & MYERS LLP 1999 Avenue of the Stars, 8th Floor Los Angeles, CA 90067-6035 Telephone: (310) 553-6700 Facsimile: (310) 246-6779 Attorneys for Defendant Sirius XM Radio Inc. 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 FLO & EDDIE, INC., a California corporation, individually and on behalf of all others similarly situated, 13 14 15 16 17 18 19 Plaintiffs, v. SIRIUS XM RADIO INC., a Delaware corporation, and DOES 1 through 10, Defendants. Case No. CV 13-05693 PSG (GJS) Hon. Philip S. Gutierrez DEFENDANT SIRIUS XM RADIO INC.’S OPPOSITION TO AMICI CURIAE’S REQUEST FOR LEAVE TO FILE BRIEF REGARDING CLASS SETTLEMENT [DECLARATION OF VISION WINTER FILED CONCURRENTLY HEREWITH] Hearing Date: Hearing Time: Courtroom: May 1, 2017 1:30 p.m. 6A 20 21 22 23 24 25 26 27 28 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 2 of 21 Page ID #:25052 TABLE OF CONTENTS 1 2 Page 3 I. INTRODUCTION ........................................................................................... 1 4 II. STATEMENT OF RELEVANT FACTS ....................................................... 2 III. AMICI LACK STANDING AND DO NOT PROVIDE USEFUL INFORMATION ............................................................................................. 4 IV. AMICI’S MISGUIDED OBJECTIONS DO NOT HELP THE COURT EVALUATE THE FAIRNESS OF THE CLASS SETTLEMENT ............... 5 5 6 7 8 A. 9 The Parties’ Agreement Regarding The “Market Rate” For Pre1972 Recordings Is Immaterial To The Court’s Analysis. ................... 6 10 1. The Court is not determining the “market rate.” ........................ 6 11 2. The royalty rate is a fair outcome from market negotiations ................................................................................. 8 12 B. 13 14 The Prospective Class License Provides Fair, Reasonable, And Adequate Compensation For Class Members. .................................... 10 1. This lawsuit contemplated a prospective license releasing claims against future infringement ........................................... 10 2. Class members were free to opt out or release certain claims in exchange for settlement relief ................................... 13 3. Differences between the federal scheme for post-1972 recordings and the settlement are irrelevant ............................. 14 4. Class members should not have to wait for Congress to act .............................................................................................. 16 15 16 17 18 19 20 21 V. CONCLUSION ............................................................................................. 17 22 23 24 25 26 27 28 -i- SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 3 of 21 Page ID #:25053 TABLE OF AUTHORITIES 1 2 3 Page(s) CASES 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Authors Guild v. Google, Inc., 770 F. Supp. 2dd 666 (S.D.N.Y. 2011) ............................................................... 12 Class Plaintiffs v. City of Seattle, 955 F.2d 1268 (9th Cir. 1992) ............................................................................. 11 Flo & Eddie, Inc. v. Pandora Media, Inc., 2017 WL 992513 (9th Cir. March 15, 2017) ........................................................ 3 Flo & Eddie, Inc. v. Sirius XM Radio Inc., 28 N.Y. 3d 583 (2016) ........................................................................................... 9 Flo & Eddie, Inc. v. Sirius XM Radio Inc., 827 F.3d 1016 (11th Cir. 2016) ............................................................................. 9 Gatdula v. CRST Int’l, Inc., 2015 WL 12697656 (C.D. Cal. Aug. 26, 2015) .................................................... 5 Hanlon v. Chrysler Corp., 150 F. 3d 1011 (9th Cir. 1998) .................................................................... 6, 7, 14 Hazlin v. Botanical Labs., Inc., 2015 WL 11237634 (S.D. Cal. May 20, 2015) ................................................. 4, 5 Hesse v. Sprint Corp., 598 F.3d 581 (9th Cir. 2010) ............................................................................... 11 In re Hydroxycut Mktg. & Sales Practices Litig., 2013 WL 5275618 (S.D. Cal. Sept. 17, 2013) ...................................................... 5 In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242 (2d Cir. 2011) .................................................................... 10, 11, 12 25 26 Jamul Action Comm. v. Chaudhuri, 2015 WL 1802813 (E.D. Cal. Apr. 17, 2015) ....................................................... 5 27 28 - ii - SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 4 of 21 Page ID #:25054 TABLE OF AUTHORITIES (continued) 1 2 Page(s) 3 4 Local Number 93, Int’l Assoc. of Firefighters v. City of Cleveland, 478 U.S. 501 (1986) ............................................................................................ 10 5 6 7 8 9 10 11 12 13 Robertson v. Nat’l Basketball Ass’n, 72 F.R.D. 64 (S.D.N.Y. 1976) ............................................................................. 10 Sheridan v. Sirius XM Radio Inc., 2016 WL 1060361 (D.N.J. March 16, 2016) ........................................................ 9 Uhl v. Thoroughbred Tech. & Tele., Inc., 309 F.3d 978 (7th Cir. 2002) ............................................................................... 10 White v. Nat’l Football League, 822 F. Supp. 1389 (D. Minn. 1993) .................................................................... 10 STATUTES 14 15 17 U.S.C. § 114................................................................................................... 14, 17 16 N.C. GEN. STAT. § 66-28 (2015) ........................................................................... 