SoundExchange has launched a vigorous appeal to the Second Circuit Court, challenging a lower court ruling that stripped the organization of its legal standing to sue digital broadcasters for unpaid royalties. The appeal comes after Judge Naomi Reice Buchwald dismissed SoundExchange‘s $400 million lawsuit against Sirius XM, ruling that Section 114 of the Copyright Act does not explicitly authorize the organization to litigate royalty disputes in court.
The rights collection agency, which administers compulsory licenses for digital performance royalties, has characterized the dismissal as “erroneous” and based on a flawed interpretation of federal copyright law. At stake is SoundExchange’s fundamental ability to enforce royalty payments owed to the artists and labels it represents when broadcasters allegedly underpay. The organization claims Sirius XM employed “faulty methodology” that resulted in substantial underpayments for music performances.
The case, originally filed in the Southern District of New York, has significant implications for the entire digital music ecosystem. Judge Buchwald’s textualist interpretation concluded that while SoundExchange has administrative authority to collect royalties set by the Copyright Royalty Board, Congress did not explicitly grant it litigation rights to enforce those collections through lawsuits.
This judicial reasoning has created uncertainty about enforcement mechanisms for compulsory licenses, potentially leaving artists and labels without a clear path to recover unpaid royalties. Unlike traditional Performance Rights Organizations, SoundExchange lacks the clear statutory authorization to bring legal action on behalf of its members. The court rejected SoundExchange’s policy arguments that legal enforcement rights are necessary for the statutory licensing system to function properly. Similar pending litigation against other digital broadcasters like Napster and Sonos heightens the stakes for SoundExchange’s appeal.
The organization now faces a critical juncture: succeed in its appeal, pursue legislative changes to explicitly grant enforcement rights, or develop alternative mechanisms to guarantee proper royalty payments. For musicians already struggling to diversify their income through sync deals and streaming royalties, this case represents another challenge in securing fair compensation. The financial impact could be substantial, with SiriusXM potentially facing a payment of $400 million if the ruling is overturned.
The court’s distinction between licensing enforcement and litigation authority highlights the tension between statutory mandates and judicial interpretations of those laws.
As the appeal proceeds, the music industry watches closely, recognizing that the outcome will determine whether SoundExchange can continue its congressionally-designated role as the enforcer of digital performance royalty obligations, or if rights holders must find new avenues for protecting their interests.
