Proposed Final Judgment and Competitive Impact Statement, 55167-55174 [05-18498]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Notices]
[Pages 55167-55174]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18498]


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DEPARTMENT OF JUSTICE

Antitrust Division


Proposed Final Judgment and Competitive Impact Statement

United States v. Ecast, Inc. and NSM Music Group, Ltd.

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. section 16(b)-(h), that a Complaint, proposed 
Final Judgment, Stipulation, and Competitive Impact Statement have been 
filed with the United States District court for the District of 
Columbia in United States v. Ecast, Inc. and NSM Music Group, Ltd., 
Civil Case No. 05 CV 1754. The proposed Final Judgment is subject to 
approval by the Court after compliance with the Antitrust Procedures 
and Penalties Act, 15 U.S.C. 16(b)-(h), including expiration of the 
statutory 60-day public comment period.
    On September 2, 2005, the United States filed a Complaint alleging 
that Ecast, Inc. and NSM Music Group, Ltd. reached an agreement in 
February 2003 not to compete in the market for digital jukebox 
platforms in the United States in violation of Section 1 of the Sherman 
Act. As a result of the agreement, NSM terminated its plans to release 
a new digital jukebox with its own platform in the United States.
    To restore competition, the proposed Final Judgment filed with the 
Complaint will terminate the defendants' existing noncompete agreement, 
and forbid them from entering future noncompete agreements with other 
digital jukebox platform competitors. A Competitive Impact Statement, 
filed by the United States, describes the Complaint, the proposed Final 
Judgment, and the remedies available to private litigants. Copies of 
the Complaint, proposed Final Judgment, and Competitive Impact 
Statement are available for inspection at the Department of Justice in 
Washington, DC in Room 215 North, 325 Seventh Street, NW., 20530 
(telephone: 202/514-2692) and at the Office of the Clerk of the United 
States District Court for the District of Columbia, 333 Constitution 
Avenue, NW., Washington, DC 2001.
    Public comment is invited within 60 days of the date of this 
notice. Such comments, and responses thereto, will be published in the 
Federal Register and filed with the Court. Comments should be directed 
to John Read, Chief, Litigation III Section, Antitrust Division, U.S. 
Department of Justice, 325 7th Street, NW., Suite 300, Washington, DC 
20530 (Telephone (202) 616-5935).

J. Robert Kramer, II
Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

    United States of America, Department of Justice, Antitrust 
Division, 325 7th Street, N.W.; Suite 300, Washington, DC 20530, 
Plaintiff, v. Ecast, Inc., 49 Geary Street, Mezzanine, San Francisco, 
CA 94108, and NSM Music Group, LTD. 3 Stadium Way, Elland Road, Leeds, 
West Yorkshire, United Kingdom, LS11 OEW, Defendants; Civil Case 
Number: 1:05CV01754, Judge: Colleen Kollar-Kotelly, Deck Type: 
Antitrust, Date Stamp: September 2, 2005.

Complaint

    The United States of America, acting under the direction of the 
Attorney General of the United States, brings the civil antitrust 
action to obtain equitable relief against defendants Ecast, Inc. 
(``Ecast'') and NSM Music Group, Ltd. (``NSM''), alleging as follows:

Nature of the Action

    1. This action challenges an agreement between Ecast and NSM to not 
compete in the U.S. market for digital jukebox platforms.
    2. A digital jukebox is an Internet-connected device installed in 
bars and restaurants that is capable of playing digital music files 
that are either stored on a hard drive inside the jukebox, or are 
downloaded from a remote server via the Internet. The jukebox consists 
of two primary components, a physical jukebox and a ``platform,'' which 
is the term the industry applies to the combination of the software 
that powers the jukebox and the licensed collection of music that the 
jukebox is capable of playing at the request of bar or restaurant 
patrons.
    3. At all time relevant to this complaint, defendant Ecast was one 
of

[[Page 55168]]

only two digital jukebox platform providers in the United States. Ecast 
does not manufacture physical jukeboxes and has instead elected to work 
with existing jukebox manufacturers. Ecast's manufacturing partners 
produce digital jukeboxes incorporating Ecast's platform and distribute 
the jukeboxes through their established distribution networks to 
``operators,'' which purchase the jukeboxes and install them in bars 
and restaurants.
    4. In 2002, Ecast was informed by its then manufacturing partner of 
the manufacturer's plans to terminate its supply relationship with 
Ecast. Ecast turned to other jukebox manufacturers to avoid an 
interruption in the flow of digital jukeboxes powered by its platform 
into the digital jukebox marketplace.
    5. At that time, defendant NSM, a jukebox manufacturer, was 
developing its own distinctive digital jukebox platform, which it 
planned to incorporate into its physical jukeboxes and release in the 
United States in competition with Ecast.
    6. In the fall of 2002, Ecast initiated negotiations with defendant 
NSM regarding a possible manufacturing agreement. NSM expressed some 
interest in manufacturing digital jukeboxes incorporating Ecast's 
platform, but Ecast and NSM disagreed on how Ecast should compensate 
NSM in such a relationship. During the negotiations, Ecast requested 
that NSM agree to abandon its plans to enter the U.S. market in return 
for an upfront payment. NSM accepted Ecast's condition and entered an 
agreement with Ecast in February 2003.
    7. NSM's agreement to manufacture only Ecast-powered digital 
jukeboxes caused it to abandon its plan to incorporate its own 
distinctive digital jukebox platform into its physical jukeboxes and 
enter the United States market.
    8. Defendants' agreement constitutes an unreasonable agreement in 
restraint of trade in violation of Section 1 of the Sherman Act, 15 
U.S.C. 1.
    9. The United States seeks an order to prohibit defendants from 
enforcing and adhering to any agreement restraining competition between 
them and to obtain other equitable relief necessary to restore 
competition, potential or actual, for the benefit of digital jukebox 
purchasers throughout the United States.

