Record Labels Make Sirius XM Deal While Flo & Eddie Keep Fighting

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.

About Craig Pinkus

Craig Pinkus is a partner in the Intellectual Property Group. He also is a member of the Litigation and the Sports, Entertainment and Media Groups. He assists clients with a broad range of disputes and transactions involving all areas of intellectual property, entertainment, and other complex business arrangements. He has conducted trials and arbitrations throughout the United States and has argued appeals before the Seventh, Sixth and Federal Circuit Courts of Appeal, the Indiana appellate courts, and United States Supreme Court.
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5 Responses to Record Labels Make Sirius XM Deal While Flo & Eddie Keep Fighting

  1. Bill Keating says:

    So you want to punish Sirius for not paying royalties to Flo & Eddie that they never asked for based on a right that no one knew existed. Why? What did they ever do to you?

    You have a strong belief that the trial judges got the law right in these cases of first impression and they will hold up on appeal. Seems to me that the appellate courts are fine about letting the trial judge determine the facts, but are pretty protective of their right to determine the law.
    I’m pretty impressed by Professor Ochoa’s argument in the October 1, 2014 issue of Technology and Marketing Law Blog that Judge Gutierrez erred in finding that the legislators meant to include the right to public performance in § 980(a)(2) because they did not specifically exclude it, as they did the right to cover a song. Ochoa believes that the legislature possibly and even probably never even thought of the public performance rights since in 1982 no such right existed under the federal Copyright Act and it was generally assumed after the Second Circuit Whiteman case that none existed under common law. Certainly no artist or other holder of a sound recording copyright ever tried to enforce that right in any court.

    He also makes the public policy argument about disrupting 75 years of copyright law. Already class actions are being filed against the large radio station owners CBS Radio and Clear Channel. CBS owns that popular station in New York that plays nothing except pre-1972 recordings.

    As for Judge McMahon, she seems to be backpedaling as fast as she can. Unlike Judge Gutierrez, she agreed that an interlocutory appeal was warranted and in a small footnote admitted that “reasonable minds could differ” on her decision.

    This has all been greatly entertaining.

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    • Craig Pinkus says:

      I don’t want to punish Sirius. They decided to settle the label case for $210 million, and I commented on obvious implications going forward. The Copyright Act is a historical patchwork, and almost everyone interested in it wants to change it. What I have a strong belief on about the trial judges is the Copyright Act empowers the states to cover the areas it left uncovered, and they have done their best to interpret and apply the law of each of the three states Flo & Eddie sued in. I also mentioned in my earliest comments on their litigation that I knew them long ago when they sang for Frank Zappa and think well of them.

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      • Bill Keating says:

        So there was a personal connection. In my undergraduate years one of my best friends, a jazz guitarist, was a huge Zappa fan, so I grew to like him also. “Hot Rats” was the album he used to play in his adjacent room, keeping me from sleep. “Suzie Creamchese,” Capt. Beefheart, “Miss Jennifer Jones is Lying Dead on my Porch” (I remembered that lyric from 45 years ago.) Saw Zappa and the Mothers live at the Atlantic City Pop Festival two weeks before Woodstock. I just can’t picture Flo & Eddie with him, though.
        Thanks for your response,
        Bill

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  2. Craig Pinkus says:

    You’re most welcome and good for you knowing his work. I was on one tour when Flo & Eddie were part of the band, then called The Phlorescent Leech and Eddie, doing most of the songs from 200 Motels [which they are in]. My favorite with FZ and them is Billy the Mountain. Craig

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