Just as a song recording has two copyrights, so do comedy performances. Each recorded song and bit has a sound recording right and the rights to the underlying composition. In the Pandora Media case, these underlying rights form the basis for a dispute that would eventually veer into the Noerr-Pennington doctrine, the Sherman Act, and the business end of the funny business.
The original claim, in this case, was brought on behalf of all of the comedy clients of Word Collections, Inc. Word Collections represents some significant comedians, including the estate of Robin Williams. It alleged that Pandora had never paid for the license to the underlying written work of the various comedy routines, which numbered close to 30,000 at its peak.
Pandora brought a counterclaim for antitrust violations, alleging that Word Collections is charging a 25% markup compared to the rest of the market. Pandora further alleged an antitrust and monopolistic attempt to control the market by Word Collections, calling it a “must-have” in Pandora‘s attempt to prove a monopoly.
Noerr-Pennington Doctrine
Word Collections asserted that it had standing to bring this case under the “Noerr-Pennington Doctrine.” That comes from Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., a Supreme Court case that established litigants have a first amendment right to use the courts to advance an interest. There is, however, an exception that Pandora pointed out: some courts (including the Second Circuit), recognize that pooling together efforts to enforce copyrights against a common infringer is permissible but only if the participants don’t agree to give up their individual licensing rights to a single enforcer. Here, the plaintiffs appeared to be doing just that: allowing the plaintiff to negotiate and determine the licensing rights for all of the group’s members. That starts to smell like an antitrust violation; that is, a monopoly of comedians. The court held that because Pandora presented a reasonable possibility of antitrust laws being violated, Noerr-Pennington did not apply to this lawsuit.
Pandora went into some detail about its philosophy of needing a “critical mass” of certain comedy offerings — in a bid to show that Word Collections’ roster of comedians is a “must-have” for any streaming and comedy service. “Must-have” points to the Sherman Act — that is, the law of antitrust violations.
Sherman Act
Antitrust law (the “Sherman Act”) prohibits monopolies — that is, unfair concentration and control of an industry in a way that defeats competition. To establish its antitrust standing, Pandora said it had the impossible choice of either acquiescing to Word Collections’ overpriced license or canceling the service. In other words, Pandora wanted the court to infer that Word Collections intended to amass a portfolio of comedians that would require Pandora to accept the demand or stop offering comedy services.
Notably, Pandora not only sought the litigation costs that flow from anticompetitive conduct, but also was seeking damages from an antitrust wrong. Pandora claimed that Word Collections’ licensing scheme had already throttled competition.
Pandora said Word Collections’ royalty demands were 25% above the market, and that was supra-competitive — that is, prohibited by antitrust law. Word Collections countered by saying it was not a supra-competitive rate because Pandora could take it or leave it. According to Word Collections, Pandora did not properly allege that there’s market power in the relevant market to cause this injury. The judge disagreed, saying that 25% markup over the market rate was supra-competitive.
Ultimately, the court found that Pandora didn’t allege enough about the reality of the market to demonstrate that the attempt to impose this license on Pandora would control the market. To have a monopoly, you’ve got to not only demonstrate a monopoly power — but also a control over the relevant market, and Pandora failed to define the relevant market. The court ruled that Pandora didn’t sufficiently allege Word Collections’ power as a monopoly.
The court went through five reasons Pandora’s motion should survive before delivering the fatal blow, teasing the reader until landing the punch line: case dismissed without prejudice to amending the complaint. The Court had foreshadowed this long tale with a dad joke of its own: “What’s the difference between God and a federal judge? God does not think that God is a federal judge.” I expect Pandora did not find that very funny.