Jurisdiction and Venue

    10. The Court has subject matter jurisdiction under section 4 of 
the Sherman Act, 15 U.S.C. 4, and under 28 U.S.C. 1331 and 1337 to 
prevent and restrain the defendants from continuing to violate section 
1 of the Sherman Act, 15 U.S.C. 1.
    11. Venue is proper in this judicial district under section 12 of 
the Clayton Act, 15 U.S.C. 22, and under 28 U.S.C. 1391(b)(1), (c) 
because defendants transact or have transacted business here.

Defendants

    12. Defendant Ecast, Inc. is a privately held company organized and 
existing under the laws of the State of Delaware, with is principal 
place of business in San Francisco, California.
    13. Defendant NSM Musical Group, Ltd. is a company incorporated 
under the laws of the United Kingdom. Since 2002, NSM has offered a 
digital jukebox powered by an NSM platform in the United Kingdom. NSM's 
U.S. subsidiary, NSM Music, Inc., is based outside of Chicago, 
Illinois.

Industry Background

    14. Digital jukeboxes emerged in the United States in 1997. Because 
of the advantages of digital jukeboxes both to consumers and to the 
``operators'' that purchase the jukeboxes and install them (along with 
other coin-operated devices) in bars and restaurants, the pace of 
conversion from CD jukeboxes to digital jukeboxes is expected to 
increase rapidly.
    15. Digital jukeboxes provide consumers access to a dramatically 
broader selection of music than they have available to them through CD 
jukeboxes. Jukeboxes powered by Ecast's platform, for example, allow 
consumers to choose from among 300 albums stored on each jukebox's hard 
drive. For an additional fee, consumers can download any of the 
additional 150,000 songs that Ecast stores on its remote servers. 
Consumers can also pay an additional fee to have their song choice jump 
to the front of the song queue. These features are not only popular 
with consumer users of digital jukeboxes, they also increase the 
revenue opportunities available to their operator purchasers.
    16. After making a one-time payment to a jukebox distributor (the 
traditional intermediary between the manufacturer and the operator), 
operators then pay monthly fees to the platform provider to maintain 
access both to the music collection the platform provider licensed from 
U.S. copyright holders and to the proprietary software that allows the 
operator to remotely control the jukebox and the special features 
associated with it.
    17. At all times relevant to the complaint, Ecast had only one 
other digital jukebox platform competitor, with which it competed on 
the monthly fee collected from operators. Ecast and its competitor each 
charged a monthly fee based on a percentage of the revenues generated 
by the jukebox. Ecast also competed on the special features available 
through jukeboxes incorporating its platform.
    18. Under Ecast's business model, it sought to collaborate closely 
with and take advantage of the manufacturing expertise and distribution 
networks maintained by traditional jukebox manufacturers. Ecast 
believed that by combining the traditional jukebox companies' strengths 
with Ecast's Internet technology capabilities and the music collection 
it licensed from U.S. copyright holders, they could provide high-
quality, Ecast-powered jukeboxes to the U.S. market more quickly than 
if Ecast had proceeded on its own.
    19. Digital jukebox platforms provide to digital jukebox operators 
the software that powers digital jukeboxes and the music licensed from 
U.S. copyright holders that consumers can access through the jukebox. 
Because of the unique features and the enhanced revenue opportunities 
that digital jukeboxes offer to operators, if a hypothetical monopolist 
of digital jukebox platforms were to raise price by a small, but 
significant amount, digital jukebox manufacturers would not turn to 
other types of platforms (such as CD libraries). Neither would such a 
price increase cause operators of digital jukeboxes to switch to 
possible substitutes (such as CD jukeboxes). Additionally, if such a 
hypothetical digital jukebox platform monopolist raised its price, 
digital jukebox manufacturers that sold in the United States and 
operators that installed jukeboxes in the United States would not 
switch to platform providers that did not hold the necessary licenses 
to the U.S. copyrights associated with the music played by the jukebox.

The Illegal Noncompete Agreement

    20. In the fall of 2002, defendant NSM was preparing to enter the 
U.S. digital jukebox market using its own platform in competition with 
Ecast and the other platform competitor. It had begun obtaining the 
U.S. copyright licenses necessary to provide a jukebox platform in the 
United States and had secured a line of credit to pay advances demanded 
by the copyright holders. NSM had also modified its U.K. jukebox and 
platform for release in the U.S. market, and it had completed a 
prototype of its planned

