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ASCAP and BMI consent decrees: Review ends and struggles begin

By Martin Miernicki

On 4 August 2016, the U.S. Department of Justice (DOJ) announced the conclusion of its review of the consent decrees applicable to the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI). The authority decided not to propose any modifications to the decrees. Furthermore, it set forth its (controversial) opinion that said decrees require ASCAP and BMI to offer “full work” licenses.[1]



ASCAP and BMI are the most important performance rights organizations (PROs) for the management of performance rights in musical works in the United States and have for several decades operated under consent decrees negotiated with the DOJ. The organizations entered into these decrees due to claims based on antitrust violations of the Sherman Act. The current versions of the consent decrees date from 2001 (ASCAP) and 1994 (BMI). In 2014, the DOJ’s Antitrust Division initiated a review in order to evaluate if these decrees needed to be updated. In the course of this review, numerous public comments were submitted to the DOJ.


The closing statement

In a closing statement, the DOJ explained its reasons for not modifying the decrees and prohibiting ASCAP and BMI from issueing “fractional licenses”. With regard to the update of the decrees, the DOJ stated that “the industry has developed in the context of, and in reliance on, these consent decrees and that they therefore should remain in place” (page 22). However, it also suggested the need for comprehensive legislative reform. As for “fractional” licenses, the Antitrust Division interprets the language of the decrees and the case law based thereon as requiring PROs to provide access to “all works” in their repertoire, meaning that a license issued by such entity must eliminate the risk of infringement liability for the user. Thus, ASCAP and BMI may only i) offer licenses to the entire works, even if they represent not all co-owners; ii) include in their repertoires only works which they are able to license on such a basis.[2] Similarly, an amendment to the decrees to allow fractional licensing was found to be not in the interest of the public.


What can be expected?

The closing statement is in conflict with long-standing practices of copyright licensing in the United States. If enforced, it is likely to have a major impact on the music industry. It has also triggered a heated debate. The concerns expressed include the rise of administrative costs, a reduced royalty flow to right holders, and obstacles to creative production. Both ASCAP and BMI have announced that they will challenge the authority’s reading of the consent decrees; ASCAP aims to induce a legislative reform while BMI plans to pursue litigation.

[1] Under a “full work“ license (or 100 percent license), a user obtains authorization to use a work without risk of infringement liability, whereas a “fractional” license covers only the rights which are controlled by the PRO issuing the license, implying the need for further licenses.

[2] Under U.S. copyright law co-owners of joint works are treated as tenants in common. Thus, each co-owner can issue a non-exclusive license to the entire work (unless an agreement stipulates otherwise), provided that she accounts for and pays to the other co-owners their pro-rata shares of the revenues.

Sixth Circuit dismisses a predatory pricing complaint in the solar panel industry

By Valerio Cosimo Romano

On 18 August 2016 the United States Court of Appeals for the Sixth Circuit, dismissed a predatory pricing complaint filed by Energy Conversion, a solar panel manufacturer based in the United States, against three Chinese competitors.

Energy Conversion alleged that the defendants had conspired to drive their rivals out of business. More specifically, plaintiff claimed that the defendants, with the support of the Chinese government, had agreed to increase their export of solar panels to the United States with the intention of selling their solar panels below cost. It is also worth noting that, in a separate judgment, the Department of Commerce and the International Trade Commission found that the Chinese firms had harmed American industry through illegal dumping.

In their first argument, plaintiff alleged that the three defendants had charged below-cost prices for their products. Energy Conversion maintained that a predatory-pricing claim based on § 1 of the Sherman Act does not require a prospect of recoupment in addition to the mere below-cost pricing (that is, according to the plaintiff, Energy Conversion has only to prove that defendants engaged in below-cost pricing in order to drive it out of business and not that defendants are reasonably planning to recoup their losses by charging supra-competitive prices to the consumers once the rivals have left the market). According to the Court, however, predatory-pricing claims based on § 1 of the Sherman Act require below-cost pricing and a reasonable prospect of recoupment, which would be what makes rational the choice to “forgo profits.” As plaintiff never alleged that Suntech, Trina, and Yingli had a reasonable prospect of recouping their losses, the Court dismissed the argument.

