United States District Court, Western District of Virginia, Harrisonburg Division
REPORT & RECOMMENDATION
JOEL C. HOPPE UNITED STATES MAGISTRATE JUDGE
This matter is before me for a report and recommendation on the defendant’s Motion to Dismiss the Complaint, ECF No. 19, under Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the Federal Rules of Civil Procedure. Having considered the parties’ pleadings and briefs, oral arguments, and the applicable law, I respectfully recommend that the presiding district judge grant the motion and dismiss this action because the Complaint, ECF No. 1, fails to allege a justiciable case or controversy between the parties. See Fed. R. Civ. P. 12(b)(1), (h)(3).
Plaintiffs are three Harrisonburg-area radio stations, WTGD 105.1 FM, WQPO 100.7 FM, WJDV 96.1 FM, and their corporate owner, M. Belmont VerStandig, Inc. (together, “Plaintiffs”). Compl. ¶¶ 1, 6–9. Plaintiffs filed a declaratory judgment action in this Court against SoundExchange, Inc. (“SoundExchange”) on April 30, 2014. Id. ¶¶ 1, 10. The case involves a disagreement over whether sections 112 and 114 of the Copyright Act, 17 U.S.C. §§ 101–1332, allow radio stations to retransmit their broadcast transmissions over the Internet exclusively to their local listeners without paying statutory licensing fees or royalties on copyrighted sound recordings that are part of those simulcasts. See Id . ¶¶ 47–48.
Plaintiffs believe that their local simulcasts will satisfy the Copyright Act’s criteria for “non-infringing” performances so that they have no obligation to obtain statutory licenses or pay royalties to SoundExchange for the privilege of performing copyrighted sound recordings. See Id . ¶¶ 40–48; Compl. Ex. B, at 2, ECF No. 1-2. SoundExchange believes that radio stations’ simulcasts are never exempt from the Copyright Act’s licensing and royalty requirements. See Compl. ¶¶ 47–48; Compl. Ex. C, at 2, ECF No. 1-3. SoundExchange, however, has not taken a position on whether Plaintiffs should obtain statutory licenses and pay it royalties, rather than negotiating private licenses and paying royalties directly to individual copyright owners. See Compl. Ex. C, at 2.
A. The Statutory & Regulatory Framework
The Copyright Act grants owners of copyrights in sound recordings the exclusive right “to perform the copyrighted work publicly by means of a digital audio transmission.” 17 U.S.C. § 106(6); accord Compl. ¶ 1. That right is limited in its scope, however. See 17 U.S.C. § 114(d); Compl. ¶¶ 14, 16, 17. For example, radio stations can perform copyrighted sound recordings “publicly by means of a digital audio transmission” if: (1) that “performance is part of . . . a retransmission of a nonsubscription broadcast transmission”; and (2) “the radio station’s broadcast transmission is not willfully or repeatedly retransmitted more than a radius of 150 miles from the site of the [station’s] radio broadcast transmitter.” 17 U.S.C. § 114(d)(1)(B)(i); accord Compl. ¶¶ 17, 40.
A copyright owner’s exclusive right of public performance is not “infringed” as long as the “retransmission of a radio station’s broadcast transmission” stays within that 150 mile zone. 17 U.S.C. § 114(d)(1); accord Compl. ¶ 17. But once the radio station “willfully or repeatedly” retransmits its broadcast transmissions beyond that boundary, the station must pay for the privilege of performing any copyrighted sound recording that is part of the infringing retransmission. See 17 U.S.C. § 114(d)(1)(B)(i), (f)(1)(4)(B); accord Compl. ¶¶ 14–18.
Copyright owners also have an exclusive right to authorize another “to reproduce the copyrighted work in copies or phonorecords.” 17 U.S.C. § 106(1). A federally licensed radio station that “makes a broadcast transmission of a performance of a sound recording in a digital format on a nonsubscription basis, ” however, can produce “one copy or phonorecord of a particular transmission program embodying the performance” if the copy or phonorecord: (1) “is retained and used solely by” the station “for [its] own transmissions within its local service area”; and (2) “unless preserved exclusively for archival purposes, . . . is destroyed within six months from the date the transmission program was first transmitted to the public.” Id. § 112(a)(1), (e)(1). Otherwise, the radio station must pay for the privilege of reproducing a copyrighted sound recording. See Id . § 112(e).