[[Page 55169]]

digital jukebox for demonstration at trade shows.
    21. NSM saw a significant market opportunity to distinguish itself 
from Ecast and the other platform competitor by offering a more 
operator-friendly business model for the digital jukebox platform than 
the incumbents' revenue-sharing model. NSM's plan was to release a 
digital jukebox platform at a fixed monthly cost to operators. 
Operators had expressed interest in NSM's platform and several of them 
delayed purchases of jukeboxes incorporating Ecast's platform in 
anticipation of NSM's launch. NSM's commitment to a distinctive 
business model attractive to operators promised to generate competitive 
responses from the existing platform providers.
    22. At an industry trade show in September 2002, NSM displayed a 
prototype of a digital jukebox and platform that it intended to release 
in the U.S. market. Ecast, having learned of its manufacturing 
partner's plans to terminate Ecast's only manufacturing relationship, 
approached NSM at the September 2002 trade show and proposed that NSM 
produce digital jukeboxes that would be powered by Ecast's platform.
    23. Given its efforts to introduce a NSM-powered digital jukebox, 
NSM demanded appropriate compensation from Ecast before it would agree 
to assist Ecast by producing Ecast-powered digital jukeboxes. During 
subsequent negotiations, Ecast agreed to make a significant upfront 
cash payment to NSM in return for NSM's agreement to manufacture only 
East-powered digital jukeboxes and not compete against Ecast.
    24. After those negotiations, Ecast forwarded a letter of intent to 
NSM. The December 31, 2002, letter of intent contained a provision that 
stated:

    NSM agrees that it will abandon its attempts to acquire music 
licenses for the U.S. market (the ``Territory'') and advise all 
content providers and licensors with which NSM has entered licenses 
with [sic] that it has abandoned entering the US market with its own 
digital music platform. NSM also agrees that for as long as Ecast 
offers the Ecast Platform in the Territory NSM will not produce a 
competing product in the Territory.

    25. Ecast sought through the noncompete provision to prevent NSM 
from entering and disrupting the digital jukebox platform marketplace. 
NSM's board thereafter approved the deal with Ecast that included the 
noncompete provision as quoted above.
    26. After agreeing with Ecast to manufacture Ecast-powered 
jukeboxes exclusively and not to proceed with its own entry into the 
U.S. platform market, NSM fired the two employees that had been 
responsible for its planned entry. Upon learning of NSM's action, Ecast 
reneged on its deal with NSM and refused to make the upfront payment to 
NSM as previously promised.
    27. Ecast and NSM subsequently negotiated a second agreement that 
also contained a noncompete provision obligating NSM to produce only 
Ecast-powered digital jukeboxes. The second agreement also called for 
Ecast to make a smaller upfront payment to NSM and contained a license 
by NSM to Ecast of a patent relating to digital jukebox technology.
    28. NSM did not, and has not, entered the U.S. market with its own 
digital jukebox using its platform. Its presence in the United States 
is only as a manufacturer and distributor of CD jukeboxes and digital 
jukeboxes powered by Ecast's platform.

Cause of Action (Violation of Section 1 of the Sherman Act)

    29. The United States hereby incorporates paragraphs 1 through 28.
    30. The anticompetitive effects of defendants' noncompete agreement 
outweigh any procompetitive benefits offered by that agreement.
    31. The noncompete agreement prevented NSM from entering the market 
for digital jukebox platforms and denied to U.S. operators and jukebox 
users the benefits of competition among NSM and existing participants 
in the market. The noncompete agreement offered few, if any, 
procompetitive benefits to weigh against the harm to U.S. consumers.
    32. Defendants' agreement unreasonably restrained competition in 
the digital jukebox platform market in violation of Section 1 of the 
Sherman Act, 15 U.S.C. 1.

Requested Relief

    The United States requests that:
    (A) The Court adjudge and decree that 6the defendants' agreement 
not to compete constitutes an illegal restraint of interstate trade and 
commerce in violation of Section 1 of the Sherman Act;
    (B) The defendants be permanently enjoined and restrained from 
enforcing or adhering to existing contractual provisions that restrict 
competition between them;
    (C) Each defendant be permanently enjoined and restrained from 
establishing any agreement restricting competition between it and 
another digital jukebox platform competitor;
    (D) The United states be awarded such other relief as the Court may 
deem just and proper to redress and prevent recurrence of the alleged 
violation and to dissipate the anticompetitive effects of Ecast's and 
NSM's illegal agreement; and
    (D) The United States be awarded the costs of this action.

Dated: September 2, 2005.

Thomas O. Barnett,

Acting Assistant Attorney General.

J. Robert Kramer II,

Director of Operations.

John R. Read,

Chief.

Nina Hale,

Assistant Chief, Litigation III.

David C. Kully (DC Bar 448763),

Jill A. Beaird,

Attorneys for the United States, United States Department of 
Justice, Antitrust Division, 325 7th Street, NW; Suite 300, 
Washington, DC 20530, Telephone: (202) 305-9969, Facsimile: (202) 
307-9952.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, v. Ecast, Inc. and NSM Music 
Group, Ltd., Defendants; Civil No.: 05 1754

Proposed Final Judgment

    Whereas, the United States of America filed its Complaint on 
September 2, 2005, alleging that defendants Ecast, Inc. (``Ecast'') and 
NSM Music Group, Ltd. (``NSM'') entered into an agreement in violation 
of Section 1 of the Sherman Act, and plaintiff and defendants, by their 
respective attorneys, have consent to the entry of this Final Judgment 
without trial or adjudication of any issue of fact or law, and without 
this Final Judgment constituting any evidence against, or any admission 
by, any party regarding any such issue of fact or law;
    And whereas, Ecast and NSM agree to be bound by the provisions of 
this Final Judgment pending its approval by this Court;
    And whereas, the essence of this Final Judgment is the prevention 
of future conduct by Ecast and NSM that impairs competition in the 
digital jukebox platform market;
    And whereas, the United States requires Ecast and NSM to agree to 
certain procedures and prohibitions for the purpose of preventing the 
loss of competition;
    Now therefore, before any testimony is taken, without trial or 
adjudication of any issue of fact or law, and upon consent of the 
parties, it is ordered, adjudged, and decreed:

[[Page 55170]]

I. Jurisdiction

    This Court has jurisdiction over the subject matter of and each of 
the parties to this action. The Complaint states a claim upon which 
relief may be granted against Ecast and NSM under Section 1 of the 
Sherman Act, as amended, 15 U.S.C. 1.

