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Digital Watch: FCC Approves Pandora Broadcast Buy; HD Radio Patent Troll Dismissed

At the top of this week’s digital radio news is an analog broadcast station. In a deal that took nearly two years to complete, on Monday the FCC removed the first barrier to Pandora buying Rapid City, SD FM station, KXMZ.

The Commission granted a waiver of foreign ownership rules which otherwise prohibit a company with more than 25% non-US ownership from owning a broadcast station. In its ruling the FCC decided that since Pandora is publicly traded company, and it would be nearly impossible to track the nationality of all, then “it would serve the public interest to permit a widely dispersed group of shareholders” to effectively own the station. The Commission will allow there to be up to 49.9% foreign ownership of shares in Pandora before the station license is in jeopardy.

Pandora’s objective with the station is to obtain more favorable royalty rates from the songwriting royalties groups ASCAP and BMI. Both groups collect lower rates from broadcast stations that have online streams than they do from strictly online-only services. As Pandora’s general counsel explained in a 2013 op-ed, Pandora pays more to ASCAP than competitor iHeartRadio, only because the latter is also a terrestrial broadcaster.

Pandora then won a second victory on Wednesday, this time in the US Second Circuit Court of Appeals, which ruled in favor of the online radio company in a suit against ASCAP.

Pandora pays blanket license fees on music to ASCAP under a consent decree dating back to 1941 that authorizes ASCAP and the competing BMI to collect such royalties. There exists a consent decree because the two groups effectively hold a joint monopoly under which all commercial users of music must negotiate. Therefore the rates Pandora pays are determined by a federal rate-setting procedure, overseen by federal judges.

What triggered the suit was that a number of music publishers decided to withdraw their catalogs from ASCAP, forcing Pandora to negotiate separate agreements with them, at higher royalty rates. The Appeals Court upheld a lower court ruling which found that this separation violated that original consent decree. The Court also said that the 1941 decree “unambiguously” prevents music publishers from independently negotiating higher rates than those set by the rate court.

The battle over music royalties is far from over. In fact it’s just heating up, as the music industry continues to press Congress to end terrestrial radio’s exemption from paying performance royalties (not the songwriting royalties that are collected by BMI and ASCAP), which are paid by online broadcasters. We should not be surprised if there is also Congressional attention to songwriting royalties, intending to modify or end the 1941 consent decree.

HD Radio Patent Troll Dismissed

Another digital audio patent troll has suffered a loss. The patent holding company Wyncomm LLC and its subsidiary Delaware Radio Technologies LLC had filed suit against fourteen radio groups over their use of HD Radio. That suit was dismissed by the holding companies, with prejudice, which means it cannot be refiled.

Wyncomm had claimed that the HD Radio system infringed on three patents it owns. In 2014 iBiquity, the company behind HD Radio, filed suit against Wyncomm, challenging the validity of those patents, and taking the lead in defending Wyncomm’s suit.

Wyncomm’s tactic of going after station owners rather than iBiquity smacks of trollish behavior, since the stations only license HD Radio technology, and did not develop it. Though this is an out-of-court settlement–not a civil judgement–it stands to reason that iBiquity brought out some pretty big guns to get Wyncomm to back down.

A separate, but similar, suit filed against major automakers including HD Radio in their cars was dismissed last year.


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