15 17 S.C. CODE ANN. § 39-3-510 (2015) ...................................................................... 15 18 OTHER AUTHORITIES 19 20 21 Federal Judicial Center, Manual for Complex Litig. § 21.62 (4th ed.) ............ 5, 9, 14 James Grimmelmann, Future Conduct and the Limits of Class-Action Settlements, 91 N.C. L. REV. 387 (2013) ............................................................. 12 22 23 RULES 24 Fed. R. Civ. P. 23(e) ....................................................................................... 1, 4, 5, 6 25 26 27 28 - iii - SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 5 of 21 Page ID #:25055 1 2 I. INTRODUCTION After three years of fiercely-contested litigation—and extensive, arms-length 3 negotiations—Flo & Eddie and Sirius XM reached a settlement agreement that 4 provided class members with up to $40 million in past damages and ten years of 5 potential royalty payments for future performances of their pre-1972 recordings. 6 Doc. 666-4; Doc. 666-1 at 1. The maximum negotiated royalty rate exceeds the 7 highest rate paid to any of the thirty-plus independent record labels who entered 8 into direct licenses with Sirius XM covering pre-1972 recordings. Id. The 9 guaranteed past payment—coupled with potential royalties for future 10 performances—will provide class members with more than adequate compensation 11 concerning a performance right that never existed before this lawsuit was filed, and 12 is still being challenged to this day. Indeed, it is telling that not one class member 13 filed an objection to the proposed settlement terms, and the only opt-out is a party 14 with a separate lawsuit already pending in state court. The reality is that class 15 members want to share in the guaranteed multi-million dollar payout for past 16 performances, and look forward to potential future royalties. 17 Amici are not class members and have no legitimate interest in this matter. 18 They have not even argued that the settlement is unfair in any way to class 19 members. Instead, they wish to “express concerns” that the settlement (1) does not 20 reflect the “market rate” and (2) creates an improper compulsory license. But 21 neither of their “concerns” are legitimate, relevant, or helpful to the Court’s only 22 analysis at this point—i.e., to determine whether the proposed settlement is “fair, 23 reasonable, and adequate” to class members. Fed. R. Civ. P. 23(e)(2). 24 Amici’s first concern is that the settlement agreement includes a recital 25 stating the objective and indisputable fact that “[t]he Parties agree that [the royalty 26 rate] represents the rate that has been established by negotiations between a willing 27 buyer and a willing seller in a competitive market . . . .” Doc. 681-1 at 4. Amici 28 argue that “the Court must insist upon the removal of any self-serving description SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 6 of 21 Page ID #:25056 1 of the license terms as reflecting a market rate.” Id. at 8. Of course, no one can 2 change the facts of what the parties agreed to, and line-editing the settlement to hide 3 what the Amici would like to avoid as an inconvenient truth would be 4 unprecedented. The function of a settlement agreement is to objectively recite what 5 the parties agreed to during the settlement negotiations. Regardless of how 6 “concerning” these facts are to the Amici, what the parties agreed to are facts that 7 cannot be changed. 8 In addition to the blatant impropriety of asking a Court to line edit a 9 settlement agreement, there is no reason to prevent class members—most of whom 10 are sophisticated record labels—from freely entering into a prospective license with 11 Sirius XM. Far from being “compulsory,” class members were free during the 12 exclusion period to opt out and negotiate separate licenses with Sirius XM if they 13 wished. The fact that class members must forego certain claims in exchange for 14 settlement benefits is simply the nature of any settlement agreement. There is 15 nothing inherently improper with that arrangement. The only thing improper is 16 Amici’s attempt to deprive class members of their right to enter into such licenses, 17 have their recordings broadcast, and receive royalties that were established in a 18 willing buyer/willing seller negotiation.1 19 II. 20 STATEMENT OF RELEVANT FACTS At the heart of this litigation is the exclusive right to publicly perform pre- 21 1972 recordings. Unlike post-1972 recordings—which enjoy a nationwide digital 22 performance right under federal law—pre-1972 recordings are governed by state 23 law and have never been treated the same by the parties or larger recording and 24 broadcasting industries. In fact, broadcasters like Sirius XM have regularly 25 performed pre-1972 recordings without paying royalties for decades, and recording 26 1 27 28 Should the Court grant Amici’s motion, Sirius XM reserves all rights and respectfully requests the full opportunity to respond to the merits of the proposed amicus brief. 2 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 7 of 21 Page ID #:25057 1 owners have been well aware of that fact. Doc. 411 at 1. In fact, prior to this 2 lawsuit, no recording owner had asked any broadcaster to stop performing their pre- 3 1972 recordings. Id. It took this highly-contested lawsuit for any court to 4 recognize, for the first time, an exclusive right to control the public performances of 5 pre-1972 recordings. Id. at 2 (“Prior to this [Court’s] ruling, no court had ever 6 expressly recognized such a right.”). And even that ruling is currently on appeal in 7 a related matter before the Ninth Circuit and California Supreme Court. Flo & 8 Eddie, Inc. v. Pandora Media, Inc., 2017 WL 992513 (9th Cir. Mar. 15, 2017). 