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IP/Entertainment Case Law Updates

Downtown Music Publishing LLC v. Peloton Interactive, Inc.

In copyright infringement action filed by music publishers against Peloton, district court dismisses Peloton’s counterclaims that publishers violated Sherman Act by collectively refusing to license music and that National Music Publishers’ Association tortiously interfered with prospective business relations by allegedly disrupting Peloton’s negotiations with publishers.

Plaintiffs, 15 music publishers, sued the fitness equipment company Peloton Interactive Inc., alleging copyright infringement for Peloton’s use of copyrighted works owned or controlled by the publishers in its livestream and on-demand workouts without authorization. Peloton filed a counterclaim against the publishers and their trade organization, the National Music Publishers’ Association, for violation of the Sherman Act and a counterclaim against the NMPA for tortious interference with prospective business relations.

Peloton delivers at-home fitness equipment and content, including the successful Peloton Bike, a stationary bike with a built-in screen displaying live and on-demand workout classes. The classes are available on livestream or remotely through an on-demand library, and include instructor-curated playlists of songs to accompany the workouts. In its counterclaims, Peloton alleged that its instructors provide short notice of their music selections—sometimes only hours in advance of a class—and that it is more practical for the company to acquire “catalogue-wide” synchronization licenses from music publishers covering all or substantially all of their repertoire, rather than to obtain individual sync licenses for each song. Peloton claimed it had obtained catalogue-wide licensing agreements with all major and many independent music publishers, some of which are NMPA members. 

Peloton alleged that beginning in April 2018, after receiving communications from the NMPA alleging infringement of works owned by several NMPA members, it attempted to negotiate with the NMPA on terms for compensation, but the organization insisted on licensing agreements with all of its member publishers. NMPA allegedly refused to provide a list of its members so that Peloton could conduct individual negotiations, insisting that Peloton deal with the trade organization exclusively. By January 2019, discussions between Peloton and the NMPA ceased, and Peloton contacted several publishers directly to license their works. After initial discussions, those publishers stopped responding to Peloton, allegedly as a result of NMPA’s involvement.

In its counterclaims, Peloton alleged that the NMPA sought to impose supracompetitive licensing terms by negotiating collectively on behalf of its member publishers, and, as a consequence, the publishers collectively refused to negotiate with Peloton. Peloton also alleged that the NMPA tortiously interfered with its direct negotiations with the publishers in early 2019. The publishers and NMPA moved to dismiss the counterclaims, and the court granted the motion, denying Peloton leave to amend.

With respect to Peloton’s Sherman Act counterclaim, the publishers and NMPA argued that the claim was barred by the Noerr-Pennington doctrine, which provides that “citizen petitions are immune from antitrust liability in light of the First Amendment.” That doctrine, the court explained, protects good faith litigation to protect a valid copyright, as well as pre-litigation efforts, such as a collective rejection of a settlement offer, from antitrust claims under the Sherman Act. But while coordinated efforts to enforce copyrights against a common infringer are protected from antitrust liability, the court held, copyright holders may not agree to limit their individual freedom of action in licensing future rights to sue an infringer, and for that reason, the doctrine did not apply here. As the court explained, “Relying on NMPA’s April 9, 2019 letter to Peloton in which it informed Peloton that it would be willing to negotiate on behalf of its members for all ‘future uses by Peloton of works that are presently unlicensed,’ and Peloton’s futile efforts to separately negotiate individual licenses with certain NMPA members, Peloton has alleged that NMPA and the Music Publishers have agreed to unlawfully limit the individual freedom of action of the Music Publishers.”

The publishers and NMPA argued that even if the Noerr-Pennington doctrine did not apply, Peloton failed to state a cause of action because it failed to adequately plead that the publishers and NMPA conspired to restrain trade and failed to adequately allege a relevant product market in which the anticompetitive effects of the alleged conduct could be measured. The court held that Peloton plausibly alleged that NMPA and the publishers conspired to deny licensure to the works at issue, pointing to, among other things, Peloton’s allegations that the NMPA demanded Peloton deal exclusively with it and not the publishers; that after Peloton contacted publishers to negotiate directly, they “cut off discussions simultaneously and abruptly” and filed suit one month later; and that news reports referred to the NMPA as being “behind the Peloton lawsuit.”

The court agreed, however, that Peloton failed to adequately allege a relevant product market and dismissed the Sherman Act claim on that basis. Product markets, the court explained, must encompass the entire area of effective competition—in other words, the area within which “significant substitution” in consumption or production occurs. According to the court, Peloton’s definition of the relevant market—synchronization “licenses to the copyrighted works controlled (in whole or in part) and collectively negotiated by the [Music] Publishers through NMPA”—did not “clearly encompass all interchangeable substitute products.” Specifically, Peloton failed to explain why songs owned or controlled by plaintiff publishers could not be substituted in exercise programming for songs owned or controlled by other publishers. The court viewed this as especially problematic in view of Peloton’s admission that it had successfully obtained sync licenses from all major and many independent music publishers.

The court also dismissed Peloton’s counterclaim against the NMPA for tortious interference with prospective business relations under New York law. That claim, the court explained, “requires an allegation that plaintiff would have entered into an economic relationship but for the defendant’s wrongful conduct.” Here, the court held, Peloton failed to allege that but for the NMPA’s alleged interference in its negotiations with publishers, Peloton would have obtained sync licenses from them. Although Peloton alleged it had sent term sheets, other offer materials and non-disclosure agreements to certain publishers prior to NMPA’s alleged interference, the court held that Peloton failed to allege that any of the publishers reciprocated Peloton’s interest in continuing—much less finalizing—the agreements. 

Summary prepared by Frank D’Angelo and Mariah Volk