Verstanding v SoundExchange

A/75986035.9

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA – HARRISONBURG DIVISION

WTGD 105.1 FM, WQPO 100.7 FM, WJDV 96.1 FM, and M. BELMONT VERSTANDIG INC., d/b/a VerStandig Broadcasting,

Plaintiffs,

v. SOUNDEXCHANGE, INC.,

Defendant.

Case No. ___________________

DECLARATORY JUDGMENT COMPLAINT

Plaintiffs WTGD 105.1 FM, WQPO 100.7 FM, WJDV 96.1 FM, and M. Belmont

VerStandig Inc., by and through their attorneys, state their complaint for declaratory relief

against Defendant SoundExchange, Inc.:

NATURE OF THIS ACTION

1. The Copyright Act, 17 U.S.C. §§ 101 et seq., grants owners of copyrights in

sound recordings the right to perform their works publicly “by means of a digital audio

transmission.” 17 U.S.C. § 106(6). Many (perhaps most) digital performances of copyrighted

sound recordings are subject to statutory licenses, which require the transmitter to make royalty

payments. The Copyright Act further provides that a copyrighted sound recording may be

performed digitally, without infringing the copyright or payment of a royalty, when, among other

things, it is part of a radio station’s AM/FM broadcast that is being retransmitted no more than

150 miles from the station’s transmitter. See 17 U.S.C. § 114(d)(1)(B)(i).

2. When Congress adopted the 150-mile exemption more than a decade ago, data

sent over the Internet could not be restricted to recipients in specific physical locations. As a

Case 5:14-cv-00015-MFU Document 1 Filed 04/30/14 Page 1 of 14 Pageid#: 1

JodyT

Typewritten Text

5:14cv00015

2

A/75986035.9

result, radio stations that have sent their AM/FM broadcasts to listeners over the Internet were

not able to satisfy the 150-mile exemption and have had to pay royalties to the owners of

copyrights in the sound recordings that are part of the stations’ broadcasts. SoundExchange, Inc.

is the entity responsible for collecting those royalties and distributing them to copyright owners.

3. A recent technological development called geo-fencing now makes it possible to

restrict data sent over the Internet to recipients in specific physical locations. As a result, a radio

station that sends its AM/FM broadcast over the Internet can satisfy the 150-mile exemption if it

chooses to use geo-fencing.

4. Plaintiffs WTGD “Bob Rocks” 105.1 FM (“WTGD”), WQPO “Q101” 100.7 FM

(“WQPO”), WJDV “Fresh 96” 96.1 FM (“WJDV”) (collectively, “Station Plaintiffs”) are FCC-

licensed broadcast radio stations located in Harrisonburg, Virginia. Plaintiffs want to use geo-

fencing to make their FM broadcasts available over the Internet only to listeners within 150

miles of each Station Plaintiff’s respective transmitter.

5. Plaintiffs have explained their intention to SoundExchange. SoundExchange

responded by asserting that the statutory license for digital performances covers geo-fenced

transmissions and that, as a result, Plaintiffs would owe royalties even if they use geo-fencing.

Because SoundExchange may not collect royalties for digital performances of sound recordings

that the Copyright Act exempts, Plaintiffs have filed this declaratory judgment action against

SoundExchange asking this Court to clarify Plaintiffs’ rights and obligations under the Copyright

Act. THE PARTIES

6. Plaintiff WTGD is an FCC-licensed terrestrial broadcast radio station located in

Harrisonburg, Virginia.

a. WTGD’s radio transmitter is located in Harrisonburg, Virginia, at 38° 27' 8.00" N

Latitude, 78° 54' 32.00" W Longitude.

b. WTGD’s FM broadcasts currently are not accessible over the Internet. Upon


3

A/75986035.9

information and belief, no third party retransmits WTGD’s FM broadcasts over

the Internet.

c. WTGD wants to send its FM broadcast to listeners over the Internet because it

will enable WTGD to serve its local community better. More and more people

want to listen to their favorite local radio stations on Internet-connected devices.

Some prefer the convenience; others live or work in places or buildings that,

though they are within a station’s coverage area, are not easily penetrated by FM

signals or do not have direct access to the station’s signal.