9 Rather than awaiting the completion of trial and appeals with this continued 10 uncertainty, the parties reached a settlement agreement less than 48 hours before 11 trial was scheduled to start. See Doc. 666-1 at 1-2. The settlement contains 12 payments to class members for both past and future performances of their pre-1972 13 recordings. Even though no performance right existed until this Court recently 14 recognized one, the settlement nonetheless provided a payment of up to $40 million 15 to class members for Sirius XM’s past performances. Doc. 666-4 at 15-16, 19. The 16 settlement also provides for a ten-year license to continue to perform class 17 members’ pre-1972 recordings in exchange for potential ongoing royalty payments 18 at up to a 5.5% royalty rate. Id. at 6-7, 19, 20-21. That rate exceeds the highest rate 19 negotiated by any of the independent record labels who entered into direct licenses 20 with Sirius XM concerning pre-1972 recordings. Doc. 666-1 at 1.2 Indeed, the vast 21 majority of these licenses included royalty rates below 1%, and only a handful 22 included rates between 3% to 5%. Doc. 489-3 at Ex. 19. 23 On January 27, 2017, the Court granted preliminary approval of the proposed 24 settlement. Doc. 676. The opt-out period concluded on March 8, 2017, and the 25 objection period closed on March 24, 2017. See id. at 5-6. The only class member 26 2 27 28 These direct licenses were entered into before the Court preliminarily approved a settlement class. See Doc. 438 at 2, 4-5. Thus, the licensors are not members of the class but are similarly situated owners of pre-1972 recordings. 3 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 8 of 21 Page ID #:25058 1 to seek exclusion was Gusto Records, Inc., which had already initiated its own 2 copycat lawsuit against Sirius XM in California state court in May 2016. 3 Declaration of Vision Winter (“Winter Decl.”) Exhibits (“Ex.”) A, B; Gusto 4 Records, Inc. v. Sirius XM Holdings Inc., Case No. BC 620374 (Los Angeles Sup. 5 Ct.).3 No class members have filed objections to any terms of the proposed 6 settlement. Winter Decl. ¶ 2. 7 On March 1, 2017, six organizations (“Amici”) jointly moved the Court for 8 leave to file a brief “regarding the parties’ proposed class settlement as amici 9 curiae.” Doc. 681 at 1.4 No other parties have sought to block or modify any terms 10 of the settlement agreement. 11 III. AMICI LACK STANDING AND DO NOT PROVIDE USEFUL 12 INFORMATION 13 Amici cannot object to the settlement agreement because only class members 14 have standing to object. Fed. R. Civ. P. 23(e)(5) (“Any class member may object to 15 the [settlement] proposal…”); see also Hazlin v. Botanical Labs., Inc., 2015 WL 16 11237634, at *4 (S.D. Cal. May 20, 2015) (“The plain language of Rule 23(e) 17 clearly contemplates only allowing class members to object to settlement 18 proposals.”). “Non-class members”—like Amici here—“have no standing to 19 20 21 22 23 24 25 26 27 28 3 In what appears to be out of an abundance of caution, two exclusion forms were submitted by recording owners who have previously entered into direct licenses with Sirius XM concerning their pre-1972 recordings. Winter Decl. Exs. C, D. Another exclusion form was submitted by one of the Major Record Labels. Id. Ex. E. These recording owners are not settlement class members and did not need to opt out. Doc. 666-4 at § I(A)(42) (excluding Major Record Labels and Direct Licensors from definition of Settlement Class). 4 The six organizations are American Association of Independent Music (“A2IM”), American Federation of Musicians of the United States and Canada (“AFM”), AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund (“AFM& SAGAFTRA Fund”), Recording Industry Association of America (“RIAA”), Screen Actors Guild – American Federation of Television and Radio Artists (“SAGAFTRA”), and SoundExchange, Inc. (“SoundExchange”). 4 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 9 of 21 Page ID #:25059 1 object,” and “routinely allowing them to inject their concerns at the settlement stage 2 frustrates the goal of encouraging settlements.” Id. (internal quotations omitted). 3 That alone is enough reason for the Court to disregard Amici’s motion. See In re 4 Hydroxycut Mktg. & Sales Practices Litig., 2013 WL 5275618, at *2 (S.D. Cal. 5 Sept. 17, 2013) (striking objections because objectors have no “standing to object to 6 the proposed class settlement” when they cannot “satisf[y] their burden of 7 establishing that they are class members”); Gatdula v. CRST Int’l, Inc., 2015 WL 8 12697656, at *6 (C.D. Cal. Aug. 26, 2015) (“any objections” by non-class members 9 “would be meritless as they would lack standing to object”). 10 In addition to the standing defect, the motion should be denied because it 11 fails to provide “useful” and “unique” information that is “relevant to a pending 12 decision.” Hazlin, 2015 WL 11237634, at *4 (disregarding amicus brief at class 13 settlement final approval stage because it “failed to raise unique or helpful 14 information”); Jamul Action Comm. v. Chaudhuri, 2015 WL 1802813, at *2 (E.D. 15 Cal. Apr. 17, 2015) (denying leave to file amicus brief that is “unhelpful to resolve 16 any pending issue”).5 Here, Amici here do not provide any relevant help to the 17 Court’s only pending decision—whether the proposed settlement is “fair, 18 reasonable, and adequate,” warranting final approval. Fed. R. Civ. P. 23(e)(2).6 19 IV. AMICI’S MISGUIDED OBJECTIONS DO NOT HELP THE COURT 20 EVALUATE THE FAIRNESS OF THE CLASS SETTLEMENT 21 Amici’s “concerns” and “deep misgivings” about the settlement agreement— 22 the “market rate” language and the prospective license—are irrelevant to the 23 24 25 26 27 28 5 This Court has already denied attempts by other non-parties to interject as amici curiae on unrelated issues when they failed to meet this standard. See Doc. 152. 