Muzak Gets Grandfathered Rates for SonicTap Service

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By Anandashankar Mazumdar

March 9 — A service offered by Muzak LLC is eligible for a pre-1998 royalty rate, even though the service itself wasn't offered by Muzak before that date, the U.S. District Court for the District of Columbia ruled March 8.

Interpreting a grandfather clause in a 1998 statute, the court said that the intent was to give the older rate to certain companies that existed at the time, not just to the specific services they were offering.

The court granted a motion to dismiss a claim brought against the ambient music service by royalty-collecting organization SoundExchange Inc.

Section 114(f)(2)(B) of the Digital Millennium Copyright Act of 1998, Pub. L. No. 105-304, 112 Stat. 2860, 17 U.S.C. §114(f)(2)(B), established what is known as the “willing buyer/willing seller” standard for determining royalties.

However, Section 114(j)(11) created an exception, allowing “pre-existing subscription services” to continue to pay royalties calculated under the pre-1998 standard.

In 2006, the Copyright Office determined that the grandfather clause applied only to Muzak LLC, Music Choice and DMX Inc. .

However, at some point before 2006, DMX had stopped claiming the right to pay under the older scheme. Furthermore, in 2011 and 2012, Mood Media Corp. acquired both Muzak and DMX and, under the new structure, Muzak offered a music service called SonicTap, which had been launched by DMX in 2010.

Muzak asserted that it had the right to pay royalties for SonicTap under the grandfathered system. SoundExchange sued.

In the light of the legislative history of the statute, the court determined that Congress intended that a pre-existing subscription service like Muzak could offer new services and still claim the grandfathered rates.

Thus, the court rejected SoundExchange's argument that the exception allowed Muzak to pay the old rates only for specific services launched before 1998.

The court's ruling was issued by Judge Royce C. Lamberth.

SoundExchange was represented by Jenner & Block LLP, Washington. Muzak was represented by Wilson Sonsini Goodrich & Rosati P.C., New York

To contact the reporter on this story: Anandashankar Mazumdar in Washington at

To contact the editor responsible for this story: Mike Wilczek in Washington at

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