Pandora Media V ASCAP ASCAP Opening Brief

Case: 14-1158 Document: 143 Page: 1 08/04/2014 1286276 70
14-1158-cv(L), 14-1161 (Con), 14-1246 (Con)

United States Court of Appeals
for the Second Circuit
________________________
PANDORA MEDIA, INC.,
Petitioner-Appellee,
v.
AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS,
Respondent-Appellant,
UNIVERSAL MUSIC PUBLISHING, INC.,
SONY/ATV MUSIC PUBLISHING LLC, EMI MUSIC PUBLISHING,
Intervenors-Appellants.
___________________________________
On Appeal from the United States District Court
for the Southern District of New York
BRIEF OF RESPONDENT-APPELLANT
Jay Cohen Richard H. Reimer

Eric Alan Stone American Society of Composers,
Darren W. Johnson Authors and Publishers
PAUL, WEISS, RIFKIND, One Lincoln Plaza
WHARTON & GARRISON LLP New York, New York 10023
1285 Avenue of the Americas (212) 621-6200
New York, New York 10019-6064
(212) 373-3000
Attorneys for Respondent-Appellant
CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, the American
Society of Composers, Authors and Publishers hereby certifies that it is an
unincorporated membership association. It has no parent corporation, and no
publicly held corporation owns 10% or more of its stock.

TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ....................................................................................iv
INTRODUCTION ..................................................................................................... 1
JURISDICTIONAL STATEMENT .......................................................................... 5
STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ............................. 5
STATEMENT OF THE CASE .................................................................................. 6
STATEMENT OF THE FACTS ............................................................................... 7
I. THE PARTIES ................................................................................................ 7
A. ASCAP .................................................................................................. 7
B. Pandora .................................................................................................. 8
II. THE COURT’S AUTHORITY UNDER AFJ2 .............................................. 9
A. AFJ2 and the Rate-Setting Proceeding ................................................. 9
B. Determination of a Reasonable Fee .................................................... 10
III. ASCAP’S NEW MEDIA LICENSING ........................................................ 13
IV. THE NEW MEDIA WITHDRAWALS ........................................................ 13
V. THE EMI, SONY/ATV, AND UMPG BENCHMARK AGREEMENTS ... 15
VI. OTHER RELEVANT BENCHMARKS ....................................................... 19
A. The SESAC-Pandora License ............................................................. 19
B. The Apple iTunes Radio Licenses ...................................................... 19
C. Additional Music Publisher Licenses with Pandora ........................... 20
VII. THIS COURT’S RealNetworks DECISION ................................................. 21
VIII. THE PARTIES’ RATE PROPOSALS .......................................................... 22
i
IX. THE PROCEEDINGS BELOW.................................................................... 23
A. Pandora’s Summary Judgment Motion ............................................... 23
B. The Trial and Rate Determination....................................................... 24
SUMMARY OF THE ARGUMENT ...................................................................... 25
STANDARD OF REVIEW ..................................................................................... 27
ARGUMENT ........................................................................................................... 29
I. THE DISTRICT COURT ERRED IN RULING THAT AFJ2

PROHIBITS ASCAP FROM ACCEPTING PARTIAL GRANTS OF
PUBLIC PERFORMANCE RIGHTS ........................................................... 29
A. The District Court’s Ruling Misconstrues AFJ2................................. 30
1. AFJ2 Does Not “Unambiguously” Prohibit ASCAP from

Accepting Partial Grants of Rights ........................................... 31
2. The Definition of “ASCAP Repertory” in AFJ2 Does Not

Require ASCAP To License the Same Set of Compositions
to All Licensees ......................................................................... 33
3. The District Court’s “All or Nothing” Construction Cannot

Be Reconciled with Sections IV(E) and IV(F) of AFJ2 ........... 35
B. The District Court’s Ruling Is at Odds with the History of the

ASCAP Consent Decree...................................................................... 36
C. The District Court’s Interpretation of AFJ2 Conflicts with

Fundamental Principles of Copyright Law ......................................... 38
II. THE DISTRICT COURT ERRED IN FINDING A LICENSE RATE OF

1.85% IS REASONABLE FOR THE YEARS 2013 THROUGH 2015,
WHEN NO RIGHTSHOLDER IN THE COMPETITIVE MARKET
WAS WILLING TO ENTER INTO A LICENSE WITH PANDORA AT
THAT RATE ................................................................................................. 40
A. It Was Error for the District Court To Ignore the Sony/ATV and
UMPG Licenses .................................................................................. 41
ii
1. Pandora’s Purported Need for a List of Withdrawn Works Is

a Pretext Conjured Up To Explain Away Free Market Rates
That Pandora Does Not Like..................................................... 43
2. The Sony/ATV and UMPG Licenses Were Not the Product

of Wrongful Coordination......................................................... 46
B. The District Court Erred in Ignoring the SESAC-Pandora License

and the iTunes Radio Licenses ............................................................ 51
1. The Court Erred in Ignoring the SESAC-Pandora License ...... 51
2. The Court Erred in Ignoring the iTunes Radio Licenses .......... 53
C. The Court Abused its Discretion in Refusing to Consider Recent

Market Agreements with Pandora ....................................................... 54
D. The Court Erred in Ignoring This Court’s Instruction in

RealNetworks That a Rate of 2.5% or Higher Is Reasonable for
Services Like Pandora ......................................................................... 55
E. It Was Error for the District Court to Conclude That There Is a

Presumption That a Rate That Is Reasonable for One Year of a
License Term Is Reasonable for Every Year of the License Term ..... 58
CONCLUSION ........................................................................................................ 61
iii
TABLE OF AUTHORITIES
Cases Page(s)
AD/SAT, Div. of Skylight, Inc. v. Assoc. Press,
181 F.3d 216 (2d Cir. 1999) ............................................................................... 47
Am. Soc’y of Composers, Authors & Publishers v. Showtime/The

Movie Channel, 912 F.2d 563 (2d Cir. 1990) ...................................10, 28, 41, 57
Boyce v. Soundview Tech. Grp., Inc.,

464 F.3d 376, 385-87 (2d Cir. 2006) .................................................................. 55
Broad. Music, Inc. v. Columbia Broad. Sys., Inc.,

441 U.S. 1 (1979) .................................................................................................. 8
Broad. Music, Inc. v. DMX Inc.,

683 F.3d 32 (2d Cir. 2012) ...........................................................................27, 28
Broad. Music, Inc. v. DMX, Inc.,

726 F. Supp. 2d 355 (S.D.N.Y. 2010) ..........................................................11, 12
Broad. Music, Inc. v. Pandora Media, Inc.,

No. 13 Civ. 4037 (LLS), 2013 WL 6697788 (S.D.N.Y. Dec. 19, 2013) ........... 20
CGS Indus., Inc. v. Charter Oak Fire Ins. Co.,

720 F.3d 71 (2d Cir. 2013) ................................................................................. 33
Goetz v. Crosson,
41 F.3d 800 (2d Cir. 1994) ................................................................................. 55
Highland Capital Mgmt. LP v. Schneider,

607 F.3d 322 (2d Cir. 2010) ............................................................................... 39
King v. Allied Vision, Ltd.,

65 F.3d 1051 (2d Cir. 1995) ...................................................................30, 31, 33
Morse/Diesel, Inc. v. Trinity Indus., Inc.,

67 F.3d 435 (2d Cir. 1995) ................................................................................. 35
Scottsdale Ins. Co. v. R.I. Pools Inc.,

710 F.3d 488 (2d Cir. 2013) ............................................................................... 27
iv
Tourangeau v. Uniroyal, Inc.,

101 F.3d 300 (2d Cir. 1996) ............................................................................... 30
United States ex rel. Anti-Discrimination Ctr. of Metro N.Y. v.

Westchester Cnty.,
712 F.3d 761 (2d Cir. 2013) ............................................................................... 35
United States v. Am. Soc’y of Composers, Authors & Publishers (In re

Application of MobiTV, Inc.),
712 F. Supp. 2d 206 (S.D.N.Y. 2010) ..........................................................11, 12

Application of RealNetworks, Inc.),
627 F.3d 64 (2d Cir. 2010) ..........................................................................passim

Application of Shenandoah Valley Broad., Inc.),
331 F.2d 117 (2d Cir. 1964) ............................................................................... 30

Application of THP Capstar Acquisition Corp.),
756 F. Supp. 2d 516 (S.D.N.Y. 2010) ..........................................................10, 11

Application of YouTube),
616 F. Supp. 2d 447 (S.D.N.Y. 2009) ................................................................ 52
United States v. Armour & Co.,

402 U.S. 673 (1971) ......................................................................................30, 33
United States v. Broad. Music, Inc. (In re Application of Music Choice),

316 F.3d 189 (2d Cir. 2003) .............................................................11, 28, 29, 60
United States v. Broad. Music, Inc. (In re Application of Music Choice),

426 F.3d 91 (2d Cir. 2005) ...............................................................12, 28, 42, 50
Wills v. Amerada Hess Corp.,

379 F.3d 32 (2d Cir. 2004) ................................................................................. 29
v
Statutes
17 U.S.C. § 106 ............................................................................................34, 38, 39
17 U.S.C. § 114 ........................................................................................................ 14
17 U.S.C. § 201 ........................................................................................................ 34
28 U.S.C. § 1291 ........................................................................................................ 5
Other Authorities
H.R. Rep. No. 94-1476 (1976) ................................................................................. 35
United States v. Am. Soc’y of Composers, Authors & Publishers,

No. 41 Civ. 1395 (WCC) (S.D.N.Y. Mar. 4, 1941)........................................ 9, 37
United States v. Am. Soc’y of Composers, Authors & Publishers,