6 “Fairness” compares treatment of class members with each other and similar nonclass members, “reasonableness” measures how responsive the settlement is to class claims, and “adequacy” compares settlement relief to potential relief outside the class action. Federal Judicial Center, Manual for Complex Litig. § 21.62 (4th ed.). 5 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 10 of 21 Page ID #:25060 1 Court’s analysis and are legally and factually incorrect. Both objections falsely 2 assume that pre-1972 recordings must be treated the same as post-1972 recordings 3 and fail to consider the full nature of the parties’ dispute and the settlement 4 agreement. 5 6 7 A. The Parties’ Agreement Regarding The “Market Rate” For Pre1972 Recordings Is Immaterial To The Court’s Analysis. The parties have agreed to enter into a prospective license expressly granting 8 Sirius XM the right to perform the class members’ pre-1972 recordings at a set 9 royalty rate. Doc. 666-4 § IV(C). Amici never once argue that the negotiated 10 royalty rates are “unfair, unreasonable, or inadequate” under the Court’s Rule 11 23(e)(2) analysis. Instead, Amici quibble over the specific wording of one part of 12 the agreement: “the Parties agree that [the royalty rate] represents the rate that has 13 been established by negotiations between a willing buyer and willing seller in a 14 competitive market for Pre-1972 Sound Recordings.” Doc. 681-1 at 4. While that 15 statement by the parties is unquestionably true, the Amici’s objection is irrelevant 16 to the Court’s analysis and should be disregarded entirely. 17 18 1. The Court is not determining the “market rate.” The Court’s only task at this juncture is to determine whether the parties’ 19 overall settlement is “fair, reasonable, and adequate” in light of the nature of this 20 dispute. See Fed. R. Civ. P. 23(e)(2). In other words, the Court should evaluate 21 whether the negotiated royalty rate provides fair and adequate compensation for 22 Sirius XM’s ongoing performance of the class members’ pre-1972 recordings. The 23 challenged language provides that “the Parties agree” the negotiated royalty rate 24 reflects the realities of the market in light of all applicable facts. 25 The Court should also not be asked to line edit an arms-length settlement 26 agreement entered into between litigants. Fairness, reasonableness, and adequacy 27 must be evaluated by considering the “overall” proposed class settlement “taken as 28 a whole.” Hanlon v. Chrysler Corp., 150 F. 3d 1011, 1026 (9th Cir. 1998). The 6 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 11 of 21 Page ID #:25061 1 Court should not evaluate “the individual component parts” in isolation, and is “not 2 free to redraft the agreement, or strike out certain parts” it finds to “be 3 problematic.” Id. at 1028. But Amici are asking the Court to do just that—to strike 4 specific language that even Amici seem to acknowledge is immaterial to the overall 5 fairness of the settlement. See Doc. 681-1 at 8 (Amici argue that “the Court must 6 insist upon the removal of any self-serving description of the license terms as 7 reflecting a market rate.”). 8 9 Hanlon—Amici’s leading case—is instructive. In Hanlon, several state Attorneys General appeared as amici curiae to contest one paragraph of a proposed 10 nationwide settlement concerning defective minivans. 150 F.3d at 1028. The 11 Attorneys General argued that the challenged paragraph was “unfair and 12 unreasonable” because it would have a “chilling effect” on state enforcement of 13 auto safety rules. Id. The Ninth Circuit rejected that argument and affirmed the 14 district court’s final approval of the settlement. Id. at 1028, 1030. It ruled that 15 class members had adequate “notice” and a fair opportunity to review the 16 paragraph—which had been included in the agreement “from the beginning”—and 17 “the vast majority of the class” nonetheless agreed to “exchang[e] their state rights 18 for the contractual promises of the Agreement.” Id. at 1028. The inclusion of that 19 paragraph did not “warrant[] rejection of the agreement.” Id. 20 Amici’s line-item “objections” are even weaker here. Like the Attorneys 21 General in Hanlon, Amici contest only one provision in the proposed settlement 22 that has been a part of the agreement “from the beginning.” Id. Class members 23 have had full “notice” and opportunity to scrutinize the language regarding market 24 rates, but not one has filed an objection. Instead, they have decided to “exchang[e] 25 their” rights to negotiate different royalty rates “for the contractual promises of the 26 Agreement.” Id. 27 28 Amici also raise concerns that any references to the “market rate” for pre1972 recordings would determine future rate-setting proceedings for post-1972 7 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 12 of 21 Page ID #:25062 1 recordings. Doc. 681-1 at 6-7. The settlement only states that “the Parties” agreed 2 on a market rate for pre-1972 recordings. It does not mention post-1972 3 recordings, let alone mandate what the Copyright Royalty Board should determine 4 is the appropriate rate for post-1972 recordings.7 The argument that this Court 5 should line-edit a settlement agreement because an unrelated third party (Amici) is 6 “concerned” that the settlement agreement may be cited in a separate proceeding 7 (the Copyright Royalty Board proceeding) to set rates for a separate class of sound 8 recordings (post-1972 sound recordings) is not persuasive. And those concerns are 9 irrelevant and immaterial to the fairness, reasonableness, and adequacy of 10 compensating the pre-1972 recording owners that have an interest in the settlement 11 agreement.8 12 2. 