Last Friday SiriusXM filed a report with the Securities Exchange Commission saying it was paying $210 million to the three major labels and ABKO records to settle the labels’ me-too Flo & Eddie lawsuit against it. It’s the closest thing to a news release any of them made. The news got out a few minutes later, however, and the only real question remaining unanswered is what this does to the Flo & Eddie lawsuits.
Capitol, Sony, Warner and ABKO won a court ruling in California state court on the heels of Flo & Eddie’s federal court victory there. The labels excel in making deals, and they must have been happy to let someone else do the heavy legal lifting on the question of whether California’s copyright laws covering pre-1972 sound recordings require licensing internet radio spins from the rights owners.
Flo & Eddie had the legal arguments. The labels had 80% of the pre-1972 recordings played on SiriusXM.
The Second and Ninth Circuit courts of appeals are the next venues for the Flo & Eddie lawsuits, and it seems unlikely those courts will fail to notice that Sirius’ argument against pre-1972 royalties should be taken with 210 million grains of salt. At the same time, Flo & Eddie’s chances for optimizing settlement dollars may have gone down.
If you buy 80% of a business in one transaction, the price of the remaining 20% usually goes down. But unlike a single business where you buy a substantial majority of ownership, all the pre-1972 songs played on Sirius are not a single lump and their quality and popularity vary widely. So Flo & Eddie may have some disproportionally valuable recordings to bargain with. They also have a settlement tool minority owners of a business often have—the ability to make the majority’s life miserable.
Finally, the SiriusXM deal may mean that Flo & Eddie won’t try to settle and instead go for a jury trial on the amount of damages their class members are entitled to. In California, a jury trial would be in the same federal court where a jury awarded Marvin Gaye’s heirs $7.3 million against Pharrell Williams and Robin Thicke for “Blurred Lines.” So it might not be the worst place to be.
The SiriusXM settlement announcement is in the Form 8-K they filed June 26, and this is the entire statement:
On June 17, 2015, our subsidiary, Sirius XM Radio Inc., entered into an agreement with Capitol Records LLC, Sony Music Entertainment, UMG Recordings, Inc., Warner Music Group Corp. and ABKCO Music & Records, Inc. to settle the case titled Capitol Records LLC et al. v. Sirius XM Radio Inc., No. BC-520981 (Super. Ct. L.A. County), which challenged our use of sound recordings fixed prior to February 15, 1972 (“pre-1972 recordings”). Pursuant to the settlement, we will pay the plaintiffs, in the aggregate, $210 million on or before July 15, 2015 and the plaintiffs will dismiss their lawsuit with prejudice. The settlement resolves all past claims as to our use of pre-1972 recordings owned or controlled by the plaintiffs and enables us, without any additional payment, to reproduce, perform and broadcast such recordings in the United States through December 31, 2017. As part of the settlement, we have the right, to be exercised before December 31, 2017, to enter into a license with each plaintiff to reproduce, perform and broadcast its pre-1972 recordings from January 1, 2018 through December 31, 2022. The royalty rate for each such license will be determined by negotiation or, if the parties are unable to agree, binding arbitration. The plaintiffs have represented and warranted to us that in the United States they own, control or otherwise have the right to contract with respect to approximately 80% of the pre-1972 recordings we have historically used.