Second Amended Final Judgment (“AFJ2”),
No. 41-1395 (S.D.N.Y. June 11, 2001) .......................................................passim
vi
INTRODUCTION
This is an appeal from two district court decisions that, if not reversed,
threaten the viability of the American Society of Composers, Authors and
Publishers (“ASCAP”), this nation’s oldest and largest performing rights
organization (“PRO”). Such an outcome would have a profoundly negative effect
on songwriters, music publishers and music users themselves, disrupting the
marketplace for the licensing of music performing rights that has functioned for
many decades as a result of the well-established efficiencies provided by an
ASCAP license.
The first decision, granting partial summary judgment to Pandora
Media, Inc. (“Pandora”), erroneously concluded that the ASCAP consent decree
(commonly referred to as “AFJ2”) precludes ASCAP members from withdrawing
from ASCAP the right to license their musical works to certain “new media”
services. The consent decree contains no such prohibition.
The second decision, following a bench trial, set a below-market
1.85%-of-revenue royalty rate for Pandora’s use of the ASCAP repertory for the
period 2013 through 2015.1 The 1.85% rate ignores both the most recent and
relevant arm’s-length benchmark agreements entered into by Pandora with music
1
ASCAP proposed, and the district court accepted, a rate of 1.85% for the years
2011 and 2012. Accordingly, ASCAP does not appeal the district court’s
determination with respect to those years.
publishers, and this Court’s decision in United States v. Am. Soc’y of Composers,
Authors & Publishers (In re Application of RealNetworks, Inc.), 627 F.3d 64 (2d
Cir. 2010) (“RealNetworks”), which established that a rate of 2.5% of revenue (or
higher) is reasonable for all-audio, music-intensive digital music services similar to
Pandora.
These two decisions, taken together, effectively re-write the consent
decree, and arbitrarily depress ASCAP license rates below the rates that would be
obtained in a competitive market, leaving ASCAP members who seek competitive
market rates from new media services, such as Pandora, no alternative but to resign
from ASCAP. Nothing in AFJ2 should have led to such a result. Nor does AFJ2’s
standard for setting reasonable rates for the use of ASCAP’s music contemplate
that rates will be set materially below comparable market benchmarks.
In rendering its two decisions, the district court committed
fundamental errors that require reversal:
First, the district court erred in ruling that AFJ2 prohibits ASCAP
from accepting partial grants of public performance rights from its members. AFJ2
contains no such prohibition. The court further erred by interpreting the definition
of “ASCAP repertory” in AFJ2 to mean that ASCAP is forced to license all of its
members’ compositions to any music user—even where those members expressly
prohibited ASCAP from doing so because they wished to license those rights
2
directly. The district court’s ruling is also at odds with the history of ASCAP’s
consent decree, which shows that ASCAP and the Department of Justice
deliberately removed from the decree the very prohibition on members reserving
exclusive rights for themselves that the district court imposed. And the court’s
interpretation of AFJ2 also conflicts with the Copyright Act, which invests
copyright owners, such as ASCAP’s members, with exclusive, divisible rights in
their works. The district court’s misreading of AFJ2 tainted the entire rate
proceeding, leading it to reject the marketplace agreements entered into by Pandora
with two large music publishers, Sony/ATV Music Publishing (“Sony/ATV”) and
Universal Music Publishing Group (“UMPG”), and precluding other ASCAP
members from entering into additional agreements with Pandora and its
competitors that would have served as additional fair-market benchmarks.
Second, the district court erred in finding that a license rate of 1.85%
of revenue for the years 2013 to 2015 is “reasonable,” i.e., the rate that a willing
seller and willing buyer would agree to in an arm’s-length transaction, when every
relevant agreement negotiated in 2012 or later provided for rates in excess of
1.85%, and not a single performing rightsholder negotiating with Pandora and its
competitors in that time period would grant a license at a rate that low. In
disregarding these market benchmarks, the district court turned on its head the
willing-buyer, willing-seller inquiry that is meant to be the heart of a reasonable
3
rate determination under AFJ2. The court compounded its error by refusing to
consider—or even allow ASCAP to see—additional recent competitive market
agreements entered into by Pandora. The court also erred in ignoring this Court’s
guidance in RealNetworks, which instructed that a rate of 2.5% of revenue (or
Pandora’s. Finally, the court erred in concluding—without any basis in law or
fact—that there is a presumption that a rate that is reasonable for one year of a
license term is reasonable for every other year of the license term, especially when
the marketplace is rapidly developing and fair-market benchmark license fees are
demonstrably escalating.
For these reasons, ASCAP respectfully requests that this Court
(1) reverse the district court’s summary judgment determination, and (2) either
(a) adopt ASCAP’s license fee proposal as described herein, or (b) reverse the
district court’s rate determination and remand with instructions to consider all
recent benchmark agreements and adopt a rate reflective of all relevant arm’s-
length benchmark agreements.
4
JURISDICTIONAL STATEMENT
The district court had jurisdiction pursuant to Article IX of AFJ2.
(SPA-10.2) On April 14, 2014, ASCAP filed a timely notice of appeal (JA-5004)
from a final Opinion and Order disposing of all parties’ claims entered on
March 14, 2014 by the Honorable Denise Cote (SPA-78). The district court
entered a Final Judgment Order on July 25, 2014 (SPA-350). This Court has
jurisdiction pursuant to 28 U.S.C. § 1291.
STATEMENT OF THE ISSUES PRESENTED FOR REVIEW
1. Did the district court err in holding that, as a matter of law,
AFJ2 prohibits ASCAP from accepting partial grants of public performance rights?
2. Did the district court err in finding that a license rate of 1.85%
of revenue for the years 2013-2015 is “reasonable,” i.e., the rate that a willing
seller and willing buyer would agree to in an arm’s-length transaction, when not a
single agreement negotiated in 2012 or later provided for a rate that low?
3. Did the district court err in refusing to consider, or even permit
ASCAP to discover, recent competitive market agreements between Pandora and
music publishers that would have been appropriate market benchmarks for setting
a rate for the ASCAP-Pandora license?
2
Citations in the form of “JA-__” refer to pages in the Joint Appendix. Citations
in the form of “SPA-__” refer to pages in the Special Appendix.
5
4. Did the district court err in failing to consider the Second
Circuit’s decision in RealNetworks, which established that a rate of 2.5% of
revenue (or higher) is reasonable for all-audio, music-intensive digital music
services similar to Pandora’s?
5. Did the district court err in concluding that there is a
presumption that a rate that is reasonable for one year of a license term is
reasonable for every other year of the license term when AFJ2 contains no such
presumption?
STATEMENT OF THE CASE
On November 5, 2012, Pandora initiated a rate-setting proceeding
pursuant to Section IX of AFJ2, captioned In re Petition of Pandora Media, Inc., to
determine reasonable fees and terms for a through-to-the-audience blanket license
for the period January 1, 2011 through December 31, 2015. (JA-61.)
On June 11, 2013, Pandora moved for summary judgment seeking an
order that any new media withdrawals implemented during the term of Pandora’s
license with ASCAP would not affect the scope of the ASCAP repertory covered
by Pandora’s license. (JA-122.) In an Opinion and Order dated September 17,
2013, the court granted Pandora’s motion, holding that the new media withdrawals
violated AFJ2. (SPA-20.)
6
Following a bench trial conducted from January 21, 2014 to
February 10, 2014, the district court filed under seal on March 14, 2014 an Opinion
and Order that sets a license rate of 1.85% of revenue for each year of Pandora’s
requested license. (SPA-78.) The district court filed a redacted version of that
Opinion and Order on the public docket on March 18, 2014. (SPA-214.) The
court entered a final Judgment Order on July 25, 2014. (SPA-350.)
STATEMENT OF THE FACTS
I. THE PARTIES
A. ASCAP
Established in 1914, ASCAP is an unincorporated membership
association of approximately 500,000 songwriters, composers, lyricists, and music
publishers. Unlike any other PRO, ASCAP is member-owned, and its member-
elected Board of Directors is composed of an equal number of writers and
publishers.
ASCAP licenses, on a non-exclusive basis, the non-dramatic rights of
public performance contained within its members’ copyrighted music. Its licensees
include television networks and stations, cable networks and system operators,
radio stations, digital music services, colleges and universities, and restaurants. It
collects fees from licensees and distributes them to its members.
7
ASCAP’s licensing activities enhance the public’s access to music
performances by lowering the transaction costs of obtaining the right to perform
many millions of works of copyrighted music. Without ASCAP and other PROs,
music users would need to contact each composer and publisher individually to
negotiate for the public performance rights in their works. See, e.g., Broad. Music,
Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 20 (1979) (“CBS”) (“A middleman
with a blanket license was an obvious necessity if the thousands of individual
negotiations, a virtual impossibility, were to be avoided.”).
B. Pandora
Pandora is the leading digital music service. It plays more music, has
a larger audience, and earns higher revenues than any other player in the Internet
music and radio industry. (JA-2140 ¶ 12.) Pandora is built around user-created
stations, unique to each user and influenced by that user’s feedback.
Today, Pandora has more than 200 million registered users, and those
users have created over 4.6 billion custom stations from the approximately 2
million songs available on Pandora. Moreover, Pandora’s programming is wall-to-
wall music, with no news, talk, sports, weather, or other non-music content (with
the exception of a small number of comedy recordings), and minimal advertising.3
3
As a result, while AM/FM terrestrial radio and simulcasts play, on average, 11
songs per hour, Pandora averages 15 songs per hour. (JA-2092, 2098-99, 2104,
¶¶ 6, 17, 31-32.)
8
Pandora has experienced rapid growth across all facets of its business,
and Pandora’s executives expect continued growth. Between fiscal years 2010 and
2013, Pandora’s music use increased nearly ten-fold, from 1.8 billion listener hours
to 14.01 billion listener hours. (JA-4242.) That increased music use and
listenership has translated into skyrocketing revenues, which Pandora predicts will
total approximately $705 million in fiscal year 2014, and approximately $960
million in fiscal year 2015. (JA-2480.)
Pandora’s primary competitors are other new media music services in
the Internet music and radio industry, including services that offer custom radio,
on-demand streaming, or both. Apple’s newly launched iTunes Radio service is
the most recent and most formidable competitor. (JA-2266-67, 2287 at 72:23-
73:4, 100:13-19.)
II. THE COURT’S AUTHORITY UNDER AFJ2
A. AFJ2 and the Rate-Setting Proceeding
In 1941, ASCAP and the Department of Justice entered into a consent
decree in United States v. Am. Soc’y of Composers, Authors & Publishers, No. 41
Civ. 1395 (WCC) (S.D.N.Y. Mar. 4, 1941). (JA-30.) The most recent version of
that consent decree—AFJ2, or the Second Amended Final Judgment—was entered
on June 11, 2001. (SPA-1.) AFJ2 regulates how ASCAP licenses the public
performance rights in the musical compositions in its repertory.
9
When a music user makes a written request for a license, ASCAP
must grant that user a “non-exclusive license to perform all of the works in the
ASCAP repertory.” (SPA-7, § VI.) ASCAP must “advise the music user in
writing of the fee that it deems reasonable for the license requested.” (SPA-10,
§ IX(A).) If the parties are unable to reach an agreement, either party may apply to
the district court, sitting as a rate court, for a determination of a reasonable fee.
(Id.) Here, Pandora and ASCAP were unable to agree on fees for Pandora’s
application for a blanket, through-to-the-audience ASCAP license, and on
November 5, 2012, Pandora applied for a judicial determination of reasonable fees.
(JA-61.)
B. Determination of a Reasonable Fee
In determining a reasonable fee, the district court’s task is “to define a
rate or range of rates that approximates the rates that would be set in a competitive
market.” Am. Soc’y of Composers, Authors & Publishers v. Showtime/The Movie
Channel, 912 F.2d 563, 576 (2d Cir. 1990) (“Showtime”).
ASCAP bears the burden of showing that its fee proposal is
reasonable, and if ASCAP’s proposal is reasonable, then the rate court’s inquiry
ends. (SPA-10-11, § IX(B), (D).) See United States v. Am. Soc’y of Composers,
Authors & Publishers (In re Application of THP Capstar Acquisition Corp.), 756
F. Supp. 2d 516, 538 (S.D.N.Y. 2010) (“ASCAP/DMX”). Only if ASCAP has not
10
shown that its proposal is reasonable should the district court then “determine a
reasonable fee based on all the evidence.” (SPA-11, § IX(D).) See ASCAP/DMX,
756 F. Supp. 2d at 538.
AFJ2 does not define the term “reasonable fee.” This Court has held
that the rate court should attempt to determine the “fair market value” for the
proposed license—that is, “the price that a willing buyer and a willing seller would
agree to in an arm’s length transaction.” United States v. Broad. Music, Inc. (In re
Application of Music Choice), 316 F.3d 189, 194 (2d Cir. 2003) (“Music
Choice II”) (internal quotation marks and citations omitted).
Determining fair market value is itself “‘often facilitated by the use of
a benchmark—that is, reasoning by analogy to an agreement reached after arms’
length negotiation between similarly situated parties.’” United States v. Am. Soc’y
of Composers, Authors & Publishers (In re Application of MobiTV, Inc.), 712
F. Supp. 2d 206, 232-33 (S.D.N.Y. 2010) (“MobiTV”) (quoting Music Choice II,
316 F.3d at 194). In some prior rate court decisions, direct licenses between music
publishers and music users have been found to be particularly pertinent
benchmarks. See, e.g., ASCAP/DMX, 756 F. Supp. 2d at 537-38 (considering “the
existence of direct licensing relationships” in an AFJ2 rate court proceeding);
Broad. Music, Inc. v. DMX, Inc., 726 F. Supp. 2d 355, 360-61 (S.D.N.Y. 2010)
11
(holding that direct licenses between applicant and several individual publishers
could serve as appropriate benchmarks).4
In selecting appropriate benchmarks and determining how those
benchmarks must be adjusted to arrive at a reasonable rate for the applicant, courts
examine certain aspects of comparable licenses, including:
• “the degree of comparability of the negotiating parties to the

