DENISE COTE, United States District Judge.
Fifteen music publishers (the "Music Publishers")
The following facts are taken as alleged in the counterclaims. NMPA is the largest trade association of music publishers in the United States. Each of the Music Publishers is a member of NMPA.
Peloton was formed in 2012 as an at-home fitness equipment and content company. The first product that Peloton brought to market was the Peloton Bike, a stationary bike with a built-in screen that displays live and on-demand workout classes. Peloton also operates an indoor cycling studio in New York City, where members of Peloton can participate in instructor-led group cycling classes. These classes are available on live-stream or through an archived, on-demand library to home riders of the Peloton Bike. Peloton has recently launched new products that apply the same concept to other forms of exercise.
The instructor-led classes made available by Peloton contain music. According to Peloton, instructors choose which music to play during their classes and curate "playlists of songs that are suitable for the feel and tempo desired by the instructor." Peloton alleges that instructors plan "only days, or sometimes hours, in advance" the music they wish to incorporate into their classes.
Because instructors provide Peloton with limited notice of the music that they intend to play in class, Peloton alleges that it is "ill-suited" to the "traditional" method by which music publishers license rights to third parties for use in derivative works with audio and visual components. Peloton explains that these licenses, known as synchronization or "sync" licenses, "traditional[ly]" are issued for use in television shows and feature films "on an individual composition basis, one by one, and well in advance of exhibition of the content." Rather than obtain sync licenses in this manner, Peloton explains, it has acquired from certain music publishers "catalog-wide" sync licenses, which cover all or substantially all of a licensor's repertoire.
On April 9, 2018, Peloton received a letter from NMPA accusing Peloton of infringing uses of works owned, at least in part, by unnamed NMPA members with whom Peloton had not entered licensing agreements. The letter stated that NMPA would negotiate on behalf of its members to obtain "compensation for all past, present, and future uses of musical works."
Following receipt of NMPA's letter, Peloton began discussing with NMPA possible terms for Peloton to license, on a going-forward basis, the use of compositions controlled by NMPA members that had not yet entered into licensing agreements with Peloton. As alleged by Peloton, they also discussed possible compensation for prior uses of such publishers' works. NMPA "insist[ed]" in the discussion that Peloton enter licensing agreements with all of NMPA's member music publishers. Peloton explained that it "did not need licenses to all or even most music to provide a compelling experience for Peloton
On several occasions, Peloton asked NMPA for a list of its members so that Peloton could negotiate with them separately. NMPA declined to provide the list. Peloton alleges that NMPA "demanded" that Peloton deal exclusively through NMPA, except for those members with whom Peloton already had licensing agreements.
By January 2019, NMPA had become "increasingly non-responsive" in discussions with Peloton. At this point, Peloton reached out directly to several Music Publishers whose works Peloton wanted to license. It describes in some detail its discussions with three of them. After initial discussions, the Music Publishers stopped responding to Peloton's outreach. According to Peloton, NMPA "conveyed information to and coordinated with" these Music Publishers during Peloton's futile attempts to negotiate individual licenses.
In January 2019, Peloton began formal discussions for data services with the Henry Fox Agency ("HFA"), a rights-management agency that provides music publishing licensing and rights administration services. HFA was founded by NMPA and was under its ownership until October 2015, when it was acquired by SESAC, a performing rights organization. On February 1, 2019, HFA amended the terms of a non-disclosure agreement it signed with Peloton and entered into an Administration Services Agreement to assist Peloton with identifying musical works and their associated licenses. Under the terms of the agreement, HFA would identify sound recordings that HFA believed to be licensed 100% under Peloton's direct licensing agreements with publishers.
HFA continued providing services to Peloton through early May 2019. On May 16, Peloton sent HFA an email containing terms for additional services. On June 4, HFA explained that it would no longer engage with Peloton because it was under "a ton of pressure, not just from D.C. but also from New York." According to Peloton, the data HFA had provided to Peloton in February and May 2019 was "faulty" and "inaccurate."
On March 29, 2019, the Music Publishers commenced this action against Peloton, alleging that Peloton has willfully infringed their copyrights in musical works they own and control. Although not a plaintiff, NMPA issued a press release publicizing the lawsuit on the day of its filing.