II. Definitions

    As used in this Final Judgment:
    A. ``Digital Jukebox'' means a commercial vending device that upon 
payment plays for public performance digital music files that are 
delivered electronically from a remote server and stored on any 
internal or connected data storage medium.
    B. ``Digital Jukebox Platform competitor'' means any natural 
person, corporate entity, partnership, association, or joint venture 
that has licensed (or that Ecast or NSM knows or has reason to believe 
has plans to license) a collection of digital music files from U.S. 
copyright holders for the purpose of supplying music content in the 
United States to a Digital Jukebox.
    C. ``Ecast'' means defendant Ecast, Inc., a privately held company 
organized and existing under the laws of the State of Delaware, with 
its principal place of business in San Francisco, California, its 
successors and assigns, and its subsidiaries, divisions, groups, 
affiliates, partnerships, and joint ventures, and their officers, 
managers, agents, employees, and directors acting or claiming to act on 
its behalf.
    D. ``NSM'' means defendant NSM Music Group, Ltd., a company 
incorporated under the laws of the United Kingdom, its successor and 
assigns, and its subsidiaries, divisions, groups, affiliates, 
partnerships, and joint ventures, and their officers, managers, agents, 
employees, and directors acting or claiming to act on its behalf.

III. Applicability

    This Final Judgment applies to Ecast and NSM, as defined above, and 
all other persons in active concert or participation with any of them 
who receive actual notice of this Final Judgment by personal service or 
otherwise.

IV. Prohibited and Required Conduct

    1. Each defendant, its officers, directors, agents, and employees, 
acting or claiming to act on its behalf, and successors and all other 
persons acting or claiming to act on its behalf, are enjoined and 
restrained from directly or indirectly adhering to or enforcing section 
4 (``EXCLUSIVITY'') of defendants' September 2003 ``Manufacturing 
License, Distribution License and Patent License Agreement,'' or from 
in any manner, directly or indirectly, entering into, continuing, 
maintaining, or renewing any contractual provision that prohibits NSM 
from becoming or limits NSM's ability to become a Digital Jukebox 
Platform Competitor.
    2. Each defendant, its officers, directors, agents, and employees, 
acting or claiming to act on its behalf, and successors and all other 
persons acting or claiming to act on its behalf, are enjoined and 
restrained from, in any manner, directly or indirectly, entering into, 
continuing, maintaining, or renewing any agreement with any Digital 
Jukebox Platform Competitor that prohibits such person from supplying 
or limits the ability of such person to supply music content in the 
United States to Digital Jukeboxes, provided however, that (a) any 
merger or acquisition involving either defendant; (b) any valid license 
of U.S. Patent No. 5,341,350 from either defendant to a nonparty; or 
(c) any valid license of U.S. patent No. 5,341,350 from NSM to Ecast, 
which does not in any way prohibit NSM from becoming or limit NSM's 
ability to become a Digital Jukebox Platform Competitor, will not be 
considered, by itself, a violation of this paragraph.

V. Compliance Program

    1. Each defendant shall establish and maintain an antitrust 
compliance program which shall include designating, within thirty days 
of entry of this Final Judgment, an Antitrust Compliance Officer with 
responsibility for implementing the antitrust compliance program and 
achieving full compliance with this Final Judgment and the antitrust 
laws. The Antitrust Compliance Officer shall, on a continuing basis, be 
responsible for the following:
    a. Furnishing a copy of this Final Judgment within thirty days of 
entry of the Final Judgment to each defendant's officers, directors, 
and employees;
    b. Furnishing within thirty days a copy of this Final Judgment to 
any person who succeeds to a position described in Section V.1.a;
    c. Arranging for an annual briefing to each person designated in 
Section V.1.a or b on the meaning and requirements of this Final 
Judgment and the antitrust laws;
    d. Obtaining from each person designated in Section V.1.a or b 
certification that he or she (1) has read and, to the best of his or 
her ability, understands and agrees to abide by the terms of this Final 
Judgment; (2) is not aware of any violation of the Final Judgment that 
has not been reported to the Antitrust Compliance Officer; and (3) 
understands that any person's failure to comply with this Final 
Judgment may result in an enforcement action for civil or criminal 
contempt of court against each defendant and/or any person who violates 
this Final Judgment;
    e. Maintaining (1) a record of certifications received pursuant to 
this Section; (2) a file of all documents related to any alleged 
violation of this Final Judgment and the antitrust laws; and (3) a 
record of all communications related to any such violation, which shall 
identify the date and place of the communication, the persons involved, 
the subject matter of the communication, and the results of any related 
investigation;
    f. Reviewing the content of each e-mail, letter, memorandum, or 
other communication to any Digital Jukebox Platform Competitor written 
by or on behalf of an officer or director of either defendant that 
relates to the recipient's supply of music content in the United States 
to Digital Jukeboxes in order to ensure their adherence with this Final 
Judgment.
    2. If defendant's Antitrust Compliance Officer learns of any 
violations of any of the terms and conditions contained in this Final 
Judgment, defendant shall immediately take appropriate action to 
terminate or modify the activity so as to comply with this Final 
Judgment.