parties contending in the rate proceeding,”
• “the comparability of the rights in question,”
• “the similarity of the economic circumstances affecting the

earlier negotiators and the current litigants,” and
• “the degree to which the assertedly analogous market under

examination reflects an adequate degree of competition to
justify reliance on agreements that it has spawned.”
United States v. Broad. Music, Inc. (In re Application of Music Choice), 426 F.3d
91, 95 (2d Cir. 2005) (“Music Choice IV ”) (quotations omitted); see also MobiTV,
712 F. Supp. 2d at 248. The first of these factors—whether the parties to the prior
license agreement are similarly situated to those before the rate court—is one that
AFJ2 itself addresses, providing a definition of “similarly situated” that refers
specifically to “music users or licensees in the same industry that perform ASCAP
music and that operate similar businesses and use music in similar ways and with
4
The direct licenses in the DMX litigation differed from the benchmarks here in
that DMX had the option of licensing rights through ASCAP and BMI, and
would therefore have no incentive to agree to a direct license at a rate above
those charged by ASCAP and BMI. Id. at 355.
12
similar frequency.” (SPA-4, § II(R).) AFJ2 does not provide an exhaustive list of
factors relevant to this determination, but it provides that at least the following are
relevant: (1) “the nature and frequency of musical performances,” (2) “ASCAP’s
cost of administering licenses,” (3) “whether the music users or licensees compete
with one another,” and (4) “the amount and source of the music users’ revenue.” (Id.)
III. ASCAP’S NEW MEDIA LICENSING
In 1995, ASCAP created a New Media Department to address the
unique public performance licensing needs of then-emerging websites and new
music technologies. These websites and services used music in new ways,
including by making streaming music available on a customized basis to anyone
with an Internet connection without regard to physical location. (JA-1731-32
¶ 14.) Pandora and similar services blend the features of on-demand music with
some of the features of Internet radio, and add an unprecedented degree of user
control over the music the user hears. (JA-1734-36 ¶¶ 23-25, 27-28; JA-2142-43
¶¶ 16-18.)
IV. THE NEW MEDIA WITHDRAWALS
By 2010, many of ASCAP’s members had concluded that the rates
ASCAP had obtained from new media companies did not reflect fair-market rates
or represent full value for the performance rights being conveyed. (See JA-1777-
78 ¶ 16; JA-1837-39 ¶ 9; JA-1821-22 ¶ 11.) Among other things, members found
13
troubling the disparity between the license fees ASCAP obtained through
negotiations with music users under the auspices of AFJ2 and the statutory fees
artists and record companies earned from the same licensees pursuant to
Section 114 of the Copyright Act for performances of their sound recordings. (JA-
1774 ¶ 9; JA-1837-39 ¶ 9; JA-1821-22 ¶ 11; JA-1858 ¶ 23.) As Zach Horowitz,
the CEO of UMPG, testified, in 2012, Pandora paid over $200 million in copyright
royalties to record companies for the recordings played on its service, but less than
$20 million to songwriters and music publishers for the right to perform the songs.
(JA-1837-38 ¶ 9.)
Publisher members of ASCAP also believed that withdrawal of new
media rights would allow them to bundle their public performance and other
copyright rights so that music users could license multiple rights in one transaction.
(JA-1837-39 ¶ 9; JA-1821 ¶ 10.) AFJ2 prohibits ASCAP from licensing any rights
other than performing rights. (SPA-5, § IV(A).) EMI’s CEO, Roger Faxon,
testified that it was “inefficient and ineffective” to require new media music users
to license the various rights they needed from disparate sources. (JA-3178, at
36:1-16.) Members also expressed concerns about the sometimes “expensive and
time-consuming rate-setting process required under the ASCAP and BMI consent
decrees.” (JA-1822 ¶ 12; see also JA-3178-79 at 36:17-37:14.) EMI informed
ASCAP that it would resign from ASCAP for all purposes unless ASCAP
14
permitted EMI to enter into direct, exclusive licenses with new media services.
(JA-1774-75 ¶ 10.)
Motivated by these concerns, ASCAP began to consider modification
of its membership rules to permit ASCAP members to withdraw their grants to
ASCAP of the right to license new media services. To attempt to insure that such a
modification complied with AFJ2, ASCAP consulted with antitrust counsel and
met with the Antitrust Division of the Department of Justice (“DOJ”). (See JA-532
¶¶ 12-13; JA-1278, 1296-97, at 297:12-25, 372:5-374:12; JA-4048; JA-4052-59;
JA-4061.)
In April 2011, subsequent to meeting with DOJ, ASCAP’s Board of
Directors approved a modification to the Compendium of Rules and Regulations,
and Policies Supplemental to the Articles of Association (the “Compendium”)
allowing members to remove from ASCAP the right to license certain new media
music users. Members choosing to withdraw their new media rights would permit
ASCAP to continue to license on their behalf with respect to other users. (JA-
1776-77 ¶¶ 13-15; see JA-4075-76.)
V. THE EMI, SONY/ATV, AND UMPG BENCHMARK AGREEMENTS
Following the Compendium modification, EMI withdrew its new
media licensing rights from ASCAP, effective May 1, 2011. In the fall of 2012,
Sony/ATV notified ASCAP of its withdrawal of new media rights, effective
15
January 1, 2013, and UMPG thereafter notified ASCAP that it, too, intended to
withdraw its new media rights, effective July 1, 2013. (JA-1779 ¶ 19.) Each of
those music publishers—three of the four largest in the United States—then
negotiated direct license agreements with Pandora, all with different rates and
terms. EMI struck a deal in mid-2011, Sony/ATV at the end of 2012, and UMPG
in mid-2013. A fourth large publisher, Warner/Chappell Music Inc. (“Warner”),
gave notice of its intent to withdraw new media rights, but ultimately determined
not to do so.5 (JA-1297 at 376:8-15; JA-1779 ¶ 19.)
On June 6, 2011, EMI and Pandora reached an agreement in principle
that Pandora would pay 1.85% of its revenue for the performance of EMI’s
musical works for the years 2012 and 2013. (JA-3606.) That agreement resulted
in a written license agreement dated March 16, 2012 (the “EMI-Pandora license”).
(JA-4142.) Shortly after execution of that agreement, Sony Corporation acquired
EMI and its affiliate, Sony/ATV, took over administration of EMI’s catalogs.
Sony/ATV entered into a “Binding Heads of Agreement” with
Pandora on December 21, 2012 (the “Sony-Pandora license”), which covered the
period January 1, 2013 to December 31, 2013, and included—in addition to
Sony/ATV’s works—the remainder of EMI’s ASCAP works and all of EMI’s BMI
5
These four publishers account for more than half of all U.S. radio airplay. (JA-
3668.)
16
works.6 The agreement sets a 5% fee on the “Publisher-Adjusted Revenue Base,”
representing Sony/ATV’s share of the music that Pandora plays. (JA-2379; JA-
2387.) The 5% fee is thus an industry rate. The license also included a
recoupable, non-refundable, non-returnable guaranteed payment. (JA-2377; JA-
2385.) Multiplying the 5% Sony-Pandora rate by ASCAP’s share of Pandora’s
music performances (45.6%) yields an effective ASCAP-music rate of 2.28%.
(JA-4718.) Sony entered into only a one-year license because of the rapidly
evolving nature of the digital music industry in general, and Pandora’s service in
particular. (JA-1826 ¶ 21.)
UMPG entered into a license agreement with Pandora to cover the
period July 1, 2013 to December 31, 2013. (JA-2535.) The license sets an
industry royalty rate of 7.5%.7 (JA-2536.) The 7.5% UMPG-Pandora rate,
adjusted by ASCAP’s 45.6% share of Pandora’s music performances, yields an
effective ASCAP-music rate of 3.42%. (JA-1907 ¶ 84; JA-4718.) UMPG’s Zach
6
Because certain songwriters are affiliated with ASCAP, and others are affiliated
with BMI or SESAC, a music publisher such as EMI will typically have certain
of the works in its catalog licensed through each of the three performing rights
organizations.
7
The UMPG license provides for an adjustment to the 7.5% rate if Pandora
secures a final, non-appealable judgment holding that either (a) Pandora had a
license-in-effect such that UMPG’s July 1, 2013 withdrawal has no effect, or
(b) Pandora’s attempt to acquire KXMZ-FM qualifies it for the ASCAP-RMLC
license. (JA-2537-38.) Neither of those triggering events has occurred.
17
Horowitz explained that UMPG agreed to the rate on the condition that the license
term be for only six months because UMPG expected—based on its experience in
its concurrent negotiations with Apple for the iTunes Radio service—that market
rates would trend higher in 2014. (JA-1842 ¶ 16.)
ASCAP and its economist, Professor Kevin Murphy, relied on
Pandora’s licenses with all three publishers as benchmarks, with the EMI license
providing a benchmark only for 2011 and 2012, and the escalating Sony/ATV and
UMPG rates supporting higher ASCAP rates in 2013 through 2015. As Professor
Murphy explained, Pandora’s Sony/ATV and UMPG licenses are appropriate
benchmarks because: (1) the music user in each license is Pandora; (2) the rights
being conveyed are essentially the same as in this proceeding; (3) the time period
covered by these licenses falls within the term of the license Pandora seeks from
ASCAP; and (4) each license resulted from an arm’s-length negotiation between a
willing buyer and a willing seller operating outside the constraints of a consent
decree. (JA-1905-06 ¶ 83.)
Pandora and its economists acknowledged the EMI-Pandora license to
be a “competitive benchmark,” but urged the court to disregard the Sony-Pandora
and UMPG-Pandora licenses. (See JA-1411, at 825:16-18; JA-1527, at 1287:21-
24.)
18
VI. OTHER RELEVANT BENCHMARKS
Although ASCAP relied on these publisher direct license agreements
as its primary market benchmarks, ASCAP also cited to a number of other relevant
licenses, each of which contains a rate materially higher than the 1.85% rate set by
the district court.
A. The SESAC-Pandora License
In 2007, SESAC—a PRO with a smaller repertory that is not
regulated by any consent decree—entered into a blanket license with Pandora. The
license provides for an escalating fee structure that results in Pandora currently
paying of its revenue to SESAC. (JA-2374.) SESAC estimated its share of
the music Pandora plays to be 7%. (JA-2393.) Using that figure, and comparing it
to ASCAP’s 45.6% market share, the Pandora-SESAC license implies a rate for a
Pandora-ASCAP license of in 2011, in 2012, and for 2013.
(JA-1913-14 ¶¶ 97-99; JA-4725.) Even if a higher market share is attributed to
SESAC, as Pandora urged, the derived ASCAP rate is higher than 1.85%. (JA-
1905-06 ¶ 98; JA-4725.)
B. The Apple iTunes Radio Licenses
In June of 2013, ASCAP and Apple negotiated a license agreement
for Apple’s soon-to-be-launched iTunes Radio service. Apple and ASCAP agreed
to a rate of of revenue, based upon an overall rate of 10% for all music
19
performing rights. (JA-2520-21.) Apple also negotiated direct licenses with BMI,
EMI, Sony/ATV, UMPG, BMG, and Warner based on the same 10% rate.8 (JA-
2467; JA-2439; JA-2455; JA-2505; JA-2490; JA-2423.)
C. Additional Music Publisher Licenses with Pandora
In late 2013, several music publishers—including Sony/ATV, EMI,
UMPG, and BMG—either withdrew or sought to withdraw new media licensing
rights from BMI, effective January 1, 2014. Pandora moved for summary
judgment in the BMI rate court on November 1, 2013, arguing that these
withdrawals violated the BMI consent decree. Judge Stanton denied Pandora’s
motion on December 18, 2013, validating the publishers’ withdrawals, but as to all
potential licensees, not just new media users. See Broad. Music, Inc. v. Pandora
Media, Inc., No. 13 Civ. 4037 (LLS), 2013 WL 6697788, at *1 (S.D.N.Y. Dec. 19,
2013).
On or around January 1, 2014, Pandora entered into direct license
agreements with one or more of those publishers. Recognizing that these
agreements constituted particularly pertinent additional benchmarks, ASCAP
promptly sought discovery of these agreements. Pandora refused. On January 6,
8
Apple’s license with BMI provides for a rate of of revenue for the first
year of the license and for the second year of the license, with a Most-
Favored Nations clause to adjust upwards in light of subsequent licenses (as a
result, BMI will get the benefit of the ASCAP and publisher rates). (JA-2467,
2470-71.)
20
2014, ASCAP asked the court to order Pandora to produce the agreements. (JA-
854.) The court denied ASCAP’s request, on the ground that “any potential
benchmark requires a nuanced valuation of the context in which that agreement
was reached,” and that the trial schedule did not permit such discovery, even
though the trial was still two weeks off. (JA-904, at 4:8-15.) ASCAP thus never
had the opportunity to present at trial, nor did the court consider, the most recent
direct licenses agreed to by Pandora in the competitive marketplace.
VII. THIS COURT’S RealNetworks DECISION
In RealNetworks, this Court confirmed that a rate of 2.5% or higher is
reasonable for services similar to Pandora. That case involved the online music
offerings of Yahoo! and RealNetworks, including LAUNCHcast, a personalized
streaming-audio service then operated by Yahoo!. Pandora has repeatedly touted
the similarities between its service and LAUNCHcast. (See, e.g., Pandora Opp’n to
ASCAP’s Pretrial Mem. at 73, Dkt. No. 183; JA-3008 ¶ 27; JA-3079 ¶ 42; JA-
1576-77, 1584, at 1481:25-1484:17, 1512:14-1513:8.)
At trial in the RealNetworks proceeding, Judge Conner applied a 2.5%
rate to all of Yahoo!’s and RealNetworks’ music-use adjusted revenues. See
RealNetworks, 627 F.3d at 81. On appeal, this Court affirmed Judge Conner’s
selection of the 2.5% rate as a benchmark, but vacated Judge Conner’s across-the-
board application of that rate to all of Yahoo!’s and RealNetworks’ services
21
irrespective of their level of music intensity. See id. at 85. Critically, this Court
concluded that a 2.5% rate or higher could be appropriate for services like
Pandora:
We conclude that the royalty rate agreed to by Music Choice

