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Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 1 of 23

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------x
19 RECORDINGS LIMITED,
Plaintiff,
v.

14-CV-1056 (RA) (GWG)

SONY MUSIC ENTERTAINMENT,

ECF CASE

Defendant.
---------------------------------------------------------x
ANSWER, AFFIRMATIVE DEFENSES, AND COUNTERCLAIM OF
DEFENDANT SONY MUSIC ENTERTAINMENT
Defendant Sony Music Entertainment (SME) responds to Plaintiffs First Amended
Complaint as follows, upon knowledge as to itself and its own acts and upon information and
belief as to all other matters:
1.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations in paragraph 1.


2.

SME denies the allegations in paragraph 2, except admits that: (a) it is a Delaware

general partnership, the partners of which are citizens of New York and Delaware; and (b) its
principal place of business is located at 550 Madison Avenue, New York, NY 10022.
3.

Paragraph 3 consists entirely of legal conclusions to which no response is

required.
4.

Paragraph 4 contains legal conclusions to which no response is required. To the

extent a response is deemed necessary, SME does not contest that this Court has personal
jurisdiction over it with respect to the claims asserted by Plaintiff in the First Amended
Complaint, but denies that it has engaged in wrongful conduct.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 2 of 23

5.

Paragraph 5 consists entirely of legal conclusions to which no response is

required.
6.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations in paragraph 6, except admits that: (a) American Idol is a television show that first
aired in the United States in 2002; (b) the RCA Records Label, a Unit of BMG Music; the RCA
Music Group, a Unit of BMG Music; the RCA Music Group, a Unit of Sony BMG Music
Entertainment; Sony BMG Music Entertainment Nashville, a Division of Sony BMG Music
Entertainment; Zomba Recording LLC; and RCA/Jive, a Label Group of Sony Music
Entertainment have entered into agreements with 19 that concern sound recordings of certain
artists who appeared on American Idol; and (c) SME has earned millions of dollars in profits and
has paid 19 millions of dollars in royalties pursuant to these agreements. SME respectfully refers
the Court to the agreements for the full and complete terms thereof.
7.

SME denies that over 20 million Kelly Clarkson albums have been sold in the

United States. SME denies knowledge or information sufficient to form a belief as to the truth of
the remaining allegations of paragraph 7, except admits that: (a) Clarkson was the winner of the
first season of American Idol in 2002; (b) Clarksons debut single reached number 1 on the
Billboard Hot 100 Singles chart; (c) Clarkson has won three Grammy Awards; and (d) over 5
million downloads of Clarksons song Stronger have been sold worldwide.
8.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 8, except admits that: (a) Clay Aiken finished in second place on the
second season of American Idol; and (b) over 600,000 copies of Aikens debut album were sold
in its first week.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 3 of 23

9.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 9, except admits: (a) Carrie Underwood was the winner of the fourth
season of American Idol; (b) Underwood albums and songs have been certified multi-platinum
by the Recording Industry Association of America (RIAA); (c) Underwood has won Grammy
Awards, Billboard Music Awards, American Music Awards, Country Music Association
Awards, CMT Music Awards, and Academy of Country Music Awards; and (d) over 15 million
Underwood albums have been sold in the United States.
10.

SME denies that: (a) over 50 million Daughtry digital downloads have been sold

worldwide; and (b) 8 million Daughtry albums have been sold in the United States. SME denies
knowledge or information sufficient to form a belief as to the truth of the remaining allegations
of paragraph 10, except admits that: (a) Chris Daughtry finished in fourth place on the fifth
season of American Idol; and (b) Daughtrys debut album was the fastest-selling debut rock
album in Nielsen SoundScan history.
11.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 11, except admits that: (a) Kellie Pickler finished in sixth place on
the fifth season of American Idol; (b) a Pickler album has been certified gold by the RIAA in
the United States; (c) Pickler was the winner of the sixteenth season of Dancing with the Stars;
and (d) over 800,000 copies of Picklers first album have been sold.
12.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 12, except admits: (a) Jordin Sparks was the winner of the sixth
season of American Idol; (b) Sparks has been nominated for a Grammy Award; (c) Sparks has
won a BET Award, an American Music Award, a Teen Choice Award, and a Peoples Choice

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 4 of 23

Award; and (d) Sparks and Whitney Houston were among the members of the cast of the film
Sparkle.
13.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 13, except admits that: (a) David Archuleta finished in second place
on the seventh season of American Idol; (b) Archuletas first single debuted at number 2 on the
Billboard Hot 100 Singles chart.
14.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 14, except admits that: (a) David Cook was the winner of the
seventh season of American Idol; and (b) Cooks debut album has been certified platinum by
the RIAA.
15.