VI. Compliance Inspection

    1. For the purposes of determining or securing compliance with this 
Final Judgment, or of determining whether the Final Judgment should be 
modified or vacated, and subject to any legally recognized privilege, 
from time to time duly authorized representatives of the United States 
Department of Justice, including consultants and other persons retained 
or designated thereby, shall, upon written request of a duly authorized 
representative of the Assistant Attorney General in charge of the 
Antitrust Division, and on reasonable written notice to defendants, be 
permitted:
    a. Access during defendants' office hours to inspect and copy, or 
at the United States' option, to require defendants to provide copies 
of, all books, ledgers, accounts, records, and documents in their 
possession, custody, or control relating to any matters contained in 
this Final Judgment; and
    b. To interview, either informally or on the record, defendant's 
officers, employees, or agents, who may have their individual counsel 
present, regarding such matters. The interviews shall be subject to the 
reasonable

[[Page 55171]]

convenience of the interviewee and without restraint or interference by 
defendants.
    2. Upon the written request of a duly authorized representative of 
the Assistant Attorney General in charge of the Antitrust Division, 
defendants shall submit written reports, under oath if requested, 
relating to any of the matters contained in this Final Judgment as may 
be requested.
    3. No information or documents obtained by the means provided in 
this section shall be divulged by plaintiffs to any person other than 
an authorized representative of the executive branch of the United 
States, except in the course of legal proceedings to which the United 
States is a party (including grand jury proceedings), or for the 
purpose of securing compliance with this Final Judgment, or as 
otherwise required by law.
    4. If at the time defendants furnish information or documents to 
the United States, they represent and identify in writing the material 
in any such information or documents to which a claim of protection may 
be asserted under Rule 26(c)(7) of the Federal Rules of Civil 
Procedure, and mark each pertinent page of such material, ``Subject to 
claim of protection under Rule 26(c)(7) of the Federal Rules of Civil 
Procedure,'' then the United States shall use its best efforts to give 
defendants ten calender days notice prior to divulging such material in 
any legal proceeding (other than a grand jury proceeding).

VII. Retention of Jurisdiction

    This Court retains jurisdiction to enable any party to this Final 
Judgment to apply to this Court at any time for further orders and 
directions as may be necessary or appropriate to carry out or construe 
this Final Judgment, to modify any of its provisions, to enforce 
compliance, and to punish violations of its provisions.

VIII. Expiration of Final Judgment

    Unless this Court grants an extension, this Final Judgment shall 
expire ten years from the date of its entry.

IX. Notice

    For purposes of this Final Judgment, any notice or other 
communication shall be given to the persons at the addresses set forth 
below (or such other addresses as they may specify in writing to Ecast 
or NSM): John Read, Chief, Litigation III Section, U.S. Department Of 
Justice, Antitrust Division, 325 Seventh Street, NW., Suite 300, 
Washington, DC 20530.

X. Public Interest Determination

    Entry of this Final Judgment is in the public interest.

Dated:-----------------------------------------------------------------

    Court approved subject to procedures of Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16 United States District Judge.
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In the United States District Court for the District of Columbia

    United States of America, Department of Justice, Antitrust 
Division, 325 7th Street, NW.; Suite 300, Washington, DC 20530, 
Plaintiff, v. Ecast, Inc., 49 Geary Street, Mezzanine, San Francisco, 
CA 94108, and NSM Music Group, Ltd., 3 Stadium Way, Elland Road, Leeds, 
West Yorkshire, United Kingdom LS11 OWE, Defendants; Civil Case Number 
1:05CV01754, Judge: Colleen Kollar-Kotelly, Deck Type: Antitrust, Date 
Stamp: September 2, 2005.

Competitive Impact Statement

    The United States, pursuant to Section 2(b) of the Antitrust 
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b), files this 
Competitive Impact Statement relating to the proposed Final Judgment 
submitted for entry in this civil antitrust proceeding.
    On September 2, 2005, the United States filed a civil antitrust 
Complaint pursuant to section 4 of the Sherman Act, as amended, 15 
U.S.C. 4, against Ecast, Inc. (``Ecast'') and NSM Music Group, Ltd. 
(``NSM''). The Complaint alleges that defendants entered into a 
noncompete agreement that caused NSM not to proceed with its plans to 
enter the U.S. digital jukebox platform market and compete with Ecast. 
That agreement, as the Complaint further alleges, is a restraint of 
interestate trade in violation of Section 1 of the Sherman Act, 15 
U.S.C. 1.
    The Complaint seeks an order to prohibit defendants from enforcing 
or adhering to any agreement restraining competition between them, and 
other equitable relief necessary to prevent a recurrence of the illegal 
conduct.
    The United States filed simultaneously with the Complaint a 
proposed Final Judgment, which constitutes the parties' settlement. 
This proposal Final Judgment seeks to prevent defendants' illegal 
conduct by expressly enjoining them from enforcing or adhering to their 
existing noncompete agreement, prohibiting them from establishing 
future noncompete agreements with digital jukebox platform competitors, 
and requiring each to establish a rigorous antitrust compliance 
program.
    The United States, Ecast, and NSM have stipulated that the proposed 
Final Judgment may be entered after compliance with the APPA, unless 
the United States withdraws its consent. Entry of the proposed Final 
Judgment would terminate this action, except that this Court would 
retain jurisdiction to construe, modify, and enforce the proposed Final 
Judgment and to punish violations thereof.