13 The royalty rate is a fair outcome from market negotiations. Even if the Court determines that it should examine the market rate, the 14 negotiated rate reflects the realities of the market concerning pre-1972 recordings. 15 In fact, the proposed rate is the highest pre-1972 rate negotiated by any of the 16 independent record labels who entered into licenses with Sirius XM. Doc. 666-1 at 17 1. The vast majority of those licenses included rates below 1%, and only a handful 18 included rates between 3% to 5%. Doc. 489-3 at Ex. 19. This comparison 19 20 21 22 23 24 25 26 27 28 7 Amici also mention that other “copyright owners and performing artists” could be affected if the settlement somehow lowers rates for post-1972 recordings. Doc. 681-1 at 8. But this case only involves the rights of pre-1972 recording owners, all of whom are class members or opt-outs from the Flo & Eddie California Class and/or the Settlement Class. Other copyright owners and performing artists have no property interest in pre-1972 recordings at stake here. 8 Amici also argue that a “ten-year license” is “inconceivable as the product of a transaction between a willing buyer and willing seller.” Doc. 681-1 at 5. That is plainly wrong and beside the point. Amici have not argued or provided any support that a duration of ten years is unfair. Instead, the parties reasonably sought a tenyear license to secure potential long-term payment for recording owners in light of the uncertainty that a performance right would even be recognized for pre-1972 sound recordings. 8 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 13 of 21 Page ID #:25063 1 confirms that the proposed rate is a fair and adequate outcome reflecting market 2 negotiations. See Manual for Complex Litig. § 21.62 (“fairness” requires 3 comparing treatment of class members “vis-à-vis each other and … similar 4 individuals” outside the class, and “adequacy” involves comparing settlement terms 5 to what class members might have obtained outside the class action process). 6 Amici’s argument that the royalty rate “does not remotely reflect the 7 marketplace” is wrong. Doc. 681-1 at 5. Amici nakedly assert that “when pre-72 8 recordings are licensed in the free market, they generally are licensed on the same 9 financial terms as post-72 recordings, not at a deep discount.” Id. Not so. Pre- and 10 post-1972 recordings have been treated differently under the law for decades. 11 There is no historical market for pre-1972 recordings, and it took this litigation for 12 any court to recognize a pre-1972 performance right.9 This backdrop of “costly and 13 uncertain prospects of multiple state court litigations” is exactly what defines the 14 market for pre-1972 recordings. Id. at 2. Thus, the current 11% statutory rate for 15 post-1972 recordings is not the proper benchmark to use. That rate reflects the fact 16 that Congress has already established a digital performance right for post-1972 17 recordings. Pre-1972 recordings, however, are subject to willing buyer/willing 18 seller negotiations, fixed in number, and declining in popularity. See Doc. 489-3 ¶ 19 105, Ex. 20. 20 21 22 23 24 25 26 27 28 9 This is just one of many lawsuits involving the novel performance-right issue. New York’s highest court recently confirmed that no performance right exists under New York law, reversing a previous decision by a New York federal district court. Flo & Eddie, Inc. v. Sirius XM Radio Inc., 28 N.Y. 3d 583 (2016). Florida’s Supreme Court will soon decide whether to affirm a Florida federal district court’s holding that no performance right exists under Florida law. Flo & Eddie, Inc. v. Sirius XM Radio Inc., 827 F.3d 1016 (11th Cir. 2016). And New Jersey and Illinois federal courts are awaiting resolution of these related appeals before deciding whether those states should recognize a performance right. Sheridan v. Sirius XM Radio Inc., 2016 WL 1060361 (D.N.J. Mar. 16, 2016); Sheridan v. Sirius XM Radio Inc., Case No. 15-cv-9236 (N.D. Ill.), Dkt. 42, 48, 60. 9 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 14 of 21 Page ID #:25064 1 2 3 B. The Prospective Class License Provides Fair, Reasonable, And Adequate Compensation For Class Members. It is well-established that this Court has the authority to provide prospective 4 relief to class members. Local Number 93, Int’l Assoc. of Firefighters v. City of 5 Cleveland, 478 U.S. 501, 525 (1986) (district court can enter “a consent decree” 6 that “provides broader relief than the court could have awarded after a trial”). 