SME denies the allegations of paragraph 15, except admits that 19 has entered

into an Exclusive Recording Agreement with each of Kelly Clarkson, Clay Aiken, Carrie
Underwood, Chris Daughtry, Kellie Pickler, Jordin Sparks, David Archuleta, and David Cook.
SME respectfully refers the Court to the agreements for the full and complete terms thereof.
16.

SME denies the allegations of paragraph 16, except admits that: (a) 19 and

Ronagold Limited entered into an agreement, dated February 8, 2002, which attached a form for
a agreement between 19 and a US Designee; (b) the RCA Records Label, a Unit of BMG
Music, entered into an agreement with 19, dated September 25, 2002, with effect as of
September 4, 2002, concerning Kelly Clarkson; (c) the RCA Music Group, a Unit of BMG
Music, entered into an agreement with 19, dated June 25, 2003, with effect as of May 21, 2003,
concerning Clay Aiken; (d) the RCA Music Group, a Unit of Sony BMG Music Entertainment,
entered into an agreement with 19, dated 2005, concerning Carrie Underwood; (e) the RCA
Music Group, a Unit of Sony BMG Music Entertainment, entered into an agreement with 19,

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 5 of 23

dated September 25, 2006, concerning Chris Daughtry; (f) Sony BMG Music Entertainment
Nashville, a Division of Sony BMG Music Entertainment, entered into an agreement with 19,
dated December 21, 2006, concerning Kellie Pickler; (g) Zomba Recording LLC entered into an
agreement with 19, dated August 15, 2008, concerning David Archuleta; (h) RCA Music Group,
a unit of Sony BMG Music Entertainment, entered into an agreement with 19, dated August 15,
2008, concerning David Cook; and (i) RCA/Jive, a Label Group of Sony Music Entertainment,
entered into an agreement with 19, dated October 30, 2009, concerning Jordin Sparks (items (b)
through (i) shall be referred to collectively as the Licensing Agreements). SME respectfully
refers the Court to the agreements for the full and complete terms thereof.
17.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 17.


18.

SME denies that over 15 million copies of Kelly Clarksons album Breakaway

have been sold worldwide, and that Since U Been Gone has been certified multi-platinum by
the RIAA. SME denies knowledge or information sufficient to form a belief as to the truth of the
remaining allegations of paragraph 18, except admits that: (a) Since U Been Gone reached
number 2 on the Billboard Hot 100 Singles chart; (b) Since U Been Gone appears in
Clarksons album Breakaway; (c) over six million copies of the album Breakaway have been
sold in the United States; (d) over three million copies of the song No Air have been sold in
the United States; (e) Sparks was nominated for a Grammy Award in connection with No Air;
(f) the music video for No Air won a BET Award; (g) Its Not Over reached number 4 on
the Billboard Hot 100 Singles chart; (h) over two million copies of the song Its Not Over have
been sold; and (i) the album Breakaway and the songs Since U Been Gone, Jesus, Take the

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 6 of 23

Wheel, See You Again, No Air, and Its Not Over, were delivered to SME pursuant to
the Licensing Agreements.
19.

SME denies the allegations of paragraph 19, except admits that: (a) each

Licensing Agreement contains provisions for the calculation and payment of royalties, if any, to
19; and (b) each Licensing Agreement provides for 19s examination of certain books and
records with respect to the royalty statements issued to 19, subject to various restrictions. SME
respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.
20.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 20, except admits that Miller, Kaplan, Arase & Co., LLP and Haber
Corporation examined SMEs books and records on behalf of 19 with respect to certain royalty
statements issued to 19.
21.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 21, except admits that Haber Corporation examined SMEs books
and records on behalf of 19 with respect to certain royalty statements issued to 19 concerning
Carrie Underwood.
22.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 22, except admits that Miller, Kaplan, Arase & Co., LLP examined
SMEs books and records on behalf of 19 with respect to certain royalty statements issued to 19
concerning: (a) Clay Aiken; (b) David Archuleta; (c) Kelly Clarkson; (d) David Cook; (e) Chris
Daughtry; (f) Kellie Pickler; and (g) Jordin Sparks.
23.

