Major Labels in New Legal Fight With SiriusXM Over Pre-1972 Works

Bob Dylan speaks onstage at the 25th anniversary MusiCares 2015 -Getty-H 2016
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Nearly three years after major record labels reached a $210 million settlement with SiriusXM over the use of sound recordings created before 1972, a new legal fight has erupted over the licensing of classic songs by such artists as Elvis Presley, Bob Dylan and Simon & Garfunkel.

The 2015 settlement by SiriusXM with ABKCO Music & Records, Sony Music Entertainment, UMG Recordings and Warner Music Group came upon the sudden realization by many that pre-1972 recordings had the potential to be a monster legal headache for radio operators, bars, restaurants, sports stadiums and others. That's because when Congress chose to bring sound recordings within the purview of the Copyright Act in the mid-1970s, lawmakers chose not to preempt state misappropriation laws for older works. Despite decades of no litigation on this front, record owners began testing big lawsuits against SiriusXM and Pandora for exploiting iconic recordings from the rock and jazz era.

Then, the situation seemingly cooled.

Not only did the major labels strike a $210 million settlement with SiriusXM, but independent owners of pre-1972 sound recordings came to their own settlement worth up to $99 million. The latter deal to resolve a class action led by Flo & Eddie of The Turtles nevertheless allowed appeals to proceed that would shape ongoing royalty rates, and subsequently, SiriusXM won big rulings when courts in both New York and Florida decided that their state laws didn't protect the public performance of pre-1972 sound recordings. There's still a very important decision pending in a Pandora case at the California Supreme Court, but at the moment, the U.S. Congress is working on new legislation that would put pre-1972 sound recordings on largely equal footing as later works, meaning compensation for digital exploitation.

Now back to the 2015 settlement between SiriusXM and the major labels.

The deal gave the satellite radio broadcaster the right to use pre-1972 recordings through the end of last year, and as contemplated by the settlement, the parties would try to reach a new license for 2018-2022. If the parties couldn't come to terms, they would arbitrate.

As revealed in court papers filed by Sony on Friday, SiriusXM and the record labels have exchanged proposals but haven't been able to come to an agreement. At the end of last year, SiriusXM filed an arbitration demand at JAMS, a leading commercial arbitration outfit. Then in late March, SiriusXM attempted to commence a tripartite arbitration against Sony, Warner, Universal and ABKCO.

Sony acknowledges that arbitration is proper under the settlement agreement, but in a bid to stop SiriusXM from proceeding at JAMS, is objected to the way in which SiriusXM has gone about this process.

In New York Supreme Court, Sony raises three main points. First, the arbitration clause in the settlement agreement doesn't authorize JAMS to administer the arbitration, and SiriusXM allegedly hasn't negotiated the selection of arbitrators with Sony. Second, the arbitration clause contains no provision allowing for a consolidation of SiriusXM's individual claims against each of the record labels in a single proceeding. And third, SiriusXM is demanding that the arbitration occur in Los Angeles even though the arbitration clause is silent on place and both companies are headquartered in New York.

As for the underlying impasse over a new licensing deal, while that's not an issue being presented to the New York judge, a copy of SiriusXM's arbitration demand provides some information.

SiriusXM wants the royalty rate set somewhere between 0 percent and 2 percent of its income. The request doesn't come out of thin air. Pursuant to the Flo & Eddie agreement, SiriusXM is currently paying 2 percent, and if the California Supreme Court finds that state law hasn't granted pre-1972 recording owners a performance right, the royalty gets adjusted down to nothing.

Of course, Sony is likely to think its recordings — including Miles Davis and Johnny Cash — are a lot more valuable and deserve much greater compensation. Before Sirius prevailed in New York and Florida courts, SiriusXM had agreed in settlements to pay as much as a 5.5 percent royalty. 

The situation is fluid and will be shaped by appellate decisions and any new legislation, but it might also be said that this new legal battle could also put pressure on the lobbying front.

"In June 2015, we agreed with Sony and the other major record labels to license their pre-1972 sound recordings," said SiriusXM spokesman Patrick Reilly in a statement. "We paid these labels $210 million and agreed to license the works through December 2022, with a simple mechanism for setting the future royalty rate if we were unable to agree. Sony’s decision to challenge our 2015 agreement is disappointing. It is again unfortunate to see that Sony is still uninterested in seeing older artists paid for their performances. Sirius XM will continue to honor its agreement to pay copyright holders for their pre-1972 works."