In its second argument, Energy Conversion went even further, explaining that the alleged conspiracy would be economically rational even if the conspirators never planned to make back their losses. The reason–plaintiff argued­­–is that defendants are all Chinese companies, and China is a “non-market economy.” Thus, its commercial entities have little (if no) interest in making a profit. Rather, they intended to eliminate American competition. The Court disagreed, arguing that the Chinese companies, “impervious to the profit motive,” were simply “happy to maintain low prices” as a “form of charity,” and would not make use of monopoly power to lower production.

Third, plaintiff alleged that the low prices charged by the defendants amounted to an antitrust injury because these low prices led to reduced consumer choice and loss of innovation. The Sixth Circuit dismissed this argument as well. According to the Court, companies compete not only on the quality of their products but also on their prices. Innovation, thus, need not be solely about better technology but also about cost reduction. Therefore, even if a superior form of technology is removed from the market, the outcome might nonetheless represent “a triumph of consumer choice” and not a limitation on it.

This case has many interesting facets. In addition to reaffirming the necessity of recoupment for antitrust claims brought under § 1 of the Sherman Act, it gives hints on the interplay between antitrust and anti-dumping laws, highlighting their mutual independence. Further, it questions–at least potentially–the validity of antitrust arguments based on a market economy against other forms of economic governance. Lastly, it opens up the floor for further discussions regarding the pursuit of innovation through cost reduction.

Samsung alleges that Huawei used FRAND promises to monopolize smartphone technology

By Nicole Daniel

In an ongoing dispute, Samsung accused Huawei of breaching its patent licensing commitments in order to gain control over the market for commonly used cellular technologies.

In May 2016 Huawei sued Samsung in the U.S. and in China for infringing 11 standard essential patents for smartphones. The technology covered by these patents is allegedly used in almost all of Samsung’s cell phones. Huawei seeks damages in the U.S. proceeding; however merely seeks injunctions in the Chinese proceeding. In this regard, it must be noted that Chinese courts are becoming increasingly involved in patent disputes between big technology companies.

In July 2016 Samsung in turn sued Huawei in China for infringing six of its patents. In August 2016 Samsung responded to the U.S. lawsuit and filed antitrust counterclaims. Samsung accuses Huawei of breaching its promise to license the patents on FRAND terms thereby getting an unlawful monopoly over 3G and 4G wireless device technology. Furthermore, Samsung accused Huawei of patent infringement for 11 smartphone patents that may already be or may become essential to cellular technologies. Samsung also argued that two of Huawei’s patent infringement claims should be dismissed, since the underlying intellectual property are unpatentable math formulas.

Samsung further argued that Huawei merely sued for injunctions in China to gain leverage in licensing negotiations in other areas of the world.

Samsung is seeking damages as well as injunctions to block the injunctions sought by Huawei.

At a court hearing on 13 September 2016 in San Francisco, District Judge William Orrick said that he was not inclined to break up the patent and antitrust dispute between the companies to allow Huawei to seek a court-ordered global FRAND license rate for its patent portfolios prior to litigation over the alleged patent infringement and Samsung’s antitrust counterclaims. However, Judge Orrick allowed Huawei to argue for bifurcation by filing a five-page brief within the next week.

Judge Orrick then set a case schedule for a trial starting in two years on 17 September 2018. He also urged the opponents to settle the dispute sooner than that, noting that their plan to delay mediated settlement talks until deeper into the litigation proceedings was counterproductive. Furthermore, filing numerous lawsuits against each other to resolve their differences “is not the wisest way of dealing with the problem” that the companies have with each other.

