The MLC Has a Legal Battle on Its Hands: Pandora Fires Back Against ‘Misguided’ Royalties Lawsuit

Photo Credit: Pandora

The Mechanical Licensing Collective (MLC) officially has a legal battle on its hands, as Pandora is firing back against the “misguided” lawsuit it’s facing over allegedly owed royalty payments. SiriusXM’s Pandora just recently took aim at the roughly two-month-old complaint – and the MLC’s alleged “gross overreach” – in its formal answer. As we reported when the initial action was submitted in February, the MLC is seeking “unpaid royalties that Pandora owes” for the Section 115 blanket license, on top of related fees to boot.

In the interest of relative brevity, Pandora (which, of course, began as a non-interactive digital radio platform) currently offers multiple listening options, including a $9.99-per-month premium subscription. Like on Spotify and Apple Music, the latter package enables subscribers to search for and listen to music of their choosing, hence the use of terms such as interactive and on-demand to describe it.

But as the company sees things, Pandora Free is still non-interactive; users can access stations but don’t have the ability to select artists or tracks. However, occasional half-hour Pandora Premium trials are available to those who utilize the free option and opt to watch a brief advert when prompted to do so.“Access to such sessions was,” Pandora wrote of said trials, “and remains, carefully limited by Pandora’s license agreements: in addition to a 30-minute time limit, the [rightsholder] agreements also place strict caps on how much time a user can spend in SPA [sponsored premium access] sessions on both a weekly and quarterly basis. Less than one in twenty visits to Pandora’s free tier involves a user availing themselves of the opportunity to sample Pandora Premium.”

Notwithstanding that argument, the MLC has in more words expressed the belief that the ability to test the fully interactive Pandora Premium renders Pandora Free ineligible for the Section 114 statutory license.

The latter covers digital non-interactive public performance recording royalties payable to SoundExchange – not mechanical royalties payable to the MLC under the distinct Section 115 blanket license. Building on these key differences, the MLC says that Pandora Free, in allegedly being ineligible for the Section 114 license, must cough up payments under the blanket license.

As noted at the outset, this position (and demands for the appropriate adjustments to retroactive MLC payments) isn’t sitting right with Pandora.“The MLC is not authorized to opine on whether particular transmissions offered by Pandora or other DMPs [digital music providers] are properly characterized as interactive or noninteractive as a legal matter,” Pandora wrote in its firmly worded answer, “much less whether Pandora qualifies for statutory licensing under a different section of the Copyright Act (Section 114) that falls outside the MLC’s purview.

“Nor is it authorized to insist, upon threat of default under its blanket license, that Pandora fundamentally change its approach to licensing an entire tier of its service solely because the MLC has taken upon itself to press a legally incoherent position at odds with the view of the rest of the music industry. Yet here we are,” the platform proceeded.

Digging into the bulk of Pandora’s arguments, the service, in pushing back against the “MLC’s blatant mischaracterization” of its offerings and the law, rather predictably emphasized the perceived non-interactive nature of Pandora Free.

Pandora follows Section 114’s provisions for that tier “by limiting the frequency with which a particular artist or album is played, forbidding pre-announcement of tracks, preventing user-side copying of tracks, and the like,” according to the text.

Moreover, Pandora drove home its years-running participation in the Copyright Royalty Board proceedings through which Section 114’s rates are set. During “two years of hotly contested litigation and a multi-week trial featuring senior music licensing executives from each of the major record companies,” Pandora wrote of the negotiation process behind webcasting rates for 2021-2025, label execs and CRB judges didn’t “make even the slightest suggestion that” Pandora Free was no longer non-interactive and therefore ineligible for the statutory license.

Not stopping there, Pandora called out the MLC’s alleged lack of authority to spearhead litigation of this nature under the Music Modernization Act (MMA).

“And while the MMA did grant the MLC some limited authority to engage in court actions…it never gave the MLC authority to weigh in on which performances offered by a DMP require Section 115 licensing or not—much less to insist that an entire tier of service that the music industry has accepted as statutorily compliant must nonetheless pay royalties required of interactive services,” Pandora penned.

“The MLC’s biased position might be explained by the fact that its counsel is the same as the National Music Publishers’ Association…except that its position is completely at odds with the marketplace behavior of those constituents as well,” proceeded the SiriusXM subsidiary.On the “at odds” front, Pandora also took the opportunity to reiterate that it had hammered out direct deals with publishers for its on-demand component. These publishers, like the relevant labels, support the present approach to interactive and non-interactive payments, per the text.

Among other things, Pandora has asked the court to award attorneys’ fees and toss the MLC’s complaint with prejudice.

In February, we covered the 2022 salaries pulled down by execs at the ostensibly non-profit MLC. (“Pandora lacks knowledge or information sufficient to respond to the statement that the MLC is a non-profit organization,” the company added in its answer for good measure.) Meanwhile, the Copyright Office is currently conducting its “periodic review” of the MLC’s designation to administer the blanket license.