To the extent that a response is deemed necessary, SME denies the allegations of

paragraph 23.
24.

SME denies the allegations of paragraph 24.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 7 of 23

25.

SME denies the allegations of paragraph 25.

26.

SME denies the allegations of paragraph 26, except admits that each Licensing

Agreement requires 19 to provide written notification of 19s objections to the royalty statements
issued to 19. SME respectfully refers the Court to the Licensing Agreements and the letter for
the full and complete terms thereof.
27.

SME denies the allegations of paragraph 27, except admits that it engaged in

settlement discussions with 19.


28.

SME denies the allegations of paragraph 28, except admits that (a) 19 and SME

entered into a tolling agreement, dated August 14, 2012; and (b) certain of the limitations periods
tolled under the agreement expired on February 21, 2014. SME respectfully refers the Court to
the tolling agreement for the full and complete terms thereof.
29.

SME denies the allegations of paragraph 29.

30.

SME denies the allegations of paragraph 30.

31.

SME denies the allegations of paragraph 31.

32.

SME denies the allegations of paragraph 32.

33.

SME denies the allegations of paragraph 33. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
34.

SME denies knowledge or information sufficient to form a belief as to the truth of

the allegations of paragraph 34, except denies the allegations in the last sentence of paragraph
34.
35.

SME denies the allegations of paragraph 35. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 8 of 23

36.

SME denies the allegations of paragraph 36, except admits that SME has entered

into agreements with streaming service providers.


37.

SME denies the allegations of paragraph 37, except admits that SME has provided

19 with partially-redacted copies of agreements with third-party streaming service providers.


38.

SME denies the allegations of paragraph 38.

39.

SME denies the allegations of paragraph 39

40.

SME denies the allegations of paragraph 40. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
41.

SME denies the allegations of paragraph 41.

42.

SME denies the allegations of paragraph 42. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
43.

SME denies the allegations of paragraph 43.

44.

SME denies the allegations of paragraph 44.

45.

SME denies the allegations of paragraph 45, except admits that Paragraph 7.5.1 of

each Licensing Agreement includes the words [i]n respect of Records Sold by Company or its
licensees the marketing of which is supported by a major advertising campaign on radio and/or
television. SME respectfully refers the Court to the Licensing Agreements for the full and
complete terms thereof.
46.

SME denies the allegations of paragraph 46. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
47.

SME denies the allegations of paragraph 47. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 9 of 23

48.

SME denies the allegations of paragraph 48. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
49.

SME denies the allegations of paragraph 49. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
50.

SME denies the allegations of paragraph 50. SME respectfully refers the Court to

the Licensing Agreements for the full and complete terms thereof.
51.

SME denies the allegations of paragraph 51.

52.

SME denies the allegations of paragraph 52.

53.

SME denies the allegations of paragraph 53.

54.

SME denies the allegations of paragraph 54.

55.

SME denies the allegations of paragraph 55.

56.

SME denies the allegations of paragraph 56, except admits that Paragraph 10.2 of

each Licensing Agreement states in part that (a) The budget for the recording of such Audio
Visual Material (the Audio Visual Material Budget) shall be Mutually Agreed and shall be
reasonable in the context of the applicable mutually agreed treatment, story-board producer and
director; and (b) In the event the Audio Visual Budget is exceeded due to Contractors and/or
Artists default without prior written consent of Company the amount of such excess (the
Excess Costs) shall be fully deductible from any and all sums becoming due to Contractor
hereunder. SME respectfully refers the Court to the Licensing Agreements for the full and
complete terms thereof.
57.

SME denies the allegations of paragraph 57.

58.

SME denies the allegations of paragraph 58, except admits that: (a) Paragraph

1.22 of each Licensing Agreement contains the definition of Mutually Agreed; and (b) the

Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 10 of 23

paragraph states in part that Mutually Agreed shall mean agreed between Contractor (or
Contractors Authorized Representative) and Company, such agreement not to be unreasonably
withheld or delayed by either party and with both parties acting in good faith with a view to
seeking such agreement. SME respectfully refers the Court to the Licensing Agreements for the
full and complete terms thereof.
59.