I. Description of the Events Giving Rise to the Alleged Violation of 
the Antitrust Laws

A. Defendants

I. Ecast
    Ecast is a San Francisco-based, privately held company organized 
under the laws of the State of Delaware. It developed a digital jukebox 
platform that supplies the software and music for jukeboxes 
manufactured by traditional jukebox manufacturers. Ecast refers to 
jukeboxes that incorporate its platform as ``powered by Ecast.''
2. NSM
    NSM is a jukebox manufacturer based in the United Kingdom. It 
conducts business in the United States through its operating 
subsidiary, NSM Music, Inc., based outside of Chicago, Illinois.

B. The Digital Jukebox Industry

    Digital jukeboxes are Internet-connected devices installed in bars 
and restaurants that are capable of playing digital music files that 
are either stored on a hard drive inside each jukebox or are downloaded 
from a remote server via the Internet. Digital jukeboxes consist of two 
primary components, a physical jukebox and a ``platform,'' which is the 
term the industry applies to the combination of the software that 
powers the jukebox and the licensed collection of music that the 
jukebox is capable of playing.
    As is the case with CD jukeboxes and most other coin-operated 
devices found in bars and restaurants, digital jukeboxes are purchased, 
installed, and maintained by 3,000, mostly local businesses called 
``operators.'' Operators purchase both CD and digital jukeboxes from 
distributors, which maintain relationships with jukebox 
manufacturers.\1\ When operators elect to purchase a digital jukebox, 
they incur--in addition to the one-time, out-of-pocket payment to the 
distributor--an obligation to make recurring monthly payments to the 
platform provider to

[[Page 55172]]

maintain continuous access to the provider's proprietary software and 
to the music collection that the platform provider licensed from U.S. 
copyright holders.
---------------------------------------------------------------------------

    \1\ Operators then negotiate with bars and restaurants for space 
in their establishments in which to place the digital jukeboxes.
---------------------------------------------------------------------------

    There are roughly 15,000 digital jukeboxes in the United States. 
The popularity of digital jukeboxes to consumers, and their ability to 
generate greater revenue for the operator than CD jukeboxes, lead many 
in the industry to predict the pace of digital jukebox adoption to 
increase in the coming years.
    Digital jukeboxes offer consumers a song selection dramatically 
larger than CD jukeboxes. Ecast, for example, preloads jukeboxes 
incorporating its platform with 300 albums, but also permits consumers 
to access, for a higher price, a licensed collection of 150,000 
additional songs that it stored on its remote servers. Ecast-powered 
jukeboxes also allow consumers to pay to jump to the front of the song 
queue. Because operators can control the song selection on their 
digital jukeboxes from a remote location over the Internet, digital 
jukeboxes also relieve operators of the need to visit each their 
jukeboxes to load new releases or holiday favorites.
    Ecast released its platform in the United States in 2001. It did so 
under an agreement with a jukebox manufacturer, which manufactured and 
distributed (through the manufacturer's established chain of 
distributors) digital jukeboxes incorporating the Ecast platform. When 
the manufacturer notified Ecast in 2002 that it intended to terminate 
their agreement, Ecast immediately sought to avoid an interruption in 
the delivery of Ecast-powered digital jukeboxes to the U.S. market by 
finding another manufacturer partner.

C. The Illegal Noncompete Agreement

    At a September 2002 industry trade show, NSM displayed a prototype 
of a digital jukebox and platform that it intended to release in the 
U.S. market. By that time, NSM was actively negotiating with U.S. 
copyright holders to obtain the license it needed to provide music to 
consumers through its digital jukebox platform, and had secured a line 
of credit to pay advances typically demanded by the copyright holders. 
NSM had also modified the digital jukebox and platform it had 
previously released in the United Kingdom for release in the United 
States. It had publicly communicated its intention to enter the U.S. 
market, and it was internally committed to proceeding with those plans.
    Ecast approached NSM at the September 2002 industry trade show and 
proposed that NSM produce digital jukeboxes which would be powered by 
Ecast's platform. During subsequent negotiations, Ecast agreed to make 
a significant upfront payment to NSM, provided that NSM abandon its 
entry plans in the U.S. and agree not to compete against Ecast. After 
further negotiations on those terms, Ecast submitted to NSM a letter of 
intent calling for an upfront payment by Ecast of $700,000, and 
containing the following noncompete agreement:

    NSM agrees that it will abandon its attempts to acquire music 
licenses for the U.S. market (the ``Territory'') and advise all 
content providers and licensors with which NSM has entered licenses 
with [sic] that it has abandoned entering the US market with its own 
digital music platform. NSM also agrees that for as long as Ecast 
offers the Ecast Platform in the Territory NSM will not produce a 
competing product in the Territory.

    To Ecast, the principal motivation for requesting the noncompete 
provision was to prevent NSM from entering and disrupting the digital 
jukebox platform market. NSM went ahead and approved the deal with 
Ecast that included the above-quoted noncompete provision.
    Pursuant to the agreement, NSM thereafter ceased all efforts to 
enter the U.S. market with its own digital jukebox platform. NSM also 
fired the two employees responsible for its planned entry. Those 
employees were the only NSM representatives involved in its copyright 
license negotiations, its successful efforts to obtain financing 
necessary to pay advances to copyright holders, and its communications 
with U.S. operators and distributors concerning NSM's impending U.S. 
entry.
    Ecast recognized that without those employees, NSM no longer 
possessed the ability to enter quickly with its own platform. Ecast 
then refused to pay NSM the full $700,000 as agreed. Ecast and NSM 
subsequently renegotiated the terms of their agreement such that NSM 
would remain prohibited from entering the U.S. market with its own 
digital jukebox platform with smaller payments from Ecast. The revised 
agreement also included a license by NSM to Ecast of a patent 
concerning digital jukebox technology.

