Sirius XM Still Facing Legal Challenges Over Five-Year-Old Merger

Before the satellite giant transforms itself from antitrust defendant to antitrust plaintiff, there's one matter still to resolve.

More than five years after Sirius Satellite Radio and XM Satellite Radio announced a merger that would create the mega-satellite radio network Sirius XM, the company is still in court defending the marriage. On Monday, Sirius XM filed a brief to the 2nd Circuit Court of Appeals explaining why an end should come to a class action that asserts the merger was a violation of antitrust laws.

Antitrust? Who's alleging that?

Those with a short memory will know Sirius XM as the company that last week filed an antitrust lawsuit against SoundExchange and A2IM for conspiring to monopolize copyrights from the recording industry. The satellite radio giant is demanding to make direct deals with rightsholders and is alleging that a boycott against direct dealing is forcing it into too-high royalty fees for music on broadcasts.

Those with a longer memory will know Sirius XM as the company whose merger in 2007 set off a flurry of buzz over whether listeners would be forced into higher subscription fees. In 2008, the Justice Department gave its approval, and last May, the company seemingly resolved the biggest court challenge from a class of Sirius subscribers who alleged that the pricing changes showed that the company's merger with its competition constituted a monopoly.

STORY: Sirius XM CEO Mel Karmazin: ' I’m One of the Most Underpaid Executives' in History

The settlement provided a price freeze to the end of 2011, coupons for certain former customers and other considerations. The deal was valued at $180 million.

Not all members of the class of plaintiffs were satisfied, however, especially after Sirius increased the monthly price of its base subscription plan from $12.95 to $14.49 at the beginning of the year.

About a dozen individuals filed an appeal to the 2nd Circuit. Factoring the price hike and a charge for music royalty fees, passed onto customers, some questioned the fairness of the deal. As one appellant put it:

"Is the settlement of no value to class members and therefore not fair, adequate or reasonable, class member claims being settled for nothing in exchange for Sirius XM Radio’s promise not to increase its already increased fees as a result of adding a U.S. Music Royalty Fee, which appellant had already paid for two years before the settlement?"

The appellants also took issue with the fact that they were getting nothing or little while the plaintiffs' lawyers walked away with $13 million.

On Monday, Sirius XM answered the challenge, saying the district court didn't abuse its discretion by overruling objections and approving the settlement agreement. The company said the appeals were filed too late and that the district court's findings, as well as the DOJ's and the FCC's, supported the notion that the merger was fair, that consumers still had plenty of options, including AM/FM radio, iPod, Pandora and other Internet-based services. Sirius said that the appeals were "moot" because the company had already provided the principal benefit in the deal -- not raising its prices until Jan. 1, 2012, as agreed upon.

In a separate filing to the 2nd Circuit on Monday, the original plaintiffs' attorneys also defended the settlement, saying they spent $20 million litigating the case, having spent 18 hard-fought months on their "difficult-to-prove antitrust claim," which became more uphill after the DOJ determined that the merger was not "likely to substantially lessen competition."

Assuming that Sirius XM gets the 2nd Circuit to reject the latest challenge to its merger, the company will be free to set its own prices. Well, not including the issue of how much money then gets handed to song rights-holders. For that, Sirius has turned from antitrust defendant to antitrust plaintiff.


Twitter: @eriqgardner