provides strong support for applying a 2.5% royalty rate to
those Yahoo! sites and services that provide access to music
channels organized around music genre, similar to those on
Music Choice. Additionally, it provides a basis for a 2.5%
royalty rate, or higher, for Yahoo! sites that permit an
interactive music experience, in which the user may control the
selection of music he is hearing, for example if a user tunes into
a more customized station or uses Yahoo! Search to listen to
songs on-demand.
Id. at 81.
VIII. THE PARTIES’ RATE PROPOSALS
Based on the competitive market benchmarks, and the 2.5% (or
higher) rate endorsed by this Court in RealNetworks, ASCAP proposed the
following rates for Pandora’s license: 1.85% of applicable revenue for 2011 and
2012; 2.50% for 2013; and 3.00% for 2014 and 2015. (JA-1746 ¶ 51.) ASCAP’s
proposal reflected the trend towards higher rates in the rapidly evolving
marketplace. ASCAP proposed the 1.85% rate for 2011 and 2012 primarily on the
basis of the EMI-Pandora license. The increases in subsequent years reflected the
increases in each subsequent benchmark license, culminating in Apple’s agreement
to a rate only one year after execution of the EMI-Pandora license.
22
Pandora argued that a reasonable royalty for its ASCAP blanket
license would be between 1.70% and 1.85% of Pandora’s revenue. Pandora’s
principal argument—rejected by the district court—was that it should pay the same
1.7% rate as broadcast radio. (SPA-205-11.)
IX. THE PROCEEDINGS BELOW
A. Pandora’s Summary Judgment Motion

On June 11, 2013, Pandora moved for summary judgment, seeking an
order that any new media withdrawals implemented during the term of Pandora’s
license with ASCAP would not affect the scope of the ASCAP repertory licensed
to Pandora subsequent to the January 1, 2011 effective date for Pandora’s
application for a five-year license. (JA-122-23.) In an Opinion and Order dated
September 17, 2013, the district court granted Pandora’s motion, holding that the
new media withdrawals violate the terms of AFJ2. (SPA-20.) The district court
held that AFJ2 “unambiguously requires ASCAP to provide Pandora with a license
to perform all of the works in its repertory,” and that, because ASCAP retained the
right to license the musical works purportedly withdrawn pursuant to the new
media withdrawals for other purposes, such works were included within the scope
of Pandora’s license as well. (SPA-21, 36.)
23
B. The Trial and Rate Determination

Following a bench trial conducted from January 21, 2014 to
February 10, 2014, the district court issued an Opinion and Order on March 14,
2014, which sets a “headline rate” of 1.85% of revenue for each year of Pandora’s
requested license. (SPA-213.) In doing so, the court adopted ASCAP’s proposal
for 2011 and 2012 but rejected it for 2013 and thereafter.
The court found the EMI-Pandora license to be a valid benchmark for
supporting a 1.85% rate for 2011 and 2012. (SPA-167-69.) The court extended
the 1.85% rate to cover the years 2013, 2014 and 2015 based on its finding that
“rate court precedent and ASCAP’s own licensing history establish a presumption
that a five-year license should have a single rate.” (SPA-171.) The court rejected
the Sony-Pandora and UMPG-Pandora licenses as benchmarks because it
concluded that (a) Pandora had no choice but to accede to the demands of
Sony/ATV and UMPG because it did not have a list of their withdrawn works,
which would have enabled Pandora to remove—or at least threaten to remove—
those works from its service if the parties could not reach an agreement on terms
Pandora deemed reasonable (see SPA-177-78, 181, 183-84); and (b) the
Sony/ATV and UMPG licenses represented the product of “coordination” between
those publishers and ASCAP (SPA-174-75). The court also rejected the SESAC-
Pandora license and the iTunes Radio licenses as benchmarks because “there is
24
insufficient data about the SESAC repertoire and the Apple iTunes Radio business
model” to apply the rates agreed to in those licenses to Pandora. (SPA-184.)
Further, the court refused to consider in any way—or even allow ASCAP to see—
the most recent competitive market agreements entered into by Pandora. And the
court chose not to follow—or even refer to—this Court’s guidance in
RealNetworks that 2.5% or higher is a reasonable rate for services like Pandora.
ASCAP took proper and timely exception to the ruling of the district
court. (JA-5004.)
SUMMARY OF THE ARGUMENT
The district court made a series of fundamental errors that require
reversal of the decisions below.
I.A. The district court erred in ruling that AFJ2 “unambiguously”
prohibits ASCAP from accepting partial grants of public performance rights. AFJ2
contains no such prohibition.
I.B. The district court’s summary judgment ruling is at odds with
the history of the ASCAP consent decree, which long ago removed any prohibition
on the right of ASCAP’s members to reserve for themselves the right to grant
exclusive licenses to music users.
25
I.C. The district court’s interpretation of AFJ2 directly conflicts
with and truncates exclusive rights provided by the Copyright Act to copyright
owners like ASCAP’s members.
II. The district court erred in finding that a license rate of 1.85% is
reasonable for the years 2013-2015, when each and every competitive benchmark
agreement reflects a materially higher rate.
II.A. It was error for the district court to reject the Sony-Pandora and
UMPG-Pandora licenses as benchmark agreements based on findings that Pandora
was purportedly “deprived” of “critical evidence” concerning Sony/ATV and
UMPG’s repertories and purported coordination among Sony/ATV, UMPG, and
ASCAP.
II.B. It was error for the district court to reject the SESAC-Pandora
license and the iTunes Radio licenses as benchmarks based on unsupported
assumptions about SESAC’s market share and Apple’s business model.
II.C. It was error for the district court to refuse to consider—or even
allow ASCAP to see—recent competitive market agreements between Pandora and
music publishers that withdrew their new media rights from BMI. The district
court’s ruling deprived ASCAP of evidence of the most current rates that Pandora
is paying in the competitive marketplace.
26
II.D. The district court erred in ignoring this Court’s guidance in
RealNetworks, which established that a rate of 2.5% of revenue (or higher) is
reasonable for all-audio, music-intensive digital music services similar to
Pandora’s. The court ignored the RealNetworks decision, despite raising its
applicability at the outset of the trial and requesting and receiving briefing on the
issue.
II.E. The district court erred in concluding that there is a
reasonable for every other year of the license term. AFJ2 contains no such
presumption, and the district court’s adoption of a static rate was especially
inappropriate in circumstances, such as these, where there is clear evidence that
competitive market license fees are rising year-over-year.
STANDARD OF REVIEW
This Court “review[s] a district court’s grant of summary judgment de
novo, construing the evidence in the light most favorable to the nonmoving party
and drawing all reasonable inferences in that party’s favor.” Scottsdale Ins. Co. v.
R.I. Pools Inc., 710 F.3d 488, 491 (2d Cir. 2013) (quotations omitted). This Court
also reviews the district court’s interpretation of a consent decree de novo. Broad.
Music, Inc. v. DMX Inc., 683 F.3d 32, 43 (2d Cir. 2012).
27
This Court “review[s] the rate set by the District Court for
reasonableness.” Id. at 45; Music Choice IV, 426 F.3d at 96. Fundamental to the
concept of “reasonableness” is a determination of what a willing seller and willing
buyer would agree to in a competitive market. See RealNetworks, 627 F.3d at 76;
Music Choice II, 316 F.3d at 194. To find that the rate set by the district court is
reasonable, this Court “must find both that the rate is substantively reasonable (that
it is not based on any clearly erroneous findings of fact) and that it is procedurally
reasonable (that the setting of the rate, including the choice and adjustment of a
benchmark, is not based on legal errors).” Music Choice IV, 426 F.3d at 96. This
Court will vacate the rate determined by the district court if (1) upon de novo
review, the Court finds that the district court “rel[ied] on legally impermissible
factors, fail[ed] to give consideration to legally relevant factors, appl[ied] incorrect
legal standards, or misappl[ied] correct legal standards,” or (2) the district court
made clearly erroneous findings of fact. Id. (quotations omitted).
Failure to utilize properly available benchmark agreements in
determining a reasonable license fee is legal error reviewable de novo. See id.
Although factual findings related to the formation of a benchmark agreement are
reviewed for clear error, the determination that a benchmark is “comparable” for
the purpose of evaluating a fee proposal is a legal conclusion entitled to de novo
review. See Showtime, 912 F.2d at 571; see also id. at 569-70 (explaining that the
28
weight given to particular factors related to a benchmark agreement is a matter of
law). A benchmark analysis predicated upon “flawed assumptions . . . must be set
aside.” Music Choice II, 316 F.3d at 197.
This Court reviews the district court’s discovery rulings for abuse of
discretion. Wills v. Amerada Hess Corp., 379 F.3d 32, 41 (2d Cir. 2004).
ARGUMENT
I.
THE DISTRICT COURT ERRED IN RULING