7. Plaintiff WQPO is an FCC-licensed broadcast radio station located in

Harrisonburg, Virginia.

a. WQPO’s radio transmitter is located in Harrisonburg, Virginia at 38° 27' 8.00" N


b. WQPO’s broadcasts are accessible over the Internet without geographic

restriction, and so WQPO pays royalties to SoundExchange pursuant to the

statutory license.

c. Upon information and belief, the majority of listeners who access WQPO’s

broadcasts over the Internet do so from physical locations within WQPO’s local

community.

8. Plaintiff WJDV is an FCC-licensed broadcast radio station located in Broadway,

Virginia.

a. WJDV’s radio transmitter is located in Broadway, Virginia at 38° 33' 50.00" N


b. WJDV’s broadcasts are accessible over the Internet without geographic restriction,

and so WJDV pays royalties to SoundExchange pursuant to the statutory license.

c. Upon information and belief, the majority of listeners who access WJDV’s

broadcasts over the Internet do so from physical locations within WJDV’s local


4

A/75986035.9

community.

9. Plaintiff M. Belmont VerStandig Inc., d/b/a VerStandig Broadcasting

(“VerStandig”), is a privately held corporation, incorporated under the laws of Maryland and

registered to do business in Virginia. VerStandig owns and operates WTGD, WQPO, WJDV,

and other other FCC-licensed broadcast radio stations, including WSVA 550 AM, a news talk

radio station that has serviced the Harrisonburg, Virginia area for the last 75 years.

10. Defendant SoundExchange, Inc., is a non-profit organization, incorporated under

the laws of Delaware, with headquarters in the District of Columbia. The Librarian of Congress

has designated SoundExchange as the “sole collective” for collecting and distributing royalties

due to copyright owners under Sections 112 and 114 of the Copyright Act, administering

compulsory licenses in sound recordings, and enforcing the terms of those licenses. See, e.g.,

17 U.S.C. § 114(e)(1); 37 C.F.R. § 380.4. SoundExchange also functions as a membership

association for owners of copyrights in sound recordings who authorize SoundExchange to

represent their interests and advocate on their behalf.

JURISDICTION & VENUE

11. This is an action for declaratory relief pursuant to the Declaratory Judgment Act,

28 U.S.C. §§ 2201 et seq., and Rule 57 of the Federal Rules of Civil Procedure.

12. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.

§§ 1331 and 1338(a) because this action arises under the Copyright Act.

13. Venue is proper in the Western District of Virginia, Harrisonburg Division,

pursuant to 28 U.S.C. §§ 1391(b)(2) and 1400(a), and Local Rule 2(b). A substantial part of the

events giving rise to this declaratory judgment action occurred in Harrisonburg, Virginia, and

SoundExchange’s contacts with Harrisonburg, Virginia, are sufficient to subject it to personal

jurisdiction in this District.


5

A/75986035.9

BACKGROUND

THE SCOPE OF COPYRIGHT PROTECTION FOR SOUND RECORDINGS

14. Before 1971, owners of copyrights in sound recordings of musical compositions

had no rights under the Copyright Act. The limited rights Congress provided in 1971 gave

owners of copyrights in sound recordings control over copying or reproduction of their sound

recordings (on records or compact discs, for example), but no control over public performances

of their recordings. As a result, radio stations that publicly performed sound recordings by

broadcasting them over the air were not infringing the copyrights in the recordings and thus were

not required to pay royalties to the recording industry. (Radio stations nevertheless paid

royalties to owners of copyrights in the underlying musical compositions.) In effect, radio

broadcasts served as free advertising that encouraged listeners to purchase copies or

reproductions of the copyrighted sound recordings. Congress has long recognized and carefully

protected this uniquely symbiotic relationship between radio stations and the recording industry.