SME denies the allegations of paragraph 59.

60.

SME denies the allegations of paragraph 60.

61.

SME denies the allegations in paragraph 61.

62.

SME denies the allegations of paragraph 62, except admits that it is not entitled to

recoup expenses that it did not incur.


63.

SME denies the allegations of paragraph 63.

64.

SME denies the allegations of paragraph 64.

65.

SME denies the allegations of paragraph 65.

66.

SME denies the allegations of paragraph 66, except admits that Paragraph 7.4.2(c)

of each Licensing Agreement includes the words Compilation Albums which are released by
Company or as part of its joint venture arrangements or by an affiliate of Company - three
quarters (3/4) of the otherwise applicable rate.

SME respectfully refers the Court to the

Licensing Agreements for the full and complete terms thereof.


67.

SME denies the allegations of paragraph 67, except admits that Paragraph 7.4.2(d)

of each Licensing Agreement includes the words Compilation Albums which are released by
third parties - two thirds (2/3) of the otherwise applicable rate. SME respectfully refers the
Court to the Licensing Agreements for the full and complete terms thereof.
68.

SME denies the allegations of paragraph 68.

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69.

SME denies the allegations of paragraph 69.

70.

SME denies the allegations of paragraph 70.

71.

SME denies the allegations of paragraph 71.

72.

SME denies the allegations of paragraph 72.

73.

SME denies the allegations of paragraph 73, except admits that Paragraph 7.1 of

each Licensing Agreement includes the words in the event that the number of Records Sold
during the Term of any Recording Commitment Album throughout the world exceeds one
million (1,000,000), then the royalty rate in respect of Records Sold of such Album in excess of
one million (1,000,000) shall increase by one per cent (1%) in every territory.

SME

respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.
74.

SME admits that (a) Paragraph 1.1 of each Licensing Agreement contains the

definition of Album; and (b) the paragraph states that Album shall mean a Record
containing not less than twelve (12) (or such lesser number as Company may require) nor more
than twenty-five (25) different Tracks and totalling no fewer than forty-five (45) minutes of
playing time (unless otherwise agreed by Company in writing in respect of a particular Record).
SME respectfully refers the Court to the Licensing Agreements for the full and complete terms
thereof.
75.

SME denies the allegations of paragraph 75.

76.

SME states that paragraph 76 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
77.

SME states that paragraph 77 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.

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78.

SME states that paragraph 78 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
79.

SME states that paragraph 79 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
80.

SME states that paragraph 80 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
81.

SME states that paragraph 81 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
82.

SME states that paragraph 82 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
83.

SME states that paragraph 83 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
84.

SME states that paragraph 84 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
85.

SME states that paragraph 85 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
86.

SME states that paragraph 86 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
87.

SME states that paragraph 87 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
88.

SME states that paragraph 88 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.

12

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89.

SME states that paragraph 89 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
90.

SME states that paragraph 90 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
91.

SME denies the allegations of paragraph 91.

92.

SME denies the allegations of paragraph 92, except admits that Paragraph 7.1 of

each Licensing Agreement includes the words in the event that the number of Records Sold
during the Term of any Recording Commitment Album throughout the world exceeds one
million (1,000,000), then the royalty rate in respect of Records Sold of such Album in excess of
one million (1,000,000) shall increase by one per cent (1%) in every territory.

SME

respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.
93.

SME denies the allegations of paragraph 93.

94.

SME denies the allegations of paragraph 94, except admits that Paragraph 7.1 of

each Licensing Agreement includes the words full price through normal retail outlets only.
SME respectfully refers the Court to the Licensing Agreements for the full and complete terms
thereof.
95.

SME denies the allegations of paragraph 95.

96.

SME denies the allegations of paragraph 96.

97.

SME states that paragraph 97 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
98.

SME states that paragraph 98 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.

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99.

SME states that paragraph 99 of the First Amended Complaint relates exclusively

to a claim that has been dismissed and accordingly does not require response.
100.

SME states that paragraph 100 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
101.

SME denies the allegations of paragraph 101.

102.

SME denies the allegations of paragraph 102, except admits that Paragraph

7.4.1(b) of the Licensing Agreements concerning Clarkson, Aiken, Underwood, Daughtry, and
Pickler includes the words price upon which royalties to Company are calculated. SME
respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.
103.