On April 30, Peloton answered and filed counterclaims against the Music Publishers and NMPA (collectively, the "Counter-Defendants"). The counterclaims assert that, in violation of Section 1 of the Sherman Act, NMPA sought to extract supra-competitive license terms from Peloton by negotiating collectively on behalf of its member publishers, and that, as a result, the Music Publishers collectively refused to deal with Peloton. The counterclaims also assert that NMPA committed tortious interference in prospective business relations in violation of New York law by disrupting Peloton's negotiations with individual Music Publishers.
Following a conference on May 9, a scheduling order set May 31, 2019 as the deadline for the amendment of pleadings. On May 31, the Music Publishers filed a first amended complaint. On June 14, Peloton answered the first amended complaint, repleading its counterclaims. The Counter-Defendants
On September 12, the Music Publishers requested leave to amend their complaint to join additional music publishers as plaintiffs and to add musical compositions to the list of infringed works. The Music Publishers explained that they had become aware of these works in the course of discovery. On September 27, the Music Publishers' request was granted and they filed a second amended complaint. On October 11, Peloton filed an answer to the second amended complaint and amended its counterclaims.
As extended through an Order of October 3, fact discovery is set to conclude on March 6, and expert discovery to conclude on June 12. Any summary judgment motion is due July 13, 2020.
"A motion to dismiss counterclaims under Rule 12(b)(6) is decided under the same standard applied to a motion to dismiss the claims of a complaint."
When a party moves to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6), Fed. R. Civ. P., a court must "constru[e] the complaint liberally, accept[ ] all factual allegations as true, and draw[ ] all reasonable inferences in the plaintiff's favor."
The Counter-Defendants argue that Peloton's Sherman Act claim is barred by the
"Generally, under the
In the context of antitrust actions brought against claimants alleging copyright infringement, however, the Second Circuit has clarified that while "coordinated efforts to enforce copyrights against a common infringer may be permissible, copyright holders may not agree to limit their individual freedom of action in licensing future rights to sue an infringer before, during, or after" a lawsuit.
The
The Counter-Defendants' arguments to the contrary are not persuasive. First, they contend that the
The Counter-Defendants also argue that
Next, the Counter-Defendants argue that Peloton's Sherman Act claim should be dismissed for two separate reasons. They argue that Peloton has failed to sufficiently plead facts supporting the existence of a conspiracy and also that Peloton has
Section 1 of the Sherman Act prohibits restraints on trade effected by a contract, combination, or conspiracy.
At the pleading stage, a plaintiff must allege enough facts to support the inference that a conspiracy existed.
To prove the existence of a conspiracy, parallel action is not, by itself, sufficient.
Peloton has plausibly alleged that the Counter-Defendants conspired to deny Peloton licenses to their copyrighted works. Peloton alleges that from April 2018 to January 2019 it negotiated with NMPA regarding the compensation of the Music Publishers. According to Peloton, NMPA demanded Peloton deal exclusively with NMPA and repeatedly declined to give Peloton a list of NMPA members, impeding Peloton in its effort to independently negotiate licenses. In January and February 2019, when Peloton finally attempted bilateral discussions with several Music Publishers, including ole, Reservoir, and Downtown, those Music Publishers cut off the discussions simultaneously and abruptly. One month later, on March 29, 2019, the Music Publishers initiated this litigation against Peloton. That same day, NMPA's President and CEO appeared on a news segment as "the man behind the Peloton lawsuit."
This evidence suggests that the Music Publishers' decisions to stop discussions with Peloton regarding future licensing agreements were not the result of "coincidence, independent responses to common stimuli, or mere interdependence unaided by an advance understanding among the parties."
In arguing to the contrary, the Counter-Defendants contend that the Music Publishers' copyright infringement lawsuit against Peloton was an "obvious reason" to discontinue further negotiations with Peloton.
The Counter-Defendants next argue that Peloton has failed adequately to allege a relevant product market. To state a Section 1 claim, Peloton must identify a relevant market in which the anticompetitive effects of the challenged restraint are to be measured or, if a
"Market definition is ordinarily a deeply fact-intensive inquiry."
