SoundExchange Senior Vice President and General Counsel Colin Rushing issued the following statement about the lawsuit:
"Music Choice's actions reflect a persistent effort to avoid paying royalties for its use of protected sound recordings. Its creative accounting has cheated creators out of the royalties they are due and is inconsistent with the Copyright Royalty Board's regulations.""We hope this action will compel Music Choice to pay the royalties that are due to music creators and to change its practices moving forward."
Technical background on the case
Music Choice provides a range of music channel subscription services to businesses and individual subscribers, including a business establishment service (BES). Music Choice is one of many digital music service providers relying on a statutory license to obtain the rights to use sound recordings in its BES. The statutory royalty rate and payment terms for a BES are set forth in CRB regulations at 37 C.F.R. Part 384. Currently, the basic royalty rate for a BES is "12.5% of [the] Licensee's 'Gross Proceeds' derived from the use in such service of musical programs that are attributable to copyrighted recordings." Pursuant to these regulations, SoundExchange engaged an independent auditor to verify the royalty statements provided by Music Choice for its BES during the period of January 1, 2013 through December 31, 2016. As a result of the verification, SoundExchange discovered that Music Choice systematically underreported its "Gross Proceeds," leading to underpayment to SoundExchange for statutory royalties related to the BES that that we believe extends beyond the 2013-2016 audit period.