The French Competition Authority holds that the relevant market for retail distribution of electronic product comprises both physical and online stores

By Valerio Cosimo Romano

On 18 July 2016, the French Competition Authority (FCA or the Authority) cleared the acquisition of Darty by the Fnac group, a move which will allow for the creation of France’s largest electrical goods retailer. In a pioneering decision anticipated by a press release, the FCA held that the relevant market for retail distribution of electronic product includes both physical and online stores.

Fnac and Darty are France’s two largest click and mortar retailers, respectively active in the music and book and consumer electronics markets.

When Fnac notified the FCA in February 2016 that it intended to acquire Darty, the Authority opened up an in-depth investigation to look into the competitive pressure exerted by online stores on retail markets of electronic products. As anticipated, for the first time in its merger cases history, the FCA considered that the retail distribution of electronic products through both physical stores and online channels forms a single relevant market. The FCA has indeed ruled that, on the basis of a change in consumers’ habits, the competitive pressure exerted by online players (as comprising both pure e-commerce and websites belonging brick-and-mortar retailers) has now become significant enough to be integrated in one single market.

The Authority conducted its analysis on local-sized markets. After analyzing the competitive scenario on different areas, it observed that, despite a quite concentrated market, in the entirety of the markets located outside Paris, consumers will enjoy several alternatives for their shopping (such as large specialized supermarkets with significant aisles for electronic products or specialists in so called brown or grey products). The Authority concluded that Fnac will still face heavy competitive pressure outside the capital. However, FCA recognized that in certain areas the transaction carried competitive risks.  For this reason, Fnac agreed to divest six stores in Paris and its suburbs to one or more retailers of electronic products, in order to ensure a variety of realistic choices for consumers, with the intent of maintaining competitive pricing and services conditions.

Further, FCA noted that manufacturers of electronic products are often global players enjoying a very strong negotiation power, which would maintain sufficient alternatives for the retailing of their products even after the occurrence of the proposed merger. Therefore, FCA could not identify any risk connected with the creation or enhancement of suppliers’ economic dependency.

FCA’s reasoning is groundbreaking and is destined to echo well outside national boundaries. With this leap forward, the French watchdog is not only signaling discontinuity with its traditional analysis on the matter, but is also paving the way towards the establishment of an innovative approach towards the identification of relevant markets, which is likely to spill over to the wider spectrum of competition matters.

The Competition Appeal Tribunal awards competition damages in UK’s first final judgment on a stand-alone action

By Valerio Cosimo Romano

On 14 July 2016, the UK Competition Appeal Tribunal (CAT) ordered MasterCard to pay Sainsbury’s £68.6m plus interest for infringing competition law in the setting of UK multilateral interchange fees (MIFs) for its credit and debit cards. This judgment is the first final one on stand-alone damages actions in the UK. In addition, it is the first UK case substantively dealing with the pass-on defence.

Interchange fees are transaction fees charged by the bank from which consumers receive their MasterCard (the “issuing bank”) to the bank which permits the merchant to accept a card (the “acquiring bank”). When a customer of the issuing bank makes a purchase, the issuing bank forwards the full transaction amount minus an interchange fee to the acquiring bank, which in turn retains a charge for its services and forwards the resulting amount to the merchant. The issuing and acquiring bank may either agree on the respective amount of the fees, or they can make use of a certain value set by MasterCard under its UK MIF scheme.

In a lengthy opinion, the CAT ruled that the setting of the UK MIF between 2006 and 2015 amounted to a breach of competition law. It found that it amounted to an agreement or agreements between undertakings with the effect of restricting competition on the affected markets, namely the acquiring market, the issuing market, and the market between payment systems. The Court held that, absent MasterCard’s scheme, bilaterally negotiated fees would have resulted in lower costs for merchants. In its defence, MasterCard claimed that the UK MIF scheme could benefit from the exemption for pro-competitive agreements provided for by Article 101(3) TFEU. However, the CAT found that none of the four cumulative conditions for obtaining an exemption under Article 101(3) TFEU had been met.