THAT AFJ2 PROHIBITS ASCAP FROM ACCEPTING
PARTIAL GRANTS OF PUBLIC PERFORMANCE RIGHTS
The district court erred by ruling on summary judgment that AFJ2
prohibits ASCAP from accepting partial grants of public performance rights from
its members. (SPA-21.) AFJ2 contains no such prohibition, much less the
“unambiguous” language that the district court reads into the agreement. The
district court’s ruling is also at odds with the history of ASCAP’s consent decree,
which shows that ASCAP and the DOJ deliberately removed from the decree the
very prohibition on members reserving exclusive rights for themselves that the
district court imposed. Moreover, by reading such a prohibition into AFJ2, the
district court’s ruling has the effect of forcing copyright owners, if they wish to
grant any rights to ASCAP, to grant all rights to ASCAP, a result that is directly
29
contrary to the fundamental principle of divisibility of copyright. These errors
tainted the entire rate proceeding by contributing to the court’s rejection of the
Sony/ATV and UMPG benchmarks as the product of coordination, and by
precluding additional ASCAP members from withdrawing their new media rights
and licensing Pandora (and similar services) directly, depriving ASCAP of
additional fair-market benchmarks.
A. The District Court’s Ruling Misconstrues AFJ2
The law in this Circuit is clear: where a consent decree does not
“unambiguously” prohibit certain behavior, a court may not rewrite the decree to
include such a prohibition. King v. Allied Vision, Ltd., 65 F.3d 1051, 1058 (2d Cir.
1995) (“a district court may not impose obligations on a party that are not
unambiguously mandated by the decree itself”); Tourangeau v. Uniroyal, Inc., 101
F.3d 300, 307 (2d Cir. 1996) (same); see also United States v. Armour & Co., 402
U.S. 673, 682 (1971) (“the scope of a consent decree must be discerned within its
four corners”); United States v. Am. Soc’y of Composers, Authors & Publishers (In
re Application of Shenandoah Valley Broad., Inc.), 331 F.2d 117, 123-24 (2d Cir.
1964) (stating that consent decrees should “not be stretched beyond their terms”).
Governing law required the district court to determine whether AFJ2
“unambiguously” prohibits ASCAP from accepting partial assignments of rights
from its members and whether it “unambiguously” requires ASCAP’s members to
30
grant ASCAP all of the public performance rights in their works for all purposes.
See King, 65 F.3d at 1058. Absent such an unambiguous mandate, the district
court cannot rewrite the decree to impose one. But that is precisely what the court
did.
1. AFJ2 Does Not “Unambiguously” Prohibit

ASCAP from Accepting Partial Grants of Rights
AFJ2 does not expressly prohibit ASCAP from accepting partial
grants of public performance rights from its members, nor does it expressly require
ASCAP’s members to grant ASCAP all of the public performance rights in their
works for all purposes. There is no such provision in AFJ2, as the district court
recognized. (SPA-45 (noting “the absence of any express provision” prohibiting
ASCAP from accepting partial grants of rights).)
In fact, AFJ2 contains several prohibitions concerning ASCAP’s
relationship with its members and its ability to accept and license public
performance rights (see SPA-5-6, § IV), but does not preclude ASCAP from
accepting partial grants of rights.9 Had the parties to AFJ2 agreed to prohibit
ASCAP from accepting partial grants of rights from its members, logically this
would have been set out in Section IV of AFJ2, which expressly governs the
9
For example, Section IV(A) enjoins and restrains ASCAP from “[h]olding,
acquiring, licensing, enforcing, or negotiating concerning any foreign or
domestic rights in copyrighted musical compositions other than rights of public
performance on a non-exclusive basis.” (SPA-5.)
31
“Prohibited Conduct” from which ASCAP is “enjoined and restrained.” (SPA-5-
6.) But neither that section, nor any other part of AFJ2, precludes ASCAP from
accepting partial grants of rights. Instead, AFJ2 is silent on that point, and thus, as
with all other issues not addressed by AFJ2, the decision of whether ASCAP may
license partial public performance rights on behalf of its members is left entirely to
ASCAP and its members.
Pandora’s own course of conduct is telling evidence that AFJ2 does
not “unambiguously” prohibit ASCAP from accepting partial grants of rights.
Prior to filing its summary judgment motion, Pandora never asserted that AFJ2
prohibited ASCAP’s members from withdrawing their new media rights and
licensing those rights to Pandora (and other music users) directly. To the contrary,
over a period of two years, Pandora negotiated with, and obtained direct licenses
from, EMI, Sony/ATV, and UMPG, which Pandora claimed to be compelled to
secure because the right to license those publishers’ works had been removed from
ASCAP. (JA-67-68 ¶ 21.) If partial withdrawals had been unambiguously
prohibited by AFJ2, Pandora never would have negotiated and entered into those
direct licenses.
Because AFJ2 expressly prohibits certain conduct, but does not
expressly prohibit ASCAP from accepting partial grants of rights from its
32
members, the district court erred in reading such a prohibition into the decree. See
Armour, 402 U.S. at 678-79, 682; King, 65 F.3d at 1060.
2. The Definition of “ASCAP Repertory” in AFJ2 Does Not Require

ASCAP To License the Same Set of Compositions to All Licensees
The court’s summary judgment ruling hinged on its construction of
the term “ASCAP repertory,” which is defined in AFJ2 to mean “those works the
right of public performance of which ASCAP has or thereafter shall have the right
to license at the relevant point in time.” (SPA-2, § II(C).) The court found that
“the natural reading” of Section II(C)’s definition of “ASCAP repertory” is that
“the ASCAP repertory consists of works the right to which ASCAP has the ability
to license at all.” (SPA-33 (emphasis added).) But the court’s interpretation of
“ASCAP repertory” is contrary to the plain language of AFJ2 and dependent on the
addition of the words “at all,” which are nowhere to be found in the decree itself.
As the definition in AFJ2 makes clear, “ASCAP repertory” means
only “those works the right of public performance of which ASCAP has or
hereafter shall have the right to license at the relevant point in time.” (SPA-2,
§ II(C) (emphasis added).) By focusing only on the meaning of the word “works”
in the definition (which both parties agreed refers to musical compositions), and
ignoring the meaning of the term “right to license,” the district court overlooked
the critical part of the definition. Because the “right to license” is not defined in
AFJ2, the court must look to federal law to determine its meaning. See CGS
33
Indus., Inc. v. Charter Oak Fire Ins. Co., 720 F.3d 71, 78 (2d Cir. 2013) (“[W]here
contracting parties use terms and concept that are firmly rooted in federal law, and
where there are no explicit signals to the contrary, we can presume that the
prevailing federal definition controls.” (quotations omitted)). The district court
failed to do so.
Relevant copyright law provides that a copyright owner has the
exclusive right to prevent others from using the owner’s copyrighted work and
may choose to license (or allow others to license) the copyrighted work in whole or
in part. Moreover, an authorized licensor can only license those rights that have
been granted by the owner. See 17 U.S.C. § 106(4), (6) (granting copyright owners
the exclusive right to control the right “to perform the copyrighted work
publicly”); id. § 201(d)(2) (“Any of the exclusive rights comprised in a copyright,
including any subdivision of any of the rights specified by section 106, may be
transferred . . . and owned separately.”); RealNetworks, 627 F.3d at 71 (“The
Copyright Act confers upon the owner of a copyright a bundle of discrete exclusive
rights, each of which may be transferred or retained separately by the copyright
owner.” (quotations omitted)). Indeed, Congress made clear when it amended the
Copyright Act in 1976 that, except for certain enumerated and narrow compulsory
licenses, no one can force copyright owners to license their works:
The purpose of [Section 201(d)(2)] is to reaffirm the basic

principle that the United States copyright of an individual
34
author shall be secured to that author, and cannot be taken away

by any involuntary transfer. It is the intent of the subsection
that the author be entitled, despite any purported expropriation
or involuntary transfer, to continue exercising all rights under
the United States statute . . . .
H.R. Rep. No. 94-1476, at 123 (1976). Thus, under relevant federal law, the
phrase “right to license” in the definition of the “ASCAP repertory” must be read
to mean only those rights that ASCAP’s members have granted ASCAP the right
to license.
Accordingly, the district court erred in ignoring the phrase “right to
license,” and concluding that the definition of “ASCAP repertory” requires
ASCAP to license all of its members’ compositions to any music user—even
where those members expressly prohibited ASCAP from doing so.
3. The District Court’s “All or Nothing” Construction Cannot

Be Reconciled with Sections IV(E) and IV(F) of AFJ2
The court had an obligation not simply to review one part of the
decree but to consider the entire decree, so that all parts of it are reconciled and any
inconsistency is avoided. See, e.g., United States ex rel. Anti-Discrimination Ctr.
of Metro N.Y. v. Westchester Cnty., 712 F.3d 761, 767 (2d Cir. 2013);
Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995). The
district court’s “all or nothing” approach cannot be reconciled with Sections IV(E)
and IV(F) of AFJ2 (SPA-5-6), which permit ASCAP to license works to certain
users and not to others.
35
Under Section IV(F), ASCAP cannot license public performance
rights to certain users if the member in interest has directed ASCAP to restrict
performances of the work. (SPA-6 (“[N]othing in this Section IV(F) shall be
construed to prevent ASCAP, when so directed by the member in interest in
respect of a work, from restricting performances of a work in order reasonably to
protect . . . the value of the public performance rights therein . . . .”).) In other
words, AFJ2 expressly contemplates that ASCAP members may selectively restrict
ASCAP’s ability to license their public performance rights to certain music users,
while continuing to permit ASCAP to license those same works to all other music
users. Similarly, Section IV(E) expressly prohibits ASCAP from licensing the
public performance rights of works in the ASCAP repertory to movie theaters,
even though those same works may be licensed to other music users. (SPA-5-6.)
These provisions of AFJ2 cannot be reconciled with the district
court’s conclusion that ASCAP is obligated to license the same repertory to all
music users, providing further evidence of the court’s erroneous construction.
B. The District Court’s Ruling Is at Odds with

the History of the ASCAP Consent Decree
The history of ASCAP’s consent decree further demonstrates that
AJF2 does not prohibit ASCAP from accepting partial grants of rights. In contrast
to AFJ2, the original 1941 ASCAP consent decree expressly permitted ASCAP to
prohibit exclusive direct licensing by its members. Section II(1)(c) of the 1941
36
decree (the equivalent of Section IV in AFJ2) provided that “[n]othing herein
contained shall be construed as preventing [ASCAP] from regulating the activities
of its members . . . by prohibiting the members from issuing exclusive licenses to
commercial users of music . . . .” (JA-31.) As a result, during the pendency of the
original decree, an ASCAP songwriter could not grant an exclusive license to NBC
to perform his or her works on television, if ASCAP objected. The 1950
amendment removed that provision and it remains excluded under AFJ2.
(Compare JA-31, § II(1)(c), with SPA-1.) Accordingly, since 1950, ASCAP’s
members have been free to grant exclusive licenses to music users.
The district court deemed the removal of this provision from the
ASCAP decree to be “irrelevant.” (SPA-46.) That conclusion is demonstrably
wrong. If AFJ2 does, in fact, require ASCAP to grant each and every music user a
license to perform any and all works that ASCAP has the right to license for any
purpose, ASCAP’s members are, in fact, prohibited from issuing exclusive licenses
to any music user—precisely the prohibition expressly permitted by the provision
in the 1941 decree that was removed from AFJ and AFJ2. Far from being
“irrelevant,” this consequence of the district court’s interpretation of AFJ2
demonstrates that its construction goes far beyond the four corners of the decree,
and revives a provision that the parties deleted more than 60 years ago.
37
The district court also found that “[a]ny prohibition on ASCAP
banning exclusive licensing is entirely consistent with AFJ2 permitting the total
withdrawal of a song from ASCAP’s repertory.” (Id.) But a member is always
free, subject to the terms set out in ASCAP’s membership agreement, to resign
from ASCAP and thus remove its works from ASCAP’s repertory. That has no
bearing, however, on whether the member may grant (or is precluded from
granting) an exclusive license to a music user for a work that remains in the
ASCAP repertory. The district court’s ruling means that an ASCAP member may
never grant an exclusive license to a music user. Not only is there no such
prohibition in AFJ2, but the history of the decree shows that the parties
deliberately removed any such prohibition from the decree.
C. The District Court’s Interpretation of AFJ2

