SoundExchange Brings Second Lawsuit Ever, Alleging Streaming Services Abusing Grandfathered Royalty Rates

SoundExchange has brought the second lawsuit of its 12-year existence, alleging that the Mood Media Corporation—owner of streaming service Muzak and others—filed its royalties improperly (from Billboard).

Muzak has been on the streaming train far before most similar services, first offering its catalogue to Dish Network satellite television subscribers before the passing of the Digital Millennium Copyright Act of 1998, which set the current statutory rates for royalties on digital streams. The "new" law set the minimum royalty rate at 15 percent, however Muzak and several other preexisting services were allowed to continue using their previous 8 percent rate under a grandfather clause.

The lawsuit from SoundExchange contends that Muzak didn't have the right to continue using that rate as it expanded to other platforms. The service has expanded from the Dish Network to DirecTV's SonicTap, and began paying royalty rates of 8.5 percent for its offerings on that network. SoundExchange alleges that Muzak should be paying the 15 percent rate for its DirecTV products, suggesting that the grandfather clause doesn't apply to expansion post-1998.

Another issue in the legal challenge: Mood Media's purchase of DMX, another subscription service. The company bought up DMX during 2012 and then consolidated under the Muzak brand and, of course, applied Muzak's lower royalty rate.

"Muzak's attempt at gaming the system highlights the ineffectiveness of having different rules and rate standards for music service companies," SoundExchange CEO Michael Huppe. "It gives older companies an unjustified competitive advantage, and leaves the door wide open for attempts at abuse."

Translation: SoundExchange is aiming to squash the previously existing grandfather clauses, for Muzak and other streamers.