D. Defendants' Noncompete Agreement Is an Unreasonable Restraint of 
Trade

    Noncompete agreements between competitors can violate Section 1 of 
the Sherman Act. In this case, the noncompete agreement was entered 
into in conjunction with an agreement to jointly produce and distribute 
a product. The Department analyzed this noncompete agreement pursuant 
to the rule of reason because it was reasonably related to the venture 
and enhanced its efficiency. Under the rule of reason, the Department 
considers ``all of the circumstances of a case in deciding whether a 
restrictive practice should be prohibited as imposing an unreasonable 
restraint on competition.'' Chicago Bd. of Trade v. United States, 246 
U.S. 231, 238 (1918). After consideration of the circumstances in this 
case, the Department concluded that the noncompete agreement 
significantly suppressed competition and that harm to competition 
outweighed the procompetitive benefits of the agreement.
    The noncompete agreement between Ecast and NSM forced NSM to 
abandon its efforts to enter the U.S. market with its own digital 
jukebox platform. Many operators had expressed great interest in NSM's 
entry because NSM intended to utilize a more attractive pricing model 
for its jukebox platform (a flat-price model as opposed to a 
percentage-or-revenue model) than either Ecast or its only U.S. 
platform competitor. This and other significant potential benefits to 
consumers were eliminated by the noncompete provision. The 
procompetitive benefits of the venture were very limited. Accordingly, 
the Department concluded that the anticompetitive effects of the 
noncompete agreement outweighed the procompetitive effects.

II. Explanation of the Proposed Final Judgment

    The Antitrust Division typically seeks, through an enforcement 
action, to restore the competitive conditions that existed prior to 
defendants' establishment of their illegal agreement. The Antitrust 
Division cannon require NSM to enter the U.S. digital jukebox platform 
market, but believes it is important to eliminate the artificial 
impediments to NSM's ability to do so in the future. The proposed Final 
Judgment thus enjoins defendants from enforcing or adhering to this or 
any other noncompete agreement that restricts NSM's entry into the U.S. 
digital jukebox platform market. The proposed Final Judgment also 
prohibits defendants from establishing noncompete agreements with other 
digital jukebox platform competitors and imposes a rigorous antitrust 
compliance program upon each defendant.

[[Page 55173]]

III. Remedies Available to Potential Private Litigants

    Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any 
person who has been injured as a result of conduct prohibited by the 
antitrust laws may bring suit in a federal court to recover three times 
the damages the person has suffered, as well as costs and reasonable 
attorney's fees. Entry of the proposed Final Judgment will neither 
impair nor assist the bringing of any private antitrust damage action. 
Under provisions of section 5(a) of the Clayton Act, 15 U.S.C. 16(a), 
the proposed Final Judgment has no prima facie effect in any subsequent 
lawsuit that any private party may bring against the defendants.

IV. Procedures Available for Modification of the Proposed Final 
Judgment

    The United States and the defendants have stipulated that the 
proposed Final Judgment may be entered by the Court after compliance 
with the provisions of the APPA, provided that the United States has 
not withdrawn its consent. The APPA conditions entry upon the Court's 
determination that the proposed Final Judgment is in the public 
interest.
    The APPA provides a period of at least 60 days preceding the 
effective date of the proposed Final Judgment within which any person 
may submit to the United States written comments regarding the proposed 
Final Judgment. Any person who wishes to comment should do so within 60 
days of the date of publication of this competitive Impact Statement in 
the Federal Register. The United States will evaluate and respond to 
the comments. All comments will be given due consideration by the 
United States, through the Department of Justice, which remains free to 
withdraw its consent to the proposed Final Judgment at any time prior 
to entry. The comments and the response of the United States will be 
filed with the Court and published in the Federal Register. Written 
comments should be submitted to John Read, Chief, Litigation III 
Section, Antitrust Division, United States Department of Justice, 325 
Seventh Street, NW., Suite 300, Washington, DC 20530.
    The proposed Final Judgment provides that the Court retains 
jurisdiction over this action, and the parties may apply to the Court 
for any order necessary or appropriate for the modification, 
interpretation, or enforcement of the Final Judgment.

V. Alternative to the Proposed Final Judgment

    The United States considered, as an alternative to the proposed 
Final Judgment, a full trial on the merits of its Complaint against the 
defendants. The United States could have continued the litigation and 
sought preliminary and permanent injunctions against Ecast and NSM. 
However, the United States is satisfied that the relief provided in the 
proposed Final Judgment will prevent a recurrence of conduct that 
restricted competition in the digital jukebox platform market. Thus, 
the proposed Final Judgment would achieve substantially all the relief 
the United States would have obtained through litigation, but avoids 
the time, expense, and uncertainty of a full trial on the merits of the 
Complaint.

VI. Standard of Review Under the APPA for the Proposed Final Judgment

    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a 60-day comment 
period, after which the Court shall determine whether entry of the 
proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 
16(e)(1). In making that determination, the Court shall consider:

    (1) The competitive impact of such judgment, including 
termination of alleged violations, provisions for enforcement and 
modification, duration or relief sought, anticipated effects of 
alternative remedies actually considered, whether its terms are 
ambiguous, and any other competitive considerations bearing upon the 
adequacy of such judgment that the court deems necessary to a 
determination of whether the consent judgment is in the public 
interest; and
    (2) The impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and 
individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if 
any, to be derived from a determination of the issues at trial.