15. With the advent of digital recording and transmission technologies, Congress

became concerned that “certain types of subscription and interactive audio services might

adversely affect sales of sound recordings and erode copyright owners’ ability to control and be

paid for use of their work.” H.R. Rep. 104–274. So in 1995, Congress enacted the Digital

Performance Right in Sound Recordings Act, Pub. L. No. 104–39, 109 Stat. 336, to provide

copyright protection for public performances of sound recordings by way of digital audio

transmissions. See 17 U.S.C. § 106(6). Congress narrowly tailored this right to provide

recording companies with (a) exclusive control over public performances made by way of

interactive (or “on-demand”) digital transmissions, and (b) a right to compensation for non-

interactive digital transmissions made on a subscription basis (i.e., for a fee).

16. Congress did not make the new digital performance right absolute. It granted

only a limited right to address “the potential impact on th[e] market [for the sale of sound

recordings] posed by subscription and interactive services—but not by broadcasting and related

transmissions.” S. Rep. 104–128. Because the “sale of many sound recordings and the careers


6

A/75986035.9

of many performers have benefitted considerably from airplay … provided by … free over-the-

air broadcasting,” Congress disclaimed any intent “to jeopardize the mutually beneficial

economic relationship between the recording and traditional broadcasting industries.” H.R. Rep.

104–274.

17. And so Congress crafted and later expanded several exemptions to the new digital

performance right, which were “intended to strike a balance among all of the interests affected,”

id., and to protect broadcasters’ transmissions within their local services areas. For example, the

following are not included within the scope of the limited, digital performance right:

(i) transmissions made in analog format, which is the primary technology used to effect radio

broadcasts, 17 U.S.C. §§ 106(6) & 114(a); (ii) digital “nonsubscription broadcast transmissions,”

which are those made by FCC-licensed terrestrial broadcast stations, 17 U.S.C. § 114(d)(1)(A) &

(j)(3); and (iii) retransmissions of a radio station’s broadcast within 150 miles of the radio

station’s broadcast transmitter—the exemption that is the focus of this case, 17 U.S.C.

§ 114(d)(1)(B)(i).

SOUNDEXCHANGE’S ROLE

18. For digital transmissions that that are not exempt, the transmitting entity may

negotiate licenses with individual copyright owners for the privilege of digitally performing a

sound recording. This can be an impossible undertaking for many transmitting entities,

particularly those that transmit content continuously and on-demand. Recognizing that

broadcasters and other transmitting entities cannot practically negotiate with all individual

copyright holders, Congress created statutory licenses, see 17 U.S.C. §§ 112(e) & 114(f), to be

administered and enforced by a single collective, 17 U.S.C. § 114(g)(3). SoundExchange is that

collective. 37 C.F.R. § 380.4(b).

19. SoundExchange’s budget is derived from the royalties it collects and distributes.

It is entitled to deduct from all royalty receipts the reasonable costs it incurred in (a)

administering “the collection, distribution, and calculation of the royalties”; (b) settling “disputes


7

A/75986035.9

relating to the collection and calculation of the royalties”; and (c) “licensing and enforcement of

rights with respect to the making of ephemeral recordings and performances subject to licensing

under section 112 and [section 114] … .” 17 U.S.C. § 114(g)(3).

20. SoundExchange and owners of copyrights in sound recordings have identical and

overlapping interests in the question whether certain digital transmissions of sound recordings

are, or are not, infringing. Copyright owners can enforce their copyrights only against infringing

transmissions, and SoundExchange can collect royalties only for those same transmissions.

21. To receive royalties under the statutory licenses set forth in Sections 112 and 114

of the Copyright Act, copyright owners must first register with SoundExchange. Registered

copyright owners can elect to become a SoundExchange Member by executing the

SoundExchange Sound Recording Copyright Owner Membership Agreement (attached hereto as

Exhibit A).

22. SoundExchange Members authorize SoundExchange to, inter alia, (a) “represent

Member[s] in connection with rate setting proceedings … and other related proceedings,

administrative actions, hearings, litigation, and appeals”; (b) “enforce nonexclusively the rights

of public performance”; (c) “commence and prosecute litigation in the name of

SoundExchange … or others in whose name the sound recordings owned (or controlled) by

Member[s] may be held”; and (d) “collect and receive damages arising from infringement of”

sound recording rights. Id. §§ 5–6.