Conflicts with Fundamental Principles of Copyright Law
The district court’s interpretation of AFJ2 also directly conflicts with
and truncates exclusive rights provided by the Copyright Act. Copyright owners
are vested with exclusive rights under Section 106 of the Copyright Act, including
the right to license their copyrighted works or authorize others to do so on their
behalf, in whole or in part, as they choose. Here, the withdrawing publishers chose
to limit the divisible rights of public performance that they authorized ASCAP to
license on a non-exclusive basis, retaining for themselves on an exclusive basis all
of the rights they did not authorize ASCAP to license. But the district court’s
38
interpretation of AFJ2 divests the withdrawing publishers of their right to do so
under the Copyright Act, rendering indivisible the otherwise divisible rights of
public performance.
This conflict between AFJ2 and the Copyright Act is not the
inevitable result of some express prohibition in AFJ2, but instead arises only as a
result of the district court’s misconstruction of the definition of “ASCAP
repertory.” Indeed, the conflict disappears completely if “ASCAP repertory” is
understood to refer to those rights ASCAP has been authorized by its members to
license. Such a construction is in complete harmony with the protection of the
exclusive rights granted to copyright owners under the Copyright Act and is also
consistent with the well-established rule that an agent cannot convey greater rights
than it has been granted. 17 U.S.C. § 106; see Highland Capital Mgmt. LP v.
Schneider, 607 F.3d 322, 327 (2d Cir. 2010) (“An agent’s power to bind his
principal is coextensive with the principal’s grant of authority.”).
* * *
For all of these reasons, this Court should reverse the district court’s
entry of summary judgment. Moreover, because the court’s misreading of AFJ2
led it to disregard the Sony-Pandora and UMPG-Pandora licenses as the product of
coordination (see Part II.A. infra), its error tainted the entire rate proceeding. The
court’s summary judgment decision also precluded additional ASCAP members
39
from entering into exclusive new media licenses that would have provided
additional fair-market benchmarks. Accordingly, the court’s erroneous summary
judgment ruling requires reversal not only of its summary judgment decision, but
also of its judgment setting the 1.85% rate for 2013 through 2015. We turn next to
the additional errors committed by the district court that require reversal of that
rate determination.
II.
THE DISTRICT COURT ERRED IN FINDING A LICENSE RATE OF

1.85% IS REASONABLE FOR THE YEARS 2013 THROUGH 2015, WHEN
NO RIGHTSHOLDER IN THE COMPETITIVE MARKET WAS WILLING
TO ENTER INTO A LICENSE WITH PANDORA AT THAT RATE
The task of the district court under AFJ2 is to set a “reasonable”
rate—i.e., a rate that a willing seller and willing buyer would agree to in an arm’s-
length transaction unaffected by the consent decree. The district court failed to do
so for the years 2013 through 2015 by setting a license rate of 1.85% of revenue in
the face of undisputed evidence that licensors of performing rights would not
license at a rate that low, and that licensees—including, specifically, Pandora—
entered into agreements at rates materially higher. Moreover, the court erred in
ignoring this Court’s guidance in RealNetworks, which established that a rate of
2.5% of revenue (or higher) is reasonable for all-audio, music-intensive digital
music services similar to Pandora’s. And the district court further erred in
concluding—without any basis in law or fact—that there is a presumption that a
40
rate that is reasonable for one year of a license term is reasonable for every other
year of the license term, especially where (as here) the marketplace is rapidly
developing and fair market benchmark license fees are demonstrably escalating.
A. It Was Error for the District Court To

Ignore the Sony/ATV and UMPG Licenses
This Court has repeatedly affirmed that the task of the rate court is “to
define a rate or range of rates that approximates the rates that would be set in a
competitive market.” Showtime, 912 F.2d at 576; see RealNetworks, 627 F.3d at
76 (“Fundamental to the concept of ‘reasonableness’ is a determination of what an
applicant would pay in a competitive market . . . .”).
Prior rate court proceedings have generally lacked evidence of
competitive market transactions, and the parties have had to rely on agreements
negotiated in the shadow of the consent decree to approximate the rates that would
be set in a competitive market.10 Here, no proxy was needed. Pandora had entered
into competitive market agreements for the public performance of musical works
with multiple music publishers (all at increasingly higher rates) that provided the
best evidence of competitive market rates. In addition, evidence of the market
came from Pandora’s agreement with SESAC. Direct evidence of the competitive
10
Because a seller’s ability to refuse to sell is a key requirement for a true fair-
market transaction, licenses negotiated with an entity that is subject to
compulsory licensing (such as ASCAP and BMI) are inherently different than
the licenses that would be obtained in a free market. (JA-1885 ¶ 41.)
41
rate also came from arm’s-length agreements with iTunes Radio. All of these
direct licenses provided the district court with compelling market benchmarks for
the value of music performance rights in a competitive market and should have led
the district court to set a rate in excess of 1.85%.11
Indeed, the licenses between Pandora and each of EMI, Sony/ATV,
and UMPG satisfy all of the criteria that this Court has set to identify appropriate
benchmarks:
• The licensee in each license is Pandora, the applicant here.
• The type of rights is the same: the right to publicly perform

musical compositions.
• The time period of each license is within the term ASCAP has
offered Pandora.
• And each license resulted from an arm’s length negotiation

between a willing seller and a willing buyer.
See, e.g., Music Choice IV, 426 F.3d at 95. Nonetheless, the district court ignored
all but one of those benchmark agreements—the EMI-Pandora license, which is
11
See, e.g., JA-1870-73, 1887 ¶¶ 12, 45 (explaining that the agreements between
Pandora and the publishers are “the best available benchmarks for this
proceeding . . . because they reflect competitive market prices” and “result from
negotiations between willing buyers and willing sellers outside the constraints
of the ASCAP and BMI Consent Decrees”); JA-1411 at 824:8-11 (“Q. So, in
fact, the best benchmarks, if you could find them, are benchmarks that arise
outside of the influence of the rate court, correct? A. Yes.”); JA-1527 at 1287:9-
13 (“Q. Do you agree that the most appropriate competitive benchmark for the
court to use in setting a reasonable royalty is a license fee for the same rights,
for the same use that is negotiated in a competitive market? A. Yes.”).
42
the oldest and least representative of current market rates—and set a 1.85% rate
that no licensor other than EMI would accept.
The court rejected the Sony-Pandora and UMPG-Pandora licenses
based on its findings that (a) Pandora had no choice but to accede to the demands
of Sony/ATV and UMPG because it did not have a list of their withdrawn works,
which, if provided, would have permitted Pandora to remove those works from its
service if the parties had been unable to reach an agreement on terms Pandora
deemed reasonable (SPA-177, 181, 183); and (b) the Sony/ATV and UMPG
licenses represented the product of “coordination” between competitors (SPA-173-
74). Neither of these findings can justify the court’s failure to take these
marketplace agreements into account in setting a reasonable rate.
1. Pandora’s Purported Need for a List of Withdrawn

Works Is a Pretext Conjured Up To Explain Away
Free Market Rates That Pandora Does Not Like
The court erred in adopting Pandora’s argument that it could not fairly
negotiate with Sony/ATV or UMPG because those publishers refused to provide
Pandora with a list of their songs on its service, a list that Pandora purportedly
needed to threaten to remove the works and compel the publishers to license at a
lower rate.
Prior to the initiation of this rate court proceeding, Pandora never
evidenced any need for a list of works from its actual or prospective licensors.
43
Pandora engaged in negotiations with EMI in early 2011, reached an agreement as
to a rate in mid-2011, and finalized a two-year license agreement in early 2012, all
without ever asking for or receiving a list of the songs in EMI’s catalog. (JA-1483,
at 1113:13-16.) The fact that Pandora did so, and the district court found the
Pandora-EMI agreement to be a market benchmark notwithstanding the absence of
any information about the EMI repertory, makes it impossible to sustain the court’s
conclusion that the provision of a list of works is the sine qua non of a competitive
market transaction.
In rejecting the Sony/ATV and UMPG agreements, the court
erroneously credited Pandora’s pretextual argument that it would have been able to
negotiate lower rates with Sony/ATV and UMPG had it been able to threaten to
take down those publishers’ works. But the undisputed evidence shows that
Pandora never took even the first step to prepare to remove those publishers’
songs. That is because Pandora cannot offer a competitive music service without
the popular songs contained in the catalogs of large music publishers. As
conceded by Pandora in its first filing below: “as a practical matter, Pandora
cannot effectively operate the kind of comprehensive internet radio offering which
it currently delivers to its end users without access to the huge catalogs of EMI and
Sony.” (JA-67-68 ¶ 21.) Because Pandora could not have credibly threatened to
remove the works, the failure to be provided with a list of them cannot serve as a
44
basis for discarding the UMPG and Sony/ATV agreements as above-market
agreements that would not have been reached had the lists been provided.12
The district court also erred in concluding that music publishers would
provide a list of works to Pandora in a free-market transaction unaffected by a
consent decree. As ASCAP’s economist, Professor Murphy, testified, a publisher
faced with a request for a list of its songs would likely not provide the proposed
licensee with the complete list, but instead would provide only that information
that was necessary to allow the licensee to assess the value of the repertory and the
fairness of the rate. (JA-1890-91, 1929-31 ¶¶ 53, 131-34.) As an active participant
in the music industry, Pandora understood Sony/ATV and UMPG to be among the
largest music publishers, with catalogs of songs written by some of the country’s
12
UMPG actually provided Pandora with a list of its songs, but Pandora made no
attempt whatsoever to use that list to remove UMPG works from Pandora’s
service. (JA-1421, at 863:13-22.) The district court erroneously concluded that
the non-disclosure agreement executed by the parties prohibited Pandora from
using that list to remove works. (SPA-184-84.) That conclusion is contradicted
by the trial record. As UMPG’s Zach Horowitz testified, “UMPG provided to
Pandora a complete list of all the works in the UMPG catalog affiliated with
ASCAP” and “did so with the belief that Pandora could and would use it to take
down UMPG’s music if we could not come to terms.” (JA-1841 ¶ 13.)
Moreover, “[a]t no time during the negotiations of the non-disclosure agreement
did Pandora advise us that it thought that agreement would prohibit Pandora
from using the information for that purpose.” (JA-1845-46 ¶ 23.) Indeed,
Pandora conceded at trial that it never even asked whether it could use UMPG’s
list of works to remove those works from Pandora’s service. (JA-1498, at
1173:13-25.) Accordingly, there was no basis for the court to conclude, as a
matter of fact or law, that Pandora was “deprived” of “critical leverage” in its
45
most important and popular songwriters. As a result, Pandora had more than
sufficient information—even without a complete list of all of the works in the
Sony/ATV and UMPG catalogs—to assess the value of their repertory and the
fairness of the rate. (JA-1927-32 ¶¶ 128-36.)
In sum, the district court erred in finding Pandora to be a “compelled”
buyer. Pandora had a list of the UMPG works, and concluded a deal with
Sony/ATV without such a list, just as it had done with EMI, because it never
seriously considered removing those works from the Pandora service. The fact that
Pandora needed access to the copyrighted works of UMPG and Sony/ATV did not
transform the agreements it entered into with those copyright owners into non-
market transactions.
2. The Sony/ATV and UMPG Licenses Were