15 U.S.C. 16(e)(1). As the United States Court of Appeals for the D.C. 
Circuit has held, the APPA permits a court to consider, among other 
things, the relationship between the remedy secured and the specific 
allegations set forth in the government's complaint, whether the decree 
is sufficiently clear, whether enforcement mechanisms are sufficient, 
and whether the decree may positively harm third parties. See United 
States v. Microsoft, 56 F.3d 1448, 1461-62 (D.C. Cir. 1995).
    ``Nothing in this section shall be construed to require the court 
to conduct an evidentiary hearing or to require the court to permit 
anyone to intervene.'' 15 U.S.C. 16(e)(2). Thus, in conducting this 
inquiry, ``[t]he court is nowhere compelled to go to trial or to engage 
in extended proceedings which might have the effect of vitiating the 
benefits of prompt and less costly settlement through the consent 
decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of Senator 
Tunney).\2\ Rather,
---------------------------------------------------------------------------

    \2\ See also United States v. Gillette Co., 406 F. Supp. 713, 
716 (D. Mass. 1975) (recognizing it was not the court's duty to 
settle; rather, the court must only answer ``whether the settlement 
achieved [was] within the reaches of the public interest''). A 
``public interest'' determination can be made properly on the basis 
of the Competitive Impact Statement and Response to Comments filed 
pursuant to the APPA. Although the APPA authorizes the use of 
additional procedures, 15 U.S.C. 16(f), those procedures are 
discretionary. A court need not invoke any of them unless it 
believes that the comments have raised significant issues and that 
further proceedings would aid the court in resolving those issues. 
See H.R. Rep. No. 93-1463, 93rd Cong., 2d Sess. 8-9 (1974), 
reprinted in 1974 U.S.C.C.A.N. 6535, 6538.

[a]bsent a showing of corrupt failure of the government to discharge 
its duty, the Court, in making its public interest finding, should * 
* * carefully consider the explanations of the government in the 
competitive impact statement and its responses to comments in order 
to determine whether those explanations are reasonable under the 
---------------------------------------------------------------------------
circumstances.

United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ] 
61,508, at 71,980 (W.D. Mo. May 17, 1977).
    Accordingly, with respect to the adequacy of the relief secured by 
the decree, a court may not ``engage in an unrestricted evaluation of 
what relief would best serve the public.'' United States v. BNS, Inc., 
858 5.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel 
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d 
at 1460-62. Case law requires that

[t]he balancing of competing social and political interests affected 
by a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's 
role in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to 
the decree. The court is required to determine not whether a 
particular decree is the one that will best serve society, but 
whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\3\
---------------------------------------------------------------------------

    \3\ Cf. BNS, 858 F.2d at 463 (holding that the court's 
``ultimate authority under the [APPA] is limited to approving or 
disapproving the consent decree''); Gillette, 406 F. Supp. at 716 
(noting that, in this way, the court is constrained to ``look at the 
overall picture not hypercritically, nor with a microscope, but with 
an artist's reducing glass''). See generally Microsoft, 56 F.3d at 
1461 (discussing whether ``the remedies [obtained in the decree are] 
so inconsonant with the allegations charges as to fall outside of 
the `reaches of the public interest' '').

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[[Page 55174]]

    The proposed Final Judgment, therefore, should not be reviewed 
under a standard of whether it is certain to eliminate every 
anticompetitive effect of a particular practice or whether it mandates 
certainty of free competition in the future. Court approval of a final 
judgment requires a standard more flexible and less strict than the 
standard required for a finding of liability. ``[A] proposed decree 
must be approved even if it falls short of the remedy the court would 
impose on its own, as long as it falls with the range of acceptability 
or is `within the reaches of public interest.''' United States v. Am. 
Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations 
omitted) (quoting Gillette, 406 F. Supp. at 716), aff'd sub nom. 
Maryland v. United States, 460 U.S. 1001 (1983); see also United States 
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) 
(approving the consent decree even though the court would have imposed 
a greater remedy).
    Moreover, the Court's role under the APPA is limited to reviewing 
the remedy in relationship to the violations that the United States has 
alleged in its Compliant, and does not authorize the Court to 
``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's 
authority to review the decree depends entirely on the government's 
exercising its prosecutorial discretion by bringing a case in the first 
place,'' it follows that ``the court is only authorized to review the 
decree itself,'' and not to ``effectively redraft the compliant'' to 
inquire into other matters that the United States might have but did 
not pursue. Id. at 1459-60.

VII. Determinative Documents

    There are no determinative materials or documents within the 
meaning of the APPA that were considered by the United States in 
formulating the proposed Final Judgment.

Dated: September 2, 2005.

Respectfully submitted,

David C. Kully (DC Bar 448763),

Jill A. Beaird,

Attorneys for the United States, U.S. Department of Justice, 
Antitrust Division, Litigation III Section, 325 Seventh Street, NW., 
Suite 300, Washington, DC 20530, (202) 305-9969 (telephone), (202) 
307-9952 (facsimile), David.Kully@usdoj.gov.

[FR Doc. 05-18498 Filed 9-19-05; 8:45 am]
BILLING CODE 4410-11-M