Royalties can be paid directly to copyright owners under privately negotiated licenses or to a designated collective organization under statutory licenses. See generally 17 U.S.C. §§ 112(e)(2), 114(f)(3) (private licenses); id. §§ 112(e)(1), 114(f)(4)(B) (statutory licenses); 37 C.F.R. §§ 380.1–380.17 (setting the rates and terms for statutory licenses under 17 U.S.C. §§ 112 and 114); see also Compl. ¶ 18. “Statutory licensees pay royalties, but [they] do not have to negotiate with individual copyright owners for every recording [that] they want to broadcast.” SoundExchange, Inc. v. Sirius XM Radio, Inc., __ F.Supp.2d __, 2014 WL 4219591, at *1 (D.D.C. Aug. 26, 2014). “Any person” who wants to reproduce or publicly perform a copyrighted sound recording “under a statutory license . . . may do so without infringing the exclusive right[s] of the copyright owner” under 17 U.S.C. § 106 “by complying with such notice requirements as . . . prescribe[d] by regulation and by paying royalty fees in accordance with [sections 112(e) and 114(f)].” 17 U.S.C. §§ 112(e)(6)(A)(i), 114(f)(4)(B)(i); accord 37 C.F.R. § 370.2 (establishing the procedures for filing a “notice of use of sound recording under statutory license”).
Defendant SoundExchange is the “sole collective, ” Compl. ¶ 10, in charge of collecting and distributing royalties due to the owners of copyrights in sound recordings from broadcasters who choose to operate under statutory licenses. See C.F.R. §§ 380.4(b), 380.13; cf. Sirius XM Radio, 2014 WL 4219591, at *1 (“[R]egulations implementing the Copyright Act charge SoundExchange, an independent non-profit organization, with collecting the performance royalties from statutory license users . . . and distributing those royalties to the copyright owners in accordance with 17 U.S.C. § 114(g)(2)(A)–(D).”). SoundExchange has no apparent authority to compel broadcasters to take statutory licenses,  to enforce the terms of privately negotiated licenses, or to enforce copyrights generally. See, e.g., 17 U.S.C. § 114(g)(3); 37 C.F.R. § 380.4; Compl. Ex. A, at 2–3 ¶¶ 1, 6, ECF No. 1-1. However, it can sue to collect royalties and other fees if a broadcaster does not comply with the terms of its statutory license. See, e.g., Sirius XM Radio, 2014 WL 4219591, at *1–2 (staying SoundExchange’s civil action to collect underpaid royalties and unpaid late fees under 37 C.F.R. § 382.13 pending further administrative proceedings).
SoundExchange is a non-profit organization funded by a portion of the royalties that it collects from broadcasters on behalf of copyright owners who register with the organization. See 17 U.S.C. § 114(g)(3); Compl. ¶ 21. Copyright owners also can opt-in to SoundExchange’s “membership” services by expressly appointing SoundExchange as their “nonexclusive” licensor, collection agency, lobbyist, and law firm. See generally Compl. Ex. A, at 2–3 ¶¶ 1, 2, 5, 6. For example, copyright owners who become SoundExchange “Members” contractually authorize the organization:
to enforce nonexclusively the rights of public performance, communication, and reproduction granted under [statutory licenses defined in 17 U.S.C. §§ 112(e) and 114] with respect to the sound records owned or (controlled by) Member. With Member’s consent, Member authorizes SoundExchange in SoundExchange’s sole judgment (i) to commence and prosecute litigation, in the name of SoundExchange, Member, or others in whose name the sound recordings owned (or controlled) by Member may be held; (ii) to collect and receive damages arising from infringement of the foregoing rights; (iii) to join Member or others in whose names sound recordings owned (or controlled) by Member may be held as parties plaintiff or defendant in any litigation involving such rights; or (iv) to release, compromise, or refer to arbitration any claims or actions involving infringement of such rights, in the same manner and to the same extent as the Member could.
With Member’s consent, Member hereby makes, constitutes and appoints SoundExchange or its successor as Member’s true and lawful attorney, irrevocably during the term of the Agreement, to do all acts, take all proceedings, and execute, acknowledge and deliver any and all instruments, papers, documents, process and pleadings that may be necessary, proper or expedient to restrain infringements and recover damages relating to the infringement or other violation of such rights and to discontinue, compromise or refer to arbitration any such proceedings or actions, or to make any other disposition of the differences in relation thereto, in the name of SoundExchange or its successor, or in the name of Member or otherwise.