Further, MasterCard submitted to the Court an illegality defence against Sainsbury’s. In the defendant’s contentions, Sainsbury’s claim ought to be barred by the fact that Sainsbury’s Bank, a company linked with Sainsbury’s, had taken part in the setting of the UK MIF. The argument was rejected by the CAT, which ruled that Sainsbury’s and Sainsbury’s Bank were not part of a single economic unit and that, in any event, no significant responsibility could be imputed to Sainsbury’s Bank in relation to MasterCard the infringement of competition law.

Lastly, defendant argued that Sainsbury’s was not entitled to recover the full value of the claim as it had passed the increased fees to its customers by increasing the prices of its products.  The CAT dismissed this claim since no identifiable increase in retail price could be established, nor could MasterCard identify any class of claimant, downstream of Sainsbury’s, to whom the overcharge has been passed on.

This judgment will prove useful for other claimants bringing actions related to interchange fees and, more broadly, for those bringing stand-alone damages actions. It also provides a useful guideline on pass-on defence under English law.

Impala criticizes EU decision approving Sony deal with the Michael Jackson estate

By Nicole Daniel

In August 2016 the trade body Impala heavily criticized the European Commission’s decision to clear a deal between Sony Corporation of America and the Michael Jackson Estate, arguing that the deal reinforces Sony’s market power.

Sony Corporation of America plans to buy the Michael Jackson estate’s half of the music-publishing joint venture Sony/ATV Music Publishing.

The Commission conducted a preliminary investigation during which it also examined the views of competitors and consumers. Accordingly, Impala raised concerns that this transaction might lead to a reinforcement of Sony’s market power, thereby creating serious competition issues. Impala even described the buyout as “transformative” and asked the Commission to impose tough remedies or open a Phase 2 investigation.

The Commission, however, was of the opinion that there would be no negative impact in any of the markets for recorded music and music publishing in the EEA from the transaction. Furthermore, the Commission found that compared to the situation prior to the transaction, the merger will not materially increase Sony’s market power as compared to other digital music providers.

My other trademark dilution defense is the First Amendment

By Marie-Andrée Weiss

MOB, founded by Tara Martin, sells canvas bags featuring “My other bag …” on one side and a drawing of an upscale handbag, such as the Hermès Kelly bag, the quilted Chanel bag, or a Louis Vuitton bag, on the other side. The MOB bags retail for $35 to $55, depending on their size. In creating this product, Ms. Martin was inspired by the “My other car is a … [name of luxury car]” novelty bumper stickers.

French luxury accessory company Louis Vuitton (LV) did not appreciate this use of its trademark and copyright-protected designs and filed a trademark infringement, trademark dilution by blurring, and copyright infringement suit against MOB, which moved for summary judgment, claiming the bags are a parody. On 8 January 8 2016, Judge Furman of the Southern District of New York (SDNY) found the MOB bags to be parody and granted MOB’s motion for summary judgment. LV then appealed the decision to the Second Circuit.

This case is interesting, as the Judge Furman found that parody was a successful defense against trademark dilution, trademark infringement, and copyright infringement claims. An amicus curia brief even argues that applying trademark dilution law to MOB’s use of LV’s trademarks would violate the First Amendment.


Trademark dilution claim

The Federal Trademark Dilution Act of 1995 (FTDA), 15 U.S.C. § 1125(c), was passed to give owners of famous trademarks protection against uses of their marks which would lessen their ability to identify and distinguish their goods or services, even if there is no likelihood of confusion. In Tiffany (NJ) Inc. v. eBay Inc., the Second Circuit defined dilution by blurring as “the whittling away of the established trademark’s selling power and value through its unauthorized use by others.” Dilution occurs because consumers are developing new associations with the famous mark.