Not the Product of Wrongful Coordination
The district court also rejected the Sony/ATV and UMPG benchmarks
based on purported “evidence” of “troubling coordination between Sony, UMPG,
and ASCAP.” (SPA-173.) The court did not find that this alleged “coordination”
rose to the level actually prohibited by the antitrust laws, or any laws. (SPA-175.)
Nevertheless, despite finding the evidence insufficient to show wrongdoing, the
negotiations with UMPG because it lacked sufficient information about the

songs in UMPG’s catalog. (SPA-183.)
46
court erroneously concluded that “troubling coordination” barred consideration of
market agreements.
The court found that “Sony and UMPG justified their withdrawal of
new media rights from ASCAP by promising to create higher benchmarks for a
Pandora-ASCAP license and purposefully set out to do just that.” (SPA-174.)
That is not even an implication of, much less a finding of, coordination.13 It is true
that the publishers—including EMI—sought to withdraw because of their
dissatisfaction with the new media rates obtained by ASCAP. And it is true that if
the publishers obtained such higher rates in the marketplace, ASCAP would no
doubt have argued that those marketplace benchmarks are the strongest evidence of
an appropriate rate for its licenses because AFJ2 makes clear that ASCAP licenses
should be priced at market rates. But there is no evidence of any “promise” of
higher rates by the publishers, much less anything resembling an actual quid pro
quo. To the contrary, what the evidence shows is that the first publisher to
withdraw, EMI, licensed Pandora at essentially the same rate as ASCAP. That
13
The court did not suggest that there was any express agreement between
Sony/ATV, UMPG, and ASCAP, and mere “parallel” conduct—such as
Sony/ATV and UMPG both withdrawing their new media rights from ASCAP
in the belief they could negotiate higher rates to benefit ASCAP—is insufficient
to support any inference of an agreement to coordinate their conduct in
violation of the antitrust laws. See, e.g., AD/SAT, Div. of Skylight, Inc. v. Assoc.
Press, 181 F.3d 216, 235 (2d Cir. 1999) (holding that parallel conduct does not
support any inference of agreement unless the evidence “tends to exclude the
possibility” of independent action).
47
EMI licensed at the pre-existing rate demonstrates that the withdrawals had not
been orchestrated to raise rates. If there had been coordination among the
publishers to raise prices, it is highly unlikely that the result would be three deals
negotiated at different times over a two-plus-year period, each with materially
different rates and terms.
Likewise, the district court found that ASCAP rejected a deal with
Pandora because of pressure from Sony/ATV and UMPG. (Id.) To the contrary,
the evidence shows that ASCAP and Pandora negotiated off-and-on until Pandora
abruptly filed its rate court petition, after which ASCAP resolved not to accept a
below-market rate, opting instead to see how rates developed in the competitive
market between Pandora and the publishers. (See JA-1762 ¶¶ 93-94; JA-1778-79,
1784 ¶¶ 18, 30.) The court noted that Sony/ATV threatened to sue ASCAP, but
that threat shows only the absence of coordination. Sony/ATV and ASCAP
disputed whether ASCAP could license Sony/ATV’s works to Pandora up until the
effective date of Sony/ATV’s withdrawal. The testimony from ASCAP’s
Mr. LoFrumento, neither refuted nor even contradicted by any other evidence, was
that he thought Sony/ATV was wrong, he was adamant that ASCAP could license
the to-be-withdrawn Sony/ATV works, and that ASCAP would have done so—and
risked suit by Sony/ATV—had Pandora offered acceptable terms. (JA-1785 ¶ 33.)
48
The court also suggested that UMPG pressured ASCAP to reject a
settlement offer from Pandora. The undisputed testimony, however, shows that
UMPG did not know the terms of Pandora’s offer. The only support cited by
Pandora for supposed “pressure” was an email from UMPG’s Mr. Horowitz (an
ASCAP board member) encouraging Mr. LoFrumento to “be strong” in negotiating
with Pandora, given what Mr. Horowitz perceived to be Pandora’s urgent need to
settle due to the negative publicity that resulted when Pandora filed this lawsuit.
(JA-4157.) In response, Mr. LoFrumento simply assured him that he would
“approach Pandora with that mindset.” (Id.) But Mr. LoFrumento and ASCAP did
not understand UMPG to be saying not to conclude a deal with Pandora. (JA-
1785-86 ¶ 34.) And Mr. Horowitz testified that he sent the email because as both a
board member and the head of a publishing company with significant ASCAP
repertoire, he did not want ASCAP to agree to a below-market rate. (JA-1843-44
¶ 20.) There is simply nothing wrong with a member of ASCAP’s board
expressing a view about the wisdom of entering into a license agreement.
In sum, there is no evidentiary support for the court’s finding that
ASCAP’s rejection of Pandora’s offered license terms resulted from any improper
coordination between ASCAP, Sony/ATV, and UMPG.
Nor is there any evidence to support the court’s finding that “Sony
made sure that UMPG learned of all of the critical terms of the Sony-Pandora
49
license.” (SPA-174.) All of the evidence—including the fact that the Sony-
Pandora license and the UMPG-Pandora license feature materially different rates
and terms—is to the contrary. Pandora’s own counsel who handled the direct
negotiations with Sony/ATV and UMPG testified that UMPG knew only the rate
and the time period covered by the Sony/ATV agreement (JA-4563-67, at 198:24-
202:10; JA1485-86, at 1121:17-1122:8), both of which were reported in the press.
And Sony/ATV’s representatives expressly denied that Sony/ATV had leaked such
information to the press. (See JA-1830 ¶ 30; JA-3438, at 114:6-25.)
In short, the district court lacked any basis for rejecting the publisher
benchmarks. At the very least, those benchmarks showed that the market value of
the music rights at issue had increased, and was continuing to increase, subsequent
to the negotiation of the EMI-Pandora license on which the court relied. By
rejecting those benchmarks altogether, rather than making appropriate adjustments
to them, the court failed to take account of the increase in the market value of the
rights at issue in setting a reasonable royalty rate for the years 2013 through 2015.
See Music Choice IV, 426 F.3d at 95 (holding that “[t]he rate court is responsible
for establishing the fair market value of the music rights,” which includes
“choosing a benchmark and determining how it should be adjusted” (emphasis
added)).
50
B. The District Court Erred in Ignoring the

SESAC-Pandora License and the iTunes Radio Licenses
All of the other relevant market evidence—the SESAC-Pandora
license and the iTunes Radio licenses—further demonstrates that a 1.85% rate is
unreasonable. The district court’s failure to consider those benchmarks in
determining a reasonable license fee constitutes reversible error.
1. The Court Erred in Ignoring the SESAC-Pandora License

The district court erred in rejecting the SESAC-Pandora license as a
benchmark agreement based on assumptions about SESAC’s market share and
Pandora’s understanding of SESAC’s market share that are not supported by the
evidence.
Pandora presented no reliable evidence to support its argument, which
the district court credited, that SESAC claimed to have a 10% market share at the
time the parties entered into the license. The most reliable evidence, provided
directly by SESAC, shows that SESAC has a market share of 7%. (JA-1913 ¶ 97;
JA-2393.) Based on that figure, the equivalent ASCAP rate would be for
2013, in 2014, and in 2015. (JA-1913-14 ¶ 99.) But even accepting
SESAC’s market share to be 10%, that share would still lead to an equivalent
ASCAP rate for 2013-2015 higher than the 1.85% rate set by the district court.
(JA-4719, 4725.)
51
The district court also erred in finding that “SESAC argued that an
escalating rate in the SESAC license was appropriate to account for SESAC’s
anticipated growth in market share.” (SPA-186.) That finding is directly
contradicted by the testimony from SESAC, which established that the annual rate
increase was intended to account for the overall growth of SESAC’s repertory, not
the growth of its market share. (JA-4679, at 83:9-25.) Moreover, the district court
erred in presuming that, to the extent the SESAC share is growing, ASCAP’s share
is declining. The undisputed evidence was that ASCAP’s market share has not
declined. (JA-2099, 2102-04 ¶¶ 18-20, 29-31 & Tbls. 3, 5.)
At a minimum, the district court erred in not recognizing that the
SESAC-Pandora license—which Pandora has willingly renewed six times, each
time at an increasing rate—is evidence that the 1.85% rate is below the competitive
price. Cf. United States v. Am. Soc’y of Composers, Authors & Publishers (In re
Application of YouTube), 616 F. Supp. 2d 447, 453-54 (S.D.N.Y. 2009) (holding
that SESAC license agreements are relevant benchmarks because they provide
rates that represent “what a willing buyer (like YouTube) and a willing seller (like
SESAC) would agree to in arms-length negotiations in a free (non-compulsory)
market”).
52
2. The Court Erred in Ignoring the iTunes Radio Licenses

Similarly, the district court erred in rejecting the iTunes Radio
licenses based on assumptions about Apple’s business model that are not supported
by the record.
There was no evidence to support the court’s finding that the rates
agreed to in the iTunes Radio licenses can be attributed to “synergies” within “the
Apple ecosystem” that have “no analogue for Pandora” (SPA-187), other than the
say-so of Pandora’s economist, who was unable to offer any empirical support for
his opinion. (JA-1423-24, at 873:16-874:17.)
There also was no basis for the district court to reject the iTunes
Radio licenses based on the assumption that iTunes Radio additional revenue from
iTunes Match subscription fees is not captured in the revenue base of the iTunes
Radio licenses. (SPA-187-88.) The record demonstrated that Apple is, in fact,
running iTunes Radio as an advertising-supported business—and that those
advertising revenues are included in the revenue base of the iTunes Radio licenses.
(JA-2518, 2520-21.)
In any event, rather than attempt to adjust the Apple licenses to
account for these supposed differences, the district court simply ignored them,
even though they are competitive market licenses between licensors of public
performance rights and a custom radio service very similar to Pandora.
53
Significantly, the undisputed testimony of ASCAP’s economist confirmed that,
even using the most conservative assumptions as to the iTunes Match subscription
revenue attributable to iTunes Radio, the iTunes Radio license rates support an
ASCAP-Pandora rate substantially higher than the 1.85% rate set by the court.
(JA-1910-11 ¶ 91.) At the very least, the iTunes Radio licenses demonstrate that
the 1.85% rate is not reasonable.
C. The Court Abused its Discretion in Refusing to Consider

Recent Market Agreements with Pandora
The district court also erred by refusing to consider—or even allow
ASCAP to see—additional license agreements Pandora recently entered into with
music publishers that withdrew their new media rights from BMI. These
agreements would have provided additional competitive benchmarks that would
have been directly relevant to setting a reasonable fee. In refusing to consider
those license agreements, the court deprived ASCAP of evidence of the most
current rates that Pandora is paying in the marketplace. As the court
acknowledged, Pandora’s unwillingness to produce those license agreements made
it clear that the rates in those agreements have to be higher than the range of rates
proposed by Pandora at trial. (JA-905, at 5:4-6, 7:15-19.) Accordingly, there is no
dispute that those license agreements would have provided additional evidence that
by 2013 the market had long left behind the 1.85% rate set by the court. The court
abused its discretion in refusing to consider—or even allow ASCAP to see—those
54
market agreements. See Goetz v. Crosson, 41 F.3d 800, 805 (2d Cir. 1994)
(holding that the district court abuses its discretion in excluding discovery where—
as here—the ruling is “improvident and affect[s] the substantial rights of the
parties”); cf. Boyce v. Soundview Tech. Grp., Inc., 464 F.3d 376, 386-87 (2d Cir.
2006) (holding that the district court committed reversible error by excluding
financial disclosures that “contained primary evidence that the fact finder could
have utilized in determining the Company’s stock value”).
D. The Court Erred in Ignoring This Court’s Instruction in RealNetworks