23. SoundExchange Members appoint SoundExchange as their “true and lawful

attorney ... , to do all acts, take all proceedings, and execute, acknowledge and deliver any and all

instruments, papers, documents, process and pleadings that may be necessary, proper or

expedient to restrain infringements and recover damages relating to the infringement or other

violation of such rights … .” Id. § 6.

24. SoundExchange uses its Internet website (www.soundexchange.com) to

communicate and direct information to copyright owners, statutory licensees, and potential or


8

A/75986035.9

prospective licensees, including FCC-licensed radio stations. SoundExchange’s Internet website

provides information about its advocacy on behalf of copyright owners, statutory license rates,

and the process for submitting regular, detailed reports regarding the sound recordings a licensee

digitally performs. SoundExchange’s Internet website directs statutory licensees to report the

audience measurement—the number of listeners that have access to the performance—for each

sound recording digitally performed. And SoundExchange’s Internet website explains to

potential or prospective licensees how they can enter into the statutory license and thus enter into

a relationship with SoundExchange.

25. In 2013, SoundExchange collected $656 million in royalties from nearly 2,500

entities located throughout the United States. Plaintiffs WQPO and WJDV pay royalties to

SoundExchange pursuant to the statutory license.

LIVE INTERNET STREAMING OF OVER-THE-AIR AM/FM BROADCASTS

26. Radio stations’ AM/FM broadcast transmissions often include performances of

copyrighted sound recordings interspersed with other audio, such as commentary from a host.

27. A radio station’s AM/FM broadcast transmission can be “live streamed” over the

Internet, meaning it can be sent digitally to listeners using computers at the same time as it is

transmitted over the air to listeners using AM/FM receivers.

28. A live stream of a radio station’s AM/FM broadcast transmission is practically

simultaneous with that transmission.

29. A live stream comprises data that is dynamic. The computers involved in sending

a live stream store data only briefly and automatically overwrite old data with new data after

sending. Data that is live streamed over the Internet usually is “buffered”—up to a few seconds

of the broadcast are stored on a sending computer before being sent to a receiving computer.

Those few seconds give a receiving computer time to re-request data from the sending computer

in case problems arise as the data travels over the Internet.


9

A/75986035.9

GEO-FENCING

30. Until recently, data made available over the Internet was truly global. A recipient

from nearly anywhere in the world could request and receive data over the Internet.

31. Now, because of geo-fencing, data made available over the Internet can be

restricted to recipients based upon their physical locations.

32. Geo-fencing technology determines a recipient’s physical location by comparing

a receiving computer’s IP address, WiFi and GSM access point, GPS coordinates, or some

combination against a real world map of those virtual addresses.

33. When data is geo-fenced, only recipients physically located within the authorized

locations can access the data over the Internet. Recipients who are physically located outside the

geo-fence who attempt to access the data over the Internet receive a message explaining that the

data is unavailable.

34. Geo-fencing is a proven technology. It is used by the gaming industry to restrict

access to online gambling to recipients physically located in jurisdictions where gaming is legal.

And it is used by marketers for the direct advertising of products to persons physically located in

targeted markets.

35. Plaintiffs have consulted with geo-fencing experts and service providers. Station

Plaintiffs intend to use geo-fencing to limit the geographic reach of the live stream of their FM

broadcasts to less than 150 miles from their respective broadcast transmitters.

PLAINTIFFS’ FEBRUARY 28, 2014 LETTER TO SOUNDEXCHANGE

36. By letter dated February 28, 2014, Plaintiffs informed SoundExchange of geo-

fencing, and advised SoundExchange of WTGD’s intent “to commence internet streaming of its

terrestrial radio broadcasts through … geofencing,” in order to “provide another means for

WTGD’s current audience in the Harrisonburg, Virginia area to receive its broadcast.” See Feb.

28, 2014 Ltr. to SoundExchange (attached hereto as Exhibit B).

37. Plaintiffs explained that, pursuant to 17 U.S.C. § 114(d)(1)(B)(i), “a copyright

owner’s exclusive performance right is not infringed when an FCC-licensed radio station’s


10

A/75986035.9

broadcast transmission is retransmitted, digitally and simultaneously, only within a radius of 150

miles or less from the site of the station’s radio broadcast transmitter.” Id. Plaintiffs noted that

WTGD’s geo-fenced broadcasts would fall within the 150-mile exemption. Id.