SME denies the allegations of paragraph 103, except admits that Paragraph

1.32(c) of each Licensing Agreement provides that Records Sold shall not include certain so
called free Records. SME respectfully refers the Court to the Licensing Agreements for the
full and complete terms thereof.
104.

SME denies the allegations of paragraph 104.

105.

SME denies the allegations of paragraph 105, except admits that in some

instances, units reported to SME from certain Record Clubs did not match the units that were
reported on 19s royalty statements, which resulted in an underpayment of royalties to 19.
106.

SME denies the allegations of paragraph 106.

107.

SME denies the allegations of paragraph 107.

108.

SME denies that it has failed to provide any documents in breach of its

obligations under the Licensing Agreements or to disguise any amounts due to 19.
109.

SME denies the allegations of paragraph 109.

110.

SME denies the allegations of paragraph 110.

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111.

SME denies the allegations of paragraph 111, except admits that Paragraph 7.2 of

each Licensing Agreement states in part that Company shall use its reasonable endeavours to
complete and submit appropriate double taxation exemption claim forms in respect of payments
to Company in the USA. SME respectfully refers the Court to the Licensing Agreements for
the full and complete terms thereof.
112.

SME states that the third sentence of paragraph 112 contains legal conclusions to

which no response is required. SME denies the remaining allegations of paragraph 112, except
admits that: (a) certain royalties reported to SME by its foreign affiliates were reduced by foreign
taxes; and (b) SME deducted certain taxes in calculating 19s royalties.
113.

SME denies the allegations of paragraph 113.

114.

SME denies the allegations of paragraph 114.

115.

SME denies the allegations of paragraph 115.

116.

SME admits the allegations of the first sentence of paragraph 116. SME denies

the allegations of the second sentence of paragraph 116.


117.

SME denies the allegations of paragraph 117.

118.

SME denies the allegations of paragraph 118.

119.

SME denies the allegations of paragraph 119.

120.

SME states that paragraph 120 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
121.

SME states that paragraph 121 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
122.

SME states that paragraph 122 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.

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123.

SME states that paragraph 123 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
124.

SME states that paragraph 124 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
125.

SME states that paragraph 125 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
126.

SME states that paragraph 126 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
127.

SME states that paragraph 127 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
128.

SME states that paragraph 128 of the First Amended Complaint relates

exclusively to a claim that has been dismissed and accordingly does not require response.
129.

SME denies the allegations of paragraph 129.

130.

SME denies the allegations of paragraph 130, except admits that: (a) SME

overpaid 19 in royalties for the sale of Compilation Albums under each of the Licensing
Agreements; (b) the royalty overpayment resulted from the incorrect application of the royalty
rate associated with sales of Albums to these sales of Compilation Albums; (b) the royalty rate
associated with sales of Records other than Albums should have been applied to these sales of
Compilation Albums; (c) SME notified 19 of these royalty overpayments and the reasons for
them prior to 19s commencement of this action.
131.

SME denies the allegations of paragraph 131.

132.

SME denies the allegations of paragraph 132.

133.

SME denies the allegations of paragraph 133.

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134.

SME denies the allegations of paragraph 134. SME respectfully refers the Court

to the Licensing Agreements for the full and complete terms thereof.
135.

SME denies the allegations of paragraph 135, except admits that: (a) SME

overpaid 19 in royalties for the sale of permanent digital track downloads under the Licensing
Agreements concerning Clay Aiken, Kelly Clarkson, and Carrie Underwood; (b) the royalty
overpayments resulted in part from the incorrect application of the royalty rate associated with
sales of Albums to these sales of permanent digital track downloads; (c) the royalty rate
associated with sales of Records other than Albums should have been applied to these sales of
permanent digital track downloads; (d) the royalty overpayments also resulted in part from the
failure to apply the royalty provisions of Paragraph 7.7 of the Licensing Agreements concerning
Clay Aiken, Kelly Clarkson, and Carrie Underwood, respectively, to these sales of permanent
digital track downloads; and (e) SME notified 19 of these royalty overpayments and the reasons
for them prior to 19s commencement of this action.
136.