15 U.S.C. § 1125(c)(2)(B) enumerates six factors to be used to assess whether a particular use of a famous mark dilutes it: (1) the degree of similarity between the challenged mark and the famous mark; (2) the degree of distinctiveness of the famous mark; (3) the extent to which the owner of the famous mark is engaging in exclusive use of the mark; (4) the degree of recognition of the famous mark; (5) whether the user of the mark or trade name intended to create an association with the famous mark; and (6) any actual association between the mark or trade name.


What is a parody?

15 U.S.C. § 1125(c)(3)(C) provides a parody defense against a trademark dilution claim if the use of a famous mark is made to “identif[y] and parod[y], criticiz[e], or commen[t] upon the famous mark owner or the goods or services of the famous mark owner.” However, the FTDA does not define parody. Judge Furman quoted the Fourth Circuit Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC case, where the Court explained that “parody must convey two simultaneous — and contradictory — messages: that it is the original, but also that it is not the original and is instead a parody. This second message must not only differentiate the alleged parody from the original but must also communicate some articulable element of satire, ridicule, joking, or amusement.”

In Haute Diggity Dog, the Fourth Circuit had found that the “Chewy Vuiton” chew toys for dogs, which were small and rather crude imitations of Louis Vuitton bags, did not dilute LV’s trademarks. The Court noted that “[t]he [LV] handbag is provided for the most elegant and well-to-do celebrity, to proudly display to the public and the press, whereas the imitation ‘Chewy Vuiton’ ‘handbag’ is designed to mock the celebrity and be used by a dog… The dog toy is a comment on the rich and famous, on the LOUIS VUITTON name and related marks, and on conspicuous consumption in general.” Judge Furman also quoted § 31:153 of the McCarthy treaty on Trademarks and Unfair Competition which explains that a particular use of a trademark is a parody if it communicates to the public that is “separate and distinct from the trademark owner” and “is poking fun at a trademark or the policies of its owner.” Judge Furman noted that “my other car” bumper stickers were “a joke — a riff, if you will, on wealth, luxury brands, and the social expectations of who would be driving luxury and non-luxury cars.” He concluded that MOB’s use of LV trademark was a parody.


Are MOB bags a parody?

On appeal, LV argues that a parody must be “directed at or ‘upon’ the trademark owner or its famous mark.” For LV, the MOB parody does not target LV but instead makes fun of MOB itself, “at best,” and is not even a parody, but, rather, a “social commentary” (LV reply brief p.8). LV cites the Harley Davidson, Inc. v. Grottanelli case, in which the Second Circuit held in 1999 that using a mark to “humorously… promote [one’s] own products and services… is not a permitted trademark parody use” (Harley Davidson at 813). The Second Circuit, however, noted in Harley Davidson that it has “accorded considerable leeway to parodists whose expressive works aim their parodic commentary at a trademark or a trademarked product . . . but ha[s] not hesitated to prevent a manufacturer from using an alleged parody of a competitor’s mark to sell a competing product” (Harley Davidson at 812). The Second Circuit found no parody in Harley Davidson because it found the use was not a comment.

MOB argues that “MOB’s parody is communicated to consumers with a combination of features of the bags themselves, including, for example, the large stylized text ‘My Other Bag . . .’ on one side, the cartoonish depictions of designer handbags on the other side, the plain canvas material, and the bag-on-bag concept itself.” MOB argued that, therefore, the parody is communicated by two simultaneous and contradictory message, within the meaning of Haute Diggity, “that it is the original, but also that it is not the original”(Appellee brief at 19) (emphasis in original).

The amicus curia brief filed by Professor Christopher Jon Sprigman and Professor Rebecca Tushnet argued that the “MOB bags are commenting humorously on society’s obsession with owning status symbols, and with showing them off” (Amicus Curia brief at 4). Indeed, LV bags are not the sole source of inspiration for MOB. Some of its canvas bags also feature bags from Hermès, Chanel, or Fendi. The Fourth Circuit had noted in Haute Diggity Dog that the Chewy Vuiton parody was “enhanced by the fact that the ‘Chewy Vuiton’ dog toys are sold with similar parodies of other famous and expensive brands” such as “Chewnel No. 5” or “Jimmy Chew.”