SOUNDEXCHANGE’S MARCH 14, 2014 LETTER TO PLAINTIFFS

38. By letter dated March 14, 2014, SoundExchange responded. SoundExchange

asserted that the 150-mile exemption applies only “to retransmissions of broadcasts by cable

systems to their subscribers or retransmissions by broadcasters over the air.” Mar. 14, 2014 Ltr.

to Plaintiffs (attached hereto as Exhibit C). SoundExchange also asserted that, if the 150-mile

exemption “did apply to WTGD’s proposed simulcasting,” WTGD would nevertheless need to

pay royalties for copies or reproductions of the sound recordings in the FM broadcasts that it live

streams. Id. SoundExchange “strongly urge[d] WTGD to seek licenses for its simulcasts,” and

directed WTGD to access SoundExchange’s Internet website for “information concerning

compliance with statutory licenses.” Id.

CAUSE OF ACTION

DECLARATORY JUDGMENT – RIGHTS & OBLIGATIONS UNDER THE COPYRIGHT ACT

39. Plaintiffs repeat and re-allege each of the above allegations as if fully set forth

herein.

40. This case presents a substantial justiciable controversy. Section 114(d) limits the

scope of a copyright owner’s exclusive right in the public performance of sound recordings by

means of a digital audio transmission. “The performance of a sound recording publicly by

means of a digital audio transmission, other than as part of an interactive service, is not an

infringement … if the performance is part of … a retransmission of a nonsubscription broadcast

transmission: Provided, That, in the case of a retransmission of a radio station’s broadcast

transmission … the radio station’s broadcast transmission is not willfully or repeatedly

retransmitted more than a radius of 150 miles from the site of the radio broadcast transmitter … .”

17 U.S.C. § 114(d)(1)(B)(i).


11

A/75986035.9

41. The Station Plaintiffs are FCC-licensed broadcast radio stations whose FM

broadcast transmissions are unlimited and offered free of charge. Their FM broadcast

transmissions are “nonsubscription broadcast transmissions” under Section 114 of the Copyright

Act. See 17 U.S.C. § 114(j)(3), (9), & (14).

42. The Station Plaintiffs’ intended live streams of their FM broadcasts will be

practically simultaneous with their initial FM broadcast transmissions. Each Station Plaintiff’s

intended live stream of its FM broadcasts will be a “retransmission” under Section 114. See

17 U.S.C § 114(j)(12)

43. No Station Plaintiff’s intended live stream of its FM broadcast will be part of an

interactive service. See 17 U.S.C. § 114(j)(7).

44. Each Station Plaintiff’s intended live stream of its FM broadcast will be geo-

fenced and restricted to recipients within less than 150 miles of their respective broadcast

transmitters. The Station Plaintiffs will not willfully or repeatedly retransmit their FM

broadcasts more than 150 miles from the site of their respective broadcast transmitters. See 17

U.S.C. § 114(d)(1)(B)(i).

45. The intended live stream of the Station Plaintiffs’ FM broadcasts will be the only

retransmissions of each Station Plaintiff’s FM broadcast. No third party will retransmit the

Station Plaintiffs’ FM broadcasts more than 150 miles from the site of their respective broadcast

transmitters.

46. Any “transmission” that occurs in the course of a Station Plaintiff’s intended live

stream from its broadcast transmitter to listeners located within a 150-mile radius of the

transmitter is an incidental transmission that is likewise exempt under Section 114. See 17 U.S.C.

§ 114(d)(1)(C)(i).

47. SoundExchange contends that, unless Plaintiffs accept the statutory license and

pay it royalties pursuant to 17 U.S.C. § 114(f), the Station Plaintiffs’ intended live streams of

their FM broadcasts will infringe the digital-transmission rights of copyright owners of sound


12

A/75986035.9

recordings even if the Station Plaintiffs geo-fence the live streams. Plaintiffs disagree. Plaintiffs

believe that their intended live streams are exempt retransmissions of a nonsubscription

broadcast transmission. See 17 U.S.C. § 114(d)(1)(B).