The Second Circuit has explained that
Peloton defines the relevant market as sync "licenses to the copyrighted works controlled (in whole or in part) and collectively negotiated by the [Music] Publishers through NMPA." This proposed market is legally insufficient. In the words of
Peloton argues that sync licenses are not interchangeable because every song has "nonfungible qualities." It is true that every copyrighted work has at least some modicum of originality. But, recognition of that fundamental tenet of copyright law does not explain why songs not controlled by the Music Publishers cannot substitute in exercise programming for songs they do control.
Peloton also contends that its proposed relevant market is "consistent" with how "other courts" have defined markets involving "music rights" in antitrust suits. The sole case on which Peloton relies to so argue is
Peloton also alleges that NMPA has committed tortious interference with prospective business relations in violation of New York law by disrupting Peloton's licensing negotiations with individual Music Publishers. To state a claim for tortious interference with prospective business relations under New York law, four conditions must be met: "(1) the plaintiff had business relations with a third party; (2) the defendant interfered with those business relations with a third party; (3) the defendant acted for a wrongful purpose or used dishonest, unfair, or improper means; and (4) the defendant's acts injured the relationship."
NMPA argues that Peloton's tortious interference claim fails because Peloton has insufficiently alleged that it would have entered into sync licenses with the Music Publishers but for NMPA's conduct.
Peloton requests that, if its alleged relevant market is found legally deficient, it should be granted leave to amend in order to define the relevant market as all members of NMPA that have not licensed their rights to Peloton. Rule 16, Fed. R. Civ. P., governs the amendment of pleadings after a scheduling order has been issued. It states, "[a] schedule may be modified only for good cause and with the judge's consent." Fed. R. Civ. P. 16(b). "[A] district court ... does not abuse its discretion in denying leave to amend the pleadings where the moving party has failed to establish good cause, as required by Rule 16(b), to amend the pleadings after the deadline set in the scheduling order."
When a plaintiff "fails to specify... how amendment would cure the pleading deficiencies in the complaint," it "need not be given leave to amend."
Peloton's request to further amend its counterclaims is denied. Peloton did not make a formal request by submitting the proposed amendment to its counterclaims. Instead, it requested leave informally in three sentences in its opposition brief to the Counter-Defendants' motion to dismiss. Peloton did not explain why its alternative definition of a relevant product market would cure the deficiencies that it anticipated this Court would find with respect to the interchangeability of music suitable for fitness videos. Rather, it left to speculation the quantity and diversity, or lack thereof, of music controlled by NMPA members from whom Peloton does not have licenses. It also did not explain how this set of compositions compares to the music controlled by all the "major" and "many independent" music publishers from whom Peloton already has obtained licenses. In sum, Peloton did not provide any basis to conclude that the issue of interchangeability would be solved by changing the relevant product market from sync licenses held by the Music Publishers to sync licenses held by all NMPA members and not licensed to Peloton. Peloton has not shown, therefore, that its proposed amendment would be anything other than futile.
Peloton also has failed to demonstrate the diligence necessary for a finding of good cause. Since the start of this litigation, Peloton has had ample opportunity to amend its counterclaims to redefine the relevant product market. It has declined to do so. This action was filed on March 19, 2019. Peloton answered and filed counterclaims on April 30. As it has throughout this lawsuit, Peloton proposed that, for purposes of its antitrust counterclaim, the relevant product market be defined as sync "licenses to the copyrighted works
A scheduling order of May 9 set May 31, 2019 as the date by which amended pleadings had to be filed. On that date, the Music Publishers filed their first amended complaint, and Peloton answered on June 14, repleading its counterclaims. On June 24, the Counter-Defendants moved to dismiss the counterclaims arguing that, among other things, Peloton's definition of the relevant market required dismissal of its antitrust counterclaim.
On September 27, the Music Publishers were granted leave to file a second amended complaint ("SAC") in light of information that they became aware of through discovery. On October 11, Peloton filed amended counterclaims with its answer to the SAC.
Throughout this time, discovery has been ongoing. Fact discovery is set to close on March 6, 2020. Allowing Peloton to amend its counterclaim at this late stage of the litigation would, at a minimum, require additional discovery regarding the entire universe of musical compositions controlled by NMPA's membership, as well as their licensing patterns and practices. The need to obtain such additional discovery would delay proceedings and require substantial additional expense.
The Counter-Defendants' October 25, 2019 motion to dismiss Peloton's counterclaims is granted.