Trademark infringement

Judge Furman used the eight-factor Polaroid test used in the Second Circuit to assess whether an unauthorized use of the mark is infringing. He found that the trademark infringement claim “fail[ed] for much the same reasons that [the] dilution claims failed.” As noted by the Fourth Circuit in Haute Diggity Dog (at 261), this is not surprising because “[w]hile it is true that finding a mark to be strong and famous usually favors the plaintiff in a trademark infringement case, the opposite may be true when a legitimate claim of parody is involved . . . In cases of parody, a strong mark’s fame and popularity is precisely the mechanism by which likelihood of confusion is avoided.” Consumers are not likely to be confused by a parody.

Interestingly, several celebrities who probably indeed own one or more LV bags, or, at least, could certainty afford to own one, have been seen carrying a MOB bag, some even using it as a grocery bag as envisioned by Ms. Martin when she first imagined the MOB bag. The Instagram account of MOB shows the picture of a woman carrying what appears to be an authentic quilted Chanel bag on one hand, and the MOB featuring the same Chanel bag on the other hand. These consumers are clearly not confused. MOB notes in its brief that LV “has admitted repeatedly… it knows that consumers are not confused” (Appellee brief at 46).

LV argues that there is post-sale confusion, which is recognized by courts, including the Second Circuit (Lois Sportswear, USA, Inc. v. Levi Strauss & Co.). For LV, “potential consumers or passersby could come to believe that MOB . . . is associated with [LV] or it at least consented to the use of its trademark” (Appellant reply brief at 21). However, as noted by the SDNY in Gucci America, Inc. v. Guess?, Inc., “a post-sale confusion plaintiff must still establish a likelihood of confusion among an appreciable number of post-sale observers, taking into account all the vagaries involved with post-sale observation,” further noting that “the fact that post-sale observers are removed from purchasing decisions makes post-sale trademark cases inherently difficult to prove, speculative, and subject to increased scrutiny” (Gucci America at 239). It remains to be seen if LV will meet this high standard. Professor Sprigman and Professor Tushnet noted in their brief that “the risks of post-sale confusion are lower with parody,” adding that the MOB is obviously a parody, which appears to the consumer either pre-sale or post-sale (Amicus Curia brief at 18).


Copyright infringement

Judge Furman had also found that MOB’s use of the LV trademark was fair use. As LV does not find that MOB bags are a parody, it argues that there is no fair use. Professor Sprigman and Professor Tushnet posit in their amicus curia brief that “LV did not file this case to protect its incentive to create new expressive works [but] to protect its brand from mockery,” adding that “any effect on the value of [LV]’s trademarks… is not the kind of harm copyright aims to avoid” (Amicus Curiae brief at 23).


Is the TDRA unconstitutional?

Professor Sprigman and Professor Tushnet argued in their brief that the TDRA “creates a content-based right that applies to non-misleading commercial speech” (Amicus Curiae brief at 20).  They note that the Second Circuit held in United States v. Caronia, applying the 2011 Supreme Court Sorrell v. IMS Health Inc. case, that “content-based suppression of non-misleading speech, including commercial non-misleading speech… must be shown to be narrowly tailored to serve compelling state interests” (Amicus Curiae brief at 19).  They argue that Congress has not shown there was a compelling interest to enact the TDRA and that it did not used the least restrictive way available in order to prevent dilution of famous marks. Therefore, the TDRA violates the First Amendment.

We saw in another post that the Federal Circuit recently found the anti-disparaging provision of the Trademark Act violated the First Amendment. Now, the TDRA may be found unconstitutional. These leaves the lingering question: will the tension between the First Amendment and trademark law continue to increase or begin to diminish?