Id. at 3 ¶ 6; see also Id . at 2 ¶ 1. SoundExchange can only collect royalties on performances or reproductions of sound recordings by broadcasters who first elect to operate under the statutory licenses defined in 17 U.S.C. §§ 112 and 114. See Id . at 2–3 ¶¶ 1, 6. Even then, copyright owners retain broad authority to enforce their rights under 17 U.S.C. § 106 against broadcasters who violate the terms of statutory licenses. See id.; see also 17 U.S.C. § 114(d)(4).
B. The Dispute
When they filed this suit, WQPO and WJDV paid royalties to SoundExchange under statutory licenses because they simulcast their FM radio programming without geographic restriction. Compl. ¶¶ 7, 8, 25. WTGD did not simulcast its FM radio programming as of April 30, 2014. Id. ¶ 6. All three radio stations want to simulcast their FM radio programming exclusively to their local listeners using geo-fencing technology. Id. ¶¶ 4, 35, 44.
According to the Complaint, “[g]eo-fencing is a proven technology” used by the gaming industry “to restrict access to online gaming to recipients physically located in jurisdictions where [on-line] gaming is legal.” Id. ¶ 34. Before filing this lawsuit, Plaintiffs “consulted with geo-fencing experts and service providers.” Id. ¶ 35. Plaintiffs believe that setting up geo-fenced simulcasts “require[s] a substantial financial investment, ” id. ¶ 49, that “makes sense . . . only if it exempts them from copyright liability and having to pay royalties, ” Pl. Br. in Opp. 7–8, ECF No. 28.
In a letter dated February 28, 2014, WTGD’s attorney advised SoundExchange of WTGD’s intent to set up a simulcast that was available exclusively to its local listeners. See Compl. ¶¶ 37, 44, 47; Compl. Ex. B, at 2–3. Counsel wrote “that a copyright owner’s exclusive performance right is not infringed” when a radio station’s “broadcast transmission is retransmitted, digitally and simultaneously, only within a radius of 150 miles or less from the site of the station’s radio broadcast transmitter.” Compl. Ex. B, at 2. He explained that WTGD intended to use geo-fencing technology to “exclude” access by Internet users located more than 75 miles from its broadcast transmitter, which “would be within the 150 mile exemption.” Id. Thus, counsel believed that WTGD’s simulcasts would “conform to the exemption from the statutory license for sound recordings under [17 U.S.C. § 114(d)(1)(B)(i)], so that it would owe no payments to SoundExchange.” Id. But WTGD also wanted “to insure [sic] that its understanding of the Act [was] correct” and sought “confirmation” from SoundExchange “that WTGD [would] not face a legal challenge to its intended geofenced Internet streaming.” Id. at 2– 3. WTGD noted that it “want[ed] to commence its new Internet streaming in the very near future” and asked SoundExchange to respond by March 14, 2014. Id. at 3.
SoundExchange’s Senior Counsel for Licensing & Enforcement responded to WTGD’s letter on March 14, 2014. See Compl. ¶ 38; Compl. Ex. C, at 2. She noted that “SoundExchange [did] not share [WTGD’s] view concerning Section 114(d)(1)(B)(i)” because, in SoundExchange’s view, the 150 mile exemption “does not apply when broadcasters simulcast their own programming over the internet.” Compl. Ex. C, at 2; see also Compl. ¶ 38. Counsel also explained that, even “if Section 114(d)(1)(B)(i) did apply to WTGD’s proposed simulcasting (which it does not), ” WTGD would still need a “statutory mechanism for clearing rights to the reproductions necessary to enable its simulcasts.” Compl. Ex. C, at 2.
Thus, SoundExchange “strongly urge[d] WTGD to seek licenses for its simulcasts.” Id. The letter noted that, “[s]hould WTGD choose to rely on the statutory performance and reproduction licenses that SoundExchange administers, ” WTGD could submit to the Copyright Office a “Notice of Use of Sound Recordings Under Statutory License, ” which was available on SoundExchange’s website. Id. There WTGD could find “further information concerning compliance with the statutory licenses.” Id.; Compl. ...