NEW YORK – AUGUST 28, 2012 – Arent Fox, on behalf of client Music Choice, recently won a preclusion motion on a question of first impression that will have a significant impact on future proceedings before the Copyright Royalty Board. In particular, the Copyright Royalty Judges ruled that SoundExchange, the entity representing the interests of record companies and recording artists in the royalty rate setting proceeding, could not use the prior testimony of several witnesses against Music Choice in the currently pending proceeding, because Music Choice had not participated in the prior hearings and therefore had no opportunity to cross examine the witnesses.

The US Copyright Act contains numerous compulsory licenses, allowing businesses to use certain types of copyright-protected works in certain ways without obtaining a direct license from the copyright owners. To take advantage of these compulsory licenses, a licensee must adhere to various limitations and regulations applicable to the relevant statutory license, and must pay the applicable royalty fees. If the licensees using a compulsory license cannot agree to the rates and terms for the license in a given five-year period, the rates and terms are set by litigation before the Copyright Royalty Board.

Rate-setting proceedings before the Copyright Royalty Board are governed by a complex combination of statutory and regulatory procedures, and include two separate phases, each of which involves the submission of written testimony, discovery and a bench trial. Among the many uncommon procedural features is a provision allowing parties to introduce designated testimony from prior rate proceedings in lieu of live testimony at trial. This provision is meant to create efficiencies, where appropriate, but also contains a requirement that the prior testimony admitted at trial include all cross-examination from the prior proceeding.

Arent Fox is representing Music Choice, the nation’s premier cable music service, in a rate proceeding before the Copyright Royalty Board for the Section 114 compulsory license allowing Music Choice to use sound recordings as part of its audio programming. During the recently concluded rebuttal phase trial in that proceeding, SoundExchange sought to introduce four different sets of testimony from a prior rate proceeding in which rates were set for the (at the time separate) Sirius and XM satellite radio services.

Music Choice objected and moved to preclude SoundExchange’s use of the testimony against Music Choice on the ground that Music Choice had not had the opportunity to cross examine the witnesses at the time of their prior testimony. On behalf of Music Choice, Arent Fox partner Paul Fakler argued that, in light of due process requirements, the regulation allowing the use of designated prior testimony had to be limited to situations in which the party against whom the testimony would be used had participated in the prior trial and therefore had the opportunity to cross examine the proffered witness. SoundExchange argued that due process concerns were adequately satisfied as long as any party had the opportunity to cross examine the proffered witnesses at the prior trial.

After substantial oral argument, the Copyright Royalty Judges agreed with Arent Fox’s arguments and precluded SoundExchange from using any of the prior testimony against Music Choice. This ruling has significant implications for future rate-setting proceedings, because there are numerous such proceedings in which SoundExchange is adverse to various different types of music services. Moreover, even in consecutive rate proceedings involving the same type of music service, it is frequently the case that the specific services participating in a given proceeding did not participate in prior proceedings due to settlements or market entry. In such instances, SoundExchange and other licensing collectives that repeatedly participate in many proceedings will not be able use their prior testimony to deprive music services of the right to cross examine and otherwise test the reliability of that testimony.

Arent Fox is one of very few law firms with significant experience litigating before the Copyright Royalty Board and other copyright royalty rate-setting courts. Music Choice’s team is being led by Paul Fakler, with assistance from Martin Cunniff, Matthew Trokenheim and Jeff Leung.