That a Rate of 2.5% or Higher Is Reasonable for Services Like Pandora
No other licensor of music performing rights evinced any willingness
to license Pandora at the 1.85% rate agreed to by EMI. That is not at all surprising
given this Court’s instruction in RealNetworks that a rate of 2.5% of revenue (or
Pandora’s. In that case, this Court “conclude[d] that the royalty rate agreed to by
Music Choice provides strong support for applying a 2.5% royalty rate to those
Yahoo! sites and services that provide access to music channels organized around
music genre, similar to those on Music Choice.” RealNetworks, 627 F.3d at 81.
Pandora’s genre stations likewise “provide access to music channels organized
around music genre,” and also offer customization features unavailable on
Yahoo!’s genre stations. (See JA-1574-1575, at 1474:19-22, 1478:21-1479:8.)
This Court further concluded that a rate above 2.5% could be reasonable for an
55
“interactive music experience” where “a user tunes into a more customized
station,” such as the custom stations offered by Pandora. See RealNetworks, 627
F.3d at 81.
At trial, Mr. DeFilippis, ASCAP New Media licensing head, testified
that the 2.5% rate is “one that I refer to often in determining a reasonable fee for
applicants seeking a license for on-demand and custom radio services, because I
understand that the Second Circuit has stated that a rate of 2.5% or higher is
appropriate for these types of services.” (JA-1753 ¶ 73 (citing this Court’s
RealNetworks decision).) ASCAP’s pretrial memorandum of law specifically cited
this Court’s finding as to the reasonableness of a 2.5% (or higher) rate in
RealNetworks as support for the rates sought by ASCAP (and the unreasonableness
of the 1.7%-1.85% range of rates sought by Pandora). (JA-968; see also JA-1754
¶ 75.) Moreover, during the trial, Pandora’s own witnesses conceded that
Pandora’s service is similar to, and even more interactive than, the Yahoo!
service—LAUNCHcast—at issue in RealNetworks. (JA-3008 ¶ 27; JA-3079 ¶ 42.)
Not only was the significance of this Court’s RealNetworks decision
put squarely before the district court in advance of and during the trial, but the
court itself raised the precise issue at the outset of the trial, and requested that the
parties submit separate briefs specifically addressing the applicability of the 2.5%
56
rate in the RealNetworks decision. (JA-1201, at 7:3-8; JA-1234 at 122:12-15,
123:8-16.)
Yet, remarkably, after being put on notice of the significance of this
Court’s RealNetworks decision, receiving undisputed testimony on the close
similarity of Pandora and the Yahoo! service at issue in RealNetworks, and having
requested and received briefing on the applicability of the RealNetworks decision,
the district court ultimately chose to ignore entirely this Court’s guidance in
RealNetworks; the district court made no reference whatsoever in its 136-page
decision to this Court’s 2.5% rate guidance.14
It was fundamental error for the district court not to consider the 2.5%
rate endorsed by this Court in RealNetworks in setting a reasonable license fee for
Pandora. This error alone merits reversal of the court’s 1.85% license fee
determination. See Showtime, 912 F.2d at 569 (rate determination reversible upon
de novo review where—as here—the district court “fail[ed] to give consideration
14
On the last day of trial, just prior to closing arguments, the court informed the
parties of its “current thinking” that it would not “be fair or appropriate in this
rate court proceeding for [the court] to consider the 2.5 percent Music Choice
rate informative,” because the issue had not been raised in advance of trial.
(JA-1677-78, at 1883:18-1884:16.) There is no dispute, however, that ASCAP
put the precise issue before the district court in its pre-trial submissions.
57
to legally relevant factors, appl[ied] incorrect legal standards, or misappl[ied]
correct legal standards”).15
E. It Was Error for the District Court to Conclude That There Is a

Presumption That a Rate That Is Reasonable for One Year of a
License Term Is Reasonable for Every Year of the License Term
Finally, the district court erred in concluding that there is a
reasonable for the entire five-year term. (SPA-168.) Although AFJ2 allows
parties to seek and ASCAP to grant licenses of up to five years in duration (SPA-5,
§ IV(D)), there is nothing in the consent decree that holds that the rate should be
constant during the entire term of the license.
The court premised its finding of such a presumption on the basis of
“rate court precedent.” (SPA-171.) It cited no authority to support that conclusion
and we are aware of none. To the contrary, the court’s mandate to establish a
15
The district court also erred by failing to account for the fact that an appropriate
adjustment of Pandora’s preferred benchmark, the ASCAP-RMLC radio station
license, results in a fee materially higher than 1.85% once adjusted to take into
account the difference in music use between the RMLC stations and Pandora.
AFJ2 provides that one of the factors that governs comparability for the
purposes of determining a reasonable rate is “the nature and frequency of
musical performances.” (SPA-4, § II(R).) The ASCAP-RMLC license
encompasses radio stations that are far less music-intensive than Pandora is,
such that Pandora uses 35.4% more music (measured in songs per hour) than
the RMLC stations do on average. (JA-2098, 2103, Tbls. 2, 5.) The 1.7%
ASCAP-RMLC rate would therefore have to be adjusted upward by at least
35.4%, bringing the equivalent ASCAP-Pandora rate to 2.30%. (JA-1922
¶ 119.)
58
reasonable rate based on what would result in a competitive marketplace is
inconsistent with any such presumption.
The other purported rationale for the court’s presumption—that
“ASCAP has never negotiated nor issued a five year license with an escalating
rate” (SPA-172)—is contrary to the evidence. In 2004, the rate court approved a
license agreement between ASCAP and the RMLC (the licensing body
representing thousands of local radio stations), covering the years 2001 through
2009, which included an escalating rate for each year during the term of the
license. (JA-2363.) The court also had before it two other examples of license
agreements with escalating rates: (1) the license between SESAC and Pandora,
providing for a increase in rates for each year of the license;16 and (2) the BMI-
Apple license, under which Apple’s license fees increased from to of
the agreed upon revenue base. (JA-2467.) As a result, the court plainly erred in
concluding that there is no precedent for a license with escalating rates.
The district court’s unsupported presumption of a static rate is
especially inappropriate in these circumstances, where the marketplace is rapidly
16
The district court attempted to distinguish the escalating rate in the SESAC-
Pandora license as the consequence of a “mutual assumption that SESAC’s
market share would increase over the term of the license.” (SPA-172.) That
finding is directly contradicted by the testimony from SESAC establishing that
the annual rate increase was intended to account for the overall growth of
SESAC’s repertory, not the growth of its market share. (JA-4679, at 83:9-25.)
59
developing and there is clear evidence that competitive market license fees are
rising year-over-year. Because the district court based its presumption of a static
rate on “flawed assumptions,” the 1.85% rate determination for those years “must
be set aside.” See Music Choice II, 316 F.3d at 197.
60
CONCLUSION
For the foregoing reasons, ASCAP respectfully requests that this
Court (1) reverse the district court's summary judgment determination, and
(2) either (a) adopt ASCAP's license fee proposal as described herein, or
(b) reverse the district court's rate determination and remand with instructions to
consider all recent benchmark agreements and adopt a rate reflective of all relevant
arm's-length benchmark agreements.
Dated: July 28, 2014

New York, New York
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
Jay Cohen
Errc Alan Stone
)arren W. Johnson
12&§-Afenue of the Americas
New York, New York 10019-6064
Phone:(212)373-3163
Email: jaycohen@paulweiss.com;
estone@paulweiss.com;
djohnson@paulweiss.com
Richard H. Reimer
American Society of Composers,
Authors and Publishers
One Lincoln Plaza
New York, New York 10023
(212)621-6200
Email: rreimer@ascap.com
Attorneys for Respondent-Appellant the American

Society of Composers, Authors and Publishers
61
CERTIFICATE OF COMPLIANCE WITH RULE 32(a)(7)(B)
The undersigned counsel for Respondent-Appellant the American
Society of Composers, Authors and Publishers certifies that this brief complies
with the type-volume limitations set forth in Fed. R. App. P. 32(a)(7)(B)(i). This
brief contains 13,734 words, excluding the parts of the brief exempted by Fed. R.
App. P. 32(a)(7)(B)(iii). In preparing this certificate, I relied on the word count
program in Microsoft Word.
Dated: July 28, 2014

Pandora Media V ASCAP ASCAP Opening Brief

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Case: 14-1158 Document: 143 Page: 1 08/04/2014 1286276 70

14-1158-cv(L), 14-1161 (Con), 14-1246 (Con)

Jay Cohen Richard H. Reimer

CORPORATE DISCLOSURE STATEMENT

Society of Composers, Authors and Publishers hereby certifies that it is an

unincorporated membership association. It has no parent corporation, and no

publicly held corporation owns 10% or more of its stock.

TABLE OF AUTHORITIES ....................................................................................iv

JURISDICTIONAL STATEMENT .......................................................................... 5

STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ............................. 5

STATEMENT OF THE CASE .................................................................................. 6

STATEMENT OF THE FACTS ............................................................................... 7

I. THE PARTIES ................................................................................................ 7

II. THE COURT’S AUTHORITY UNDER AFJ2 .............................................. 9

A. AFJ2 and the Rate-Setting Proceeding ................................................. 9

B. Determination of a Reasonable Fee .................................................... 10

III. ASCAP’S NEW MEDIA LICENSING ........................................................ 13

IV. THE NEW MEDIA WITHDRAWALS ........................................................ 13

V. THE EMI, SONY/ATV, AND UMPG BENCHMARK AGREEMENTS ... 15

VI. OTHER RELEVANT BENCHMARKS ....................................................... 19

A. The SESAC-Pandora License ............................................................. 19

B. The Apple iTunes Radio Licenses ...................................................... 19

C. Additional Music Publisher Licenses with Pandora ........................... 20

VII. THIS COURT’S RealNetworks DECISION ................................................. 21

VIII. THE PARTIES’ RATE PROPOSALS .......................................................... 22

IX. THE PROCEEDINGS BELOW.................................................................... 23

A. Pandora’s Summary Judgment Motion ............................................... 23

B. The Trial and Rate Determination....................................................... 24

SUMMARY OF THE ARGUMENT ...................................................................... 25

STANDARD OF REVIEW ..................................................................................... 27

I. THE DISTRICT COURT ERRED IN RULING THAT AFJ2

A. The District Court’s Ruling Misconstrues AFJ2................................. 30

1. AFJ2 Does Not “Unambiguously” Prohibit ASCAP from

2. The Definition of “ASCAP Repertory” in AFJ2 Does Not

3. The District Court’s “All or Nothing” Construction Cannot

B. The District Court’s Ruling Is at Odds with the History of the

C. The District Court’s Interpretation of AFJ2 Conflicts with

II. THE DISTRICT COURT ERRED IN FINDING A LICENSE RATE OF

1. Pandora’s Purported Need for a List of Withdrawn Works Is

2. The Sony/ATV and UMPG Licenses Were Not the Product

B. The District Court Erred in Ignoring the SESAC-Pandora License

1. The Court Erred in Ignoring the SESAC-Pandora License ...... 51

2. The Court Erred in Ignoring the iTunes Radio Licenses .......... 53

C. The Court Abused its Discretion in Refusing to Consider Recent

D. The Court Erred in Ignoring This Court’s Instruction in

E. It Was Error for the District Court to Conclude That There Is a

Am. Soc’y of Composers, Authors & Publishers v. Showtime/The

Boyce v. Soundview Tech. Grp., Inc.,

Broad. Music, Inc. v. Columbia Broad. Sys., Inc.,

Broad. Music, Inc. v. DMX Inc.,

Broad. Music, Inc. v. DMX, Inc.,

Broad. Music, Inc. v. Pandora Media, Inc.,

CGS Indus., Inc. v. Charter Oak Fire Ins. Co.,

Highland Capital Mgmt. LP v. Schneider,

King v. Allied Vision, Ltd.,

Morse/Diesel, Inc. v. Trinity Indus., Inc.,

Scottsdale Ins. Co. v. R.I. Pools Inc.,

Tourangeau v. Uniroyal, Inc.,