SME denies the allegations of paragraph 136, except admits that (a) Paragraph 1.1

of each Licensing Agreement contains the definition of Album; and (b) the paragraph states
that Album shall mean a Record containing not less than twelve (12) (or such lesser number as
Company may require) nor more than twenty-five (25) different Tracks and totalling no fewer
than forty-five (45) minutes of playing time (unless otherwise agreed by Company in writing in
respect of a particular Record). SME respectfully refers the Court to the Licensing Agreements
for the full and complete terms thereof.
137.

SME denies the allegations of paragraph 137, except admits that Paragraph 7.1 of

each Licensing Agreement includes the words according to the country of retail sale, the

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Contract Period of release, and the nature and configuration of the applicable Record. SME
respectfully refers the Court to the Licensing Agreements for the full and complete terms thereof.
138.

SME denies the allegations of paragraph 138.

139.

SME denies the allegations of paragraph 139.

140.

SME denies the allegations of paragraph 140.

141.

SME denies the allegations of paragraph 141.

142.

SME denies the allegations of paragraph 142, except admits that: (a) each

Licensing Agreement contains provisions for the calculation and payment of royalties, if any, to
19; (b) each Licensing Agreement provides for 19s examination of certain books and records
with respect to the royalty statements issued to 19, subject to various restrictions; and (c)
Paragraph 17.4 of each Licensing Agreement states in part that Company agrees that Contractor
may (but not more than once during any calendar year and only once with respect to any
statement rendered hereunder) inspect examine and otherwise audit (Audit) Companys books
and records for the purposes of determining the accuracy of Companys statements to Contractor
hereunder. SME respectfully refers the Court to the Licensing Agreements for the full and
complete terms thereof.
143.

SME denies the allegations of paragraph 143.

144.

SME denies that it has failed to provide any documents in breach of its

obligations under the Licensing Agreements.


145.

SME denies the allegations of paragraph 145.

146.

SME admits the allegations of the first and second sentences of paragraph 146.

SME denies the allegations of the third sentence of paragraph 146.


147.

SME denies the allegations of paragraph 147.

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148.

SME denies the allegations of paragraph 148. SME respectfully refers the Court

to the Licensing Agreements for the full and complete terms thereof.
149.

SME denies the allegations of paragraph 149, except admits that it has not agreed

to a settlement with 19.


150.

SME denies the allegations of paragraph 150.


Claim I

151.

SME repeats and realleges the foregoing responses as if fully set forth herein.

152.

SME admits that the Licensing Agreements are valid and enforceable contracts.

153.

Paragraph 153 contains legal conclusions to which no response is required, and

which were rejected in part by the Courts Opinion and Order, dated March 17, 2015, and
accordingly does not require response. To the extent that a response is deemed necessary, SME
denies the allegations of paragraph 153.
154.

Paragraph 154 contains legal conclusions to which no response is required. To

the extent that a response is deemed necessary, SME denies the allegations of paragraph 154.
155.

Paragraph 155 contains legal conclusions to which no response is required. To

the extent that a response is deemed necessary, SME denies the allegations of paragraph 155.
156.

Paragraph 156 contains legal conclusions to which no response is required. To

the extent that a response is deemed necessary, SME denies the allegations of paragraph 156.
Claim II
157.

SME repeats and realleges the foregoing responses as if fully set forth herein.

158.

SME admits that the Licensing Agreements are valid and enforceable contracts.

159.

SME denies the allegations of paragraph 159.

160.

Paragraph 160 contains legal conclusions to which no response is required, and

which were rejected in part by the Courts Opinion and Order, dated March 17, 2015, and
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Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 20 of 23

accordingly does not require response. To the extent that a response is deemed necessary, SME
denies the allegations of paragraph 160.
161.

Paragraph 161 contains legal conclusions to which no response is required. To

the extent that a response is deemed necessary, SME denies the allegations of paragraph 161.
RESPONSE TO PRAYER FOR RELIEF
162.

SME denies that Plaintiff is entitled to the relief enumerated in paragraphs 1-6 of

Plaintiffs Prayer for Relief or to any other relief.


AFFIRMATIVE DEFENSES
As and for a First Affirmative Defense
163.

Plaintiffs claims are barred, in whole or in part, by contractual incontestability

and limitations provisions.


As and for a Second Affirmative Defense
164.