7 Courts routinely approve class settlements providing prospective relief. See, e.g., 8 In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242, 247-249 9 (2d Cir. 2011) (approving class settlement permitting publishers to continue selling 10 and licensing class members’ copyrighted works); Uhl v. Thoroughbred Tech. & 11 Tele., Inc., 309 F.3d 978, 982 (7th Cir. 2002) (approving class settlement granting 12 defendant future rights in class members’ real property); Robertson v. Nat’l 13 Basketball Ass’n, 72 F.R.D. 64, 69-70 (S.D.N.Y. 1976) (approving settlement 14 establishing new rules for future NBA draftees); White v. Nat’l Football League, 15 822 F. Supp. 1389, 1407-08 (D. Minn. 1993) (approving settlement that provided 16 “monetary relief for alleged past liability” as well as “structural” relief “that will 17 govern [NFL] players in future years”). 18 Despite this clear law, Amici objects that the Court cannot approve any 19 prospective class license involving pre-1972 recordings. Doc. 681-1 at 9. That is 20 plainly wrong under the law and the facts of this case, and must be disregarded as 21 unhelpful to the Court’s Rule 23(e)(2) analysis. 22 23 1. This lawsuit contemplated a prospective license releasing claims against future infringement. 24 As a preliminary matter, Amici’s objection is premised on the erroneous 25 assumption that the “prospective aspect of the settlement is outside the scope of this 26 litigation” because the case is only “about Sirius XM’s past unauthorized use of 27 pre-1972 recordings.” Doc. 681-1 at 9. Not so. Each and every cause of action 28 sought injunctive relief addressing Sirius XM’s future uses of the class members’ 10 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 15 of 21 Page ID #:25065 1 pre-1972 recordings, and necessarily contemplated the possibility of prospective 2 relief beyond mere cessation of the challenged conduct. Doc. 1-1 at 10-12. 3 The Second Circuit has already rejected an identical objection to a similarly 4 structured class settlement. In In re Literary Works, freelance writers filed a class 5 action against publishers when the publishers began licensing their articles to 6 electronic databases, seeking both compensatory damages for past harm as well as 7 injunctive relief. 654 F.3d at 245, 248. Under the proposed settlement, class 8 members would release defendants from past and future claims in exchange for 9 compensation for the future use of their works. Id. at 246. Objectors claimed that 10 the court could not approve a settlement releasing future claims, arguing that 11 “future infringements are distinct harms giving rise to independent claims for relief, 12 with factual predicates that are different from authors’ past infringement claims.” 13 Id. at 248. The Second Circuit disagreed: 14 Objectors … fail[] to recognize that the … complaint seeks 15 injunctive relief for future uses, and therefore contemplates 16 these alleged future injuries. Put another way, a trial of this 17 case would determine whether it is permissible for publishers 18 to continue to sell and license the works. Accordingly … the 19 Settlement’s release of claims regarding future infringements 20 is not improper. 21 Id. (emphasis added). Cf. also Hesse v. Sprint Corp., 598 F.3d 581, 590-91 (9th 22 Cir. 2010) (courts can “properly release[] claims” not before them if those claims 23 depend “on the same set of facts as the claims” in the complaint); Class Plaintiffs v. 24 City of Seattle, 955 F.2d 1268, 1288 (9th Cir. 1992) (same). 25 Similarly here, Flo & Eddie’s complaint seeks both compensatory damages 26 and injunctive relief, Doc. 1-1 at 10-12, and a “trial of this case would determine 27 whether it is permissible” for Sirius XM to “continue to” perform class members’ 28 pre-1972 recordings without compensation. See In re Literary Works, 654 F.3d at 11 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 16 of 21 Page ID #:25066 1 248. The settlement’s provision allowing for potential future compensation simply 2 confirms that “it is permissible for [Sirius XM] to continue to [use] the works” as it 3 has in the past, and is entirely within the scope of this lawsuit and the Court’s 4 authority to approve. See id. A release of “claims regarding future infringements” 5 is appropriate under these circumstances. Id. 6 Amici’s sole reliance on Authors Guild v. Google, Inc. is misplaced. Doc. 7 681-1 at 10-11. The proposed settlement in Authors Guild was improper because it 8 involved a sweeping license between Google and “hundreds of thousands[] or 9 millions of class members,” 770 F. Supp. 2d 666, 673 n.6 (S.D.N.Y. 2011), that 10 would have granted Google rights to exploit class members’ books “well into the 11 twenty-second century.” See James Grimmelmann, Future Conduct and the Limits 12 of Class-Action Settlements, 91 N.C. L. REV. 387, 390 (2013). Hundreds of class 13 members objected to the proposed settlement, and the United States Department of 14 Justice expressed concerns about it. Authors Guild, 770 F. Supp. 2d at 671. The 15 proposed settlement not only permitted Google to continue copying books and 16 displaying “snippets” of text—the subject of the lawsuit—but also permitted 17 Google to engage in additional conduct outside the scope of the lawsuit, including 18 selling access to digital copies of entire books. Id. Indeed, the settlement “would 19 have established the world’s largest bookstore” controlled by one company, “bound 20 millions of class members[,] and [made] payments to copyright owners [that] could 21 have reached into the billions of dollars.” See Grimmelmann, supra at 394. 