48. SoundExchange contends that, unless Plaintiffs accept the statutory license and

pay it royalties pursuant to 17 U.S.C. § 112(e), the Station Plaintiffs’ intended live stream of

their FM broadcasts will infringe the reproduction rights of copyright owners of sound

recordings. Plaintiffs disagree. Each Station Plaintiff needs no more than one copy of its FM

broadcast transmission (including performances of copyrighted sound recordings) in order to

effect its intended live stream of its FM broadcast. See 17 U.S.C. § 112(a).

49. Setting up an Internet stream and geo-fencing it require a substantial financial

investment from Plaintiffs. That investment will be for naught if WTGD owes SoundExchange

royalties for a live stream of WTGD’s FM broadcast whether or not the live stream is geo-fenced.

50. In light of SoundExchange’s March 14, 2014 letter, WQPO and WJDV fear that

SoundExchange will demand royalties for their live streams of their FM broadcasts, even if they

use geo-fencing.

51. SoundExchange’s instruction that Plaintiffs review the terms and information on

SoundExchange’s website, then file a Notice of Use of Sound Recordings Under Statutory

License, see Ex. B, demonstrates that this dispute is ripe for judicial determination.

52. Judicial intervention is necessary to clarify Plaintiffs’ rights and obligations under

17 U.S.C. §§ 112 and 114.


13

A/75986035.9

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully request that this Court enter an order:

1. Declaring that a live stream of Plaintiffs’ FM broadcasts over the Internet only to

listeners physically located within 150 miles of each Plaintiff’s respective FM transmitter is an

exempt transmission or retransmission under 17 U.S.C. § 114(d)(1)(B)(i);

2. Declaring that a live stream of Plaintiffs’ FM broadcasts over the Internet only to

listeners physically located within 150 miles of each Plaintiff’s respective FM transmitter is not

an infringement of any right protected by the Copyright Act;

3. Declaring that Plaintiffs need no statutory license under 17 U.S.C. § 114(f), and

thus need make no royalty payments to SoundExchange, to live stream their FM broadcasts over

the Internet only to listeners physically located within 150 miles of each Plaintiff’s respective

FM transmitter;

4. Declaring that each Plaintiff’s intended live stream of its FM broadcast over the

Internet only to listeners physically located within 150 miles of each Plaintiff’s respective FM

transmitter requires no more than one copy or phonorecord of a particular transmission program

embodying a performance of a sound recording under 17 U.S.C. § 112(a);

5. Declaring that Plaintiffs need no statutory license under 17 U.S.C. § 112, and thus

need make no royalty payments to SoundExchange, to live stream their FM broadcasts over the

Internet only to listeners physically located within 150 miles of each Plaintiff’s respective FM

transmitter;

6. Declaring that SoundExchange has no right under 17 U.S.C. § 114 to collect

royalties for, or otherwise inhibit or prohibit, Plaintiffs’ intended live stream of their FM

broadcasts over the Internet only to listeners physically located within 150 miles of each

Plaintiff’s respective FM transmitter;

7. Declaring that SoundExchange has no right under 17 U.S.C. § 112 to collect

royalties for, or otherwise inhibit or prohibit, Plaintiffs’ intended live stream of their FM


14

A/75986035.9

broadcasts over the Internet only to listeners physically located within 150 miles of each

Plaintiff’s respective FM transmitter; and

8. Ordering such other and further relief as this Court would deem just and proper.

Dated: April 30, 2014 BINGHAM MCCUTCHEN LLP David J. Butler (pro hac pending) Bryan M. Killian (pro hac pending) Stephanie Schuster (pro hac pending) 2020 K Street NW Washington, DC 20006 Tel: (202) 373-6000 Fax: (202) 373-6001 [email protected] [email protected] [email protected]

s/ Maurice VerStandig _____ Maurice VerStandig Virginia Bar Number: 81556 OFFIT KURMAN 8000 Towers Crescent Drive Suite 1450 Tysons Corner, VA 22182 Tel: (240) 507-1714 Fax: (240) 507-1735 [email protected]

Counsel for Plaintiffs


Documents

Verstanding v SoundExchange