Plaintiffs claims are barred, in whole or in part, by contractual limitations of

remedies.
As and for a Third Affirmative Defense
165.

Plaintiffs claims are barred, in whole or in part, on the ground that Plaintiff failed

to mitigate any damages alleged in the First Amended Complaint.


As and for a Fourth Affirmative Defense
166.

Plaintiffs claims are barred, in whole or in part, by the doctrines of release or

accord and satisfaction.


As and for a Fifth Affirmative Defense
167.

Plaintiffs claims are barred, in whole or in part, by the doctrines of implied

acceptance or novation.

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Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 21 of 23

As and for a Sixth Affirmative Defense


168.

Plaintiffs claims are barred, in whole or in part, by the doctrines of laches,

estoppel, waiver, and/or account stated.


As and for a Seventh Affirmative Defense
169.

Plaintiffs claims are barred, in whole or in part, by the doctrine of ratification.


As and for an Eighth Affirmative Defense

170.

Plaintiffs claims are barred, in whole or in part, by the applicable statutes of

limitations.
As and for a Ninth Affirmative Defense
171.

Plaintiffs claims are barred, in whole or in part, by the doctrines of res judicata

and collateral estoppel.


As and for a Tenth Affirmative Defense
172.

SME is entitled to an offset to the claims set forth in the First Amended

Complaint and/or equitable recoupment sufficient to diminish or defeat Plaintiffs recovery


thereunder.
Additional Affirmative Defenses
173.

SME reserves the right to assert any additional affirmative defenses which

become apparent based on facts adduced in discovery or otherwise.


COUNTERCLAIM
(Breach of Contract / Implied Covenant of Good Faith and Fair Dealing)
1.

SME repeats and realleges the foregoing responses as if fully set forth herein.

2.

The Licensing Agreements are valid and enforceable contracts.

3.

SME has performed its obligations under each of the Licensing Agreements.

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Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 22 of 23

4.

As alleged in paragraph 130 above, SME has overpaid 19 in royalties for the sale

of Compilation Albums under each of the Licensing Agreements.


5.

Additionally, as alleged in paragraph 135 above, SME has overpaid 19 in

royalties for the sale of permanent digital track downloads under the Licensing Agreements for
Clay Aiken, Kelly Clarkson, and Carrie Underwood.
6.

Moreover, in December 2011, SME overpaid 19 an advance under the License

Agreement for Kellie Pickler in connection with her Recording Commitment Album of the Third
Contract Period. Under Paragraph 6.1.1(b) of the License Agreement for Kellie Pickler, the
advance payable for Contract Periods other than the First Contract Period is calculated based on
certain royalties net of reserves.

When calculating an advance for Picklers Recording

Commitment Album of the Third Contract Period, however, SME mistakenly failed to account
for applicable reserves. This error resulted in an overpayment to 19 in December 2011.
7.

None of the Licensing Agreements provide for 19 to receive or retain the

overpayments made by SME.


8.

The implied covenant of good faith and fair dealing prevents 19 from retaining

royalties that were paid to it in error and to which it is not contractually entitled.
9.

19 has breached each of the Licensing Agreements and the implied covenant of

good faith and fair dealing by retaining the overpayments made by SME.
10.

By reason of the foregoing, SME seeks to recover from 19 more than $2 million

in overpayments to which 19 was not entitled under the License Agreements.


PRAYER FOR RELIEF
WHEREFORE, Defendant respectfully requests that the Court enter judgment:
i.

dismissing the First Amended Complaint and all claims asserted therein with prejudice;

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Case 1:14-cv-01056-RA Document 35 Filed 03/31/15 Page 23 of 23

ii.

awarding SME any and all money damages to which SME is entitled, including
compensatory damages for overpayments to 19 in an amount to be determined at trial, plus
prejudgment interest; and

iii.

awarding SME attorneys fees, costs and disbursements, and such other and further relief as
the Court may deem just and proper.

Dated:

March 31, 2015


New York, New York

Respectfully submitted,
/s/ Jonathan M. Sperling
Jonathan M. Sperling
Christopher Y. L. Yeung
COVINGTON & BURLING LLP
The New York Times Building
620 Eighth Avenue
New York, NY 10018
(212) 841-1000
(212) 841-1010 (fax)
jsperling@cov.com
cyeung@cov.com
Attorneys for Defendant
Sony Music Entertainment

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