22 Here, the proposed prospective license encompasses a much smaller class 23 and is limited to only ten years. No class members have objected to any terms of 24 the settlement, including its prospective license. And notably, the proposed 25 settlement merely permits Sirius XM to continue its current use of class members’ 26 pre-1972 recordings in the same manner it has done for years—e.g., to “broadcast 27 and publicly perform … and to make [necessary] reproductions” of class members’ 28 12 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 17 of 21 Page ID #:25067 1 pre-1972 recordings. See Doc. 666-4 IV.C.1. In other words, unlike Authors Guild, 2 the release of future claims is limited to the conduct at issue in this lawsuit.10 3 2. 4 Class members were free to opt out or release certain claims in exchange for settlement relief. 5 Class members have had a full and fair opportunity to object to or opt out of 6 the settlement if they were not satisfied with the prospective relief, including if they 7 did not believe it was the product of a negotiation between a willing buyer and a 8 willing seller. Amici do not dispute that, and never argued that the opt-out 9 procedure has been unfair or that the robust Court-approved notice plan failed to 10 protect the class members’ interests. And yet, Amici mischaracterizes the 11 settlement as a “compulsory license that binds all members of the class” as if this 12 were a mandatory class. Doc. 681-1 at 2. Amici suggest that the class members 13 “have so little at stake” and are “so ignorant” that they lack the “motivation, 14 knowledge, and resources” to understand the class notice or settlement terms. See 15 Doc. 681-1 at 8. That is wrong. Unlike the class actions Amici reference, most 16 class members here are sophisticated record companies with a clear understanding 17 of their rights. Eighteen were deposed in this lawsuit about the very issues and 18 risks at stake here, and nearly all were represented by counsel. Doc. 424 at 5. 19 Others have brought their own lawsuits against Sirius XM in California, New York, 20 New Jersey, and Illinois. See Case No. 3:15-cv-04081 (N.D. Cal.); Case 1:15-cv- 21 07056 (S.D.N.Y.); Case No. 2:15-cv-07576 (D.N.J.); Case No. 1:15-cv-9236 (N.D. 22 10 23 24 25 26 27 28 Amici’s related argument that a prospective license would improperly place on class members the “burden of coming forward to preserve their rights in the future,” also fails. Doc. 681-1 at 10-11. It is not improper to require class members to release certain rights in exchange for prospective compensation. Intrinsic to every class action settlement is the requirement that a class member either affirmatively opt out, or agree to release their rights according to the settlement terms. That is the nature of class actions, and exactly why courts—like the Second Circuit in In re Literary Works—routinely approve releasing similar future-conduct claims. See supra at 10-12. 13 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 18 of 21 Page ID #:25068 1 Ill.). It is clear that class members were fully aware of their right to object, opt out, 2 or pursue separate negotiations at their own expense. 3 Yet, no class members have objected to the settlement and only has one 4 opted out to pursue a separate lawsuit. Supra at 3-4. The reality is that class 5 members want Sirius XM to broadcast their recordings and want to receive 6 royalties, but do not want to incur expenses negotiating separate licenses. Instead, 7 the proposed class license—which resulted from fiercely contested litigation and an 8 arm’s length negotiation—is a fair means of resolving how to compensate them for 9 future uses of their pre-1972 recordings, particularly in light of the uncertainties 10 surrounding the performance-right issue nationwide. See Hanlon, 150 F.3d at 1026 11 (“the reaction of the class members to the proposed settlement” is an important 12 factor in considering fairness); Manual for Complex Litig. § 21.62 (“the number 13 and force of objections by class members” is indicative of fairness). It is telling 14 that the only objection has come from Amici, who are not class members and have 15 no legitimate interest in this lawsuit. 16 17 3. Differences between the federal scheme for post-1972 recordings and the settlement are irrelevant. 18 Any differences between pre- and post-1972 recordings should not give the 19 Court pause in granting final approval of the settlement. It is undisputed that pre- 20 and post-1972 recordings are fundamentally different under the law. Owners of 21 post-1972 recordings have enjoyed an antitrust exemption and nationwide digital 22 performance right under federal law since 1995, and Congress has put in place a 23 comprehensive system to set royalty rates and administer royalty payments for 24 post-1972 recordings. See 17 U.S.C. § 114(e)-(f). On the other hand, owners of 25 pre-1972 recordings have never possessed a performance right in any state until this 26 Court recognized one for the first time. As a result, there is no parallel system to 27 set rates or administer payments for pre-1972 recordings, and it is still uncertain 28 14 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 19 of 21 Page ID #:25069 1 whether any state will ultimately find that a performance right exists in the first 2 place.11 3 Yet, Amici’s true complaint appears to be that the prospective license treats 4 pre-1972 recordings differently from how post-1972 recordings are treated under 5 the Federal Copyright Act. There is no basis for why this would be unfair to 6 settlement class members. Amici’s list of differences between the federal 7 regulatory scheme for post-1972 recordings and the proposed settlement should be 8 disregarded as irrelevant to the Court’s analysis: • Amici point out that federal rates are set through litigated proceedings 9 10 before the Copyright Royalty Board (“CRB”), while the rate here is set 11 “in a private deal.” Doc. 681-1 at 11. That makes no difference. Even 12 post-1972 recording owners can—and frequently do—enter into direct 13 licenses with Sirius XM outside of the CRB proceedings. Amicus- 14 SoundExchange’s website explicitly acknowledges this: “It is completely 15 within your rights [as recording owners] to negotiate directly with 16 webcasters should you decide that is best.” Winter Decl. Ex. F. • Amici note that performance royalties under the federal system “are split 17 18 equally between copyright owners and recording artists,” while the 19 “settlement requires no [such] split.” Doc. 681-1 at 11. But Sirius XM is 20 under no obligation to pay recording artists here. This is a lawsuit 21 involving sound recording owners, not artists who have no property 22 interest in the recordings themselves. See Doc. 1-1. • Amici argue that federal royalties are paid to SoundExchange, “a 23 24 25 26 27 28 nonprofit collective,” while the royalties here would be paid to an a “for11 This Court’s decision is currently on appeal before the Ninth Circuit in a related matter. At least three states have definitively declared that no such performance right exists under their respective laws, and the issue is currently being litigated in three other states. N.C. GEN. STAT. § 66-28 (2015); S.C. CODE ANN. § 39-3510 (2015); supra at n.9. 15 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 20 of 21 Page ID #:25070 1 profit administrator.” Id. at 12. To the extent Amici are implying that 2 SoundExchange is more effective, they have provided no support for that 3 argument. Administration of royalties by SoundExchange is not 4 necessarily better than administration by an impartial administrator. And 5 neither is SoundExchange any more “impartial.” It also charges a fee for 6 its services, and can keep—and reportedly has kept—any unclaimed 7 royalties for itself. Winter Decl. Ex. G. • Amici suggest that class members “have the burden of declaring 8 9 themselves to the administrator,” while post-1972 recording owners need 10 to do nothing. Id. at 12. This is neither correct nor relevant to the Court’s 11 analysis. There is nothing inherently wrong with requiring class members 12 to declare themselves in order to receive compensation. That is exactly 13 how the claims administration process works in class actions. Moreover, 14 Sirius XM is providing a list of the pre-1972 sound recordings to the class 15 to help members identify which recordings they own. Doc. 666-4 § 16 IV(C)(4). SoundExchange is no different. It also requires owners of post- 17 1972 recordings to register for a fee in order to collect any royalties.12 18 4. 19 Class members should not have to wait for Congress to act. Remarkably, Amici’s only proposed alternative to a prospective license is to 20 have class members do nothing but hope that our inefficient Congress will 21 eventually regulate pre-1972 recordings in the same manner as post-1972 22 recordings. See Doc. 681-1 at 13-14. Such a proposal does not further class 23 members’ interests in receiving “fair, reasonable, and adequate” compensation. 24 25 26 27 28 12 Amici also suggest that Sirius XM should pay for all pre-1972 recordings it performs, even if no class members claim to own them. Doc. 681-1 at 13. This would only punish Sirius XM without any benefit to class members, forcing Sirius XM to pay for abandoned recordings. This in no way furthers the Court’s task of ensuring fair, reasonable, and adequate compensation for the class. 16 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT Case 2:13-cv-05693-PSG-GJS Document 687 Filed 04/10/17 Page 21 of 21 Page ID #:25071 1 Class members should not be forced to sit on their rights when they have the 2 opportunity to enter into a license with Sirius XM on market terms to receive 3 royalties now. Any current legislative efforts are uncertain at best, and Amici have 4 not, and cannot, provide any evidence that such efforts would ever come to 5 fruition—let alone that Congress would ever create a system that is more beneficial 6 than the proposed settlement. 7 In recognizing a performance right for the first time, the Court knew that the 8 parties would need to enter into a “private” license because no analog to the federal 9 statutory scheme exists for pre-1972 recordings. Far from being a “quasi- 10 legislative” solution, Doc. 681-1 at 11, the proposed settlement represents a fair 11 result from a negotiated transaction between represented parties faced with the 12 realities of a newly-recognized right (and one that is still being challenged today). 13 Class members are primarily sophisticated recording owners who understood those 14 risks and accepted these terms. Similar contracts between recording owners and 15 broadcasters are not uncommon, and no one would challenge them on the grounds 16 that they interfere with “work” properly left to the legislature. Even the Copyright 17 Act expressly allows post-1972 recording owners to contract around the statutory 18 rates and terms. 17 U.S.C. § 114(e)(1). The Court should disregard Amici’s 19 attempt to protect their monopoly in the area of sound recordings and to deprive 20 class members of their fundamental right to enter into such licenses. 21 V. 22 23 CONCLUSION For the foregoing reasons, the Court should deny Amici’s request for leave to file a brief regarding the class settlement. 24 25 26 27 28 Dated: April 10, 2017 O’MELVENY & MYERS LLP By: /s/ Daniel M. Petrocelli Daniel M. Petrocelli Attorneys for Sirius XM Radio Inc. 17 SIRIUS XM’S OPP. TO AMICI’S REQUEST TO FILE BRIEF RE: CLASS SETTLEMENT