“A Covenant not to Sue”: The Curious Case of Choruss

Aram

July 30, 2012

¶ 1 Leave a comment on paragraph 1 0 Not all of the innovative business ideas in the digital era came from outside of the traditional music industry. In fact, one of the most interesting and potentially transformative initiatives began in 2008 as a project within Warner Music Group. The brainchild of veteran music industry technologist Jim Griffin, the aim of this project, which was titled Choruss, was to grant internet service providers and their users immunity from major label litigation in exchange for a fixed monthly fee. This “covenant not to sue,” as Griffin and his team called it, would cover any kind of unlicensed distribution, including P2P. The fees would be collected and redistributed to rights holders based on analysis of aggregate user activity on the unlicensed networks themselves. As long as there was “a pool of money, and a fair way to split it,” as Griffin was fond of saying, everybody could be happy.[1]

¶ 2 Leave a comment on paragraph 2 0 The Choruss team had its work cut out for it. In addition to Griffin, who served as chief proselytizer and liaison to WMG chief Edgar Bronfmann, Jr. (who had earmarked about $3 million for the project), the group also included current Warner executives (and former Gartner business analysts) Max Smith and Jack Foreman. Smith’s job was to get other labels on board, and Foreman’s job was to pitch the idea to ISPs. Given the labels’ abhorrence of unlicensed distribution and the ISPs’ existing legal immunities under the DMCA’s “safe harbor” provision, it was going to be a tough sell on both fronts.

¶ 3 Leave a comment on paragraph 3 0 The team decided that “because the music industry was so horrified of this kind of stuff,” it made sense to target university ISPs before the major broadband providers, “because they were like China”: lawless, self-contained, and low-revenue to begin with. They cobbled together some non-binding “memoranda of understanding” (MOUs) from the other majors, essentially saying they had permission to enter preliminary negotiations on their behalf, and set out to cut some deals.

¶ 4 Leave a comment on paragraph 4 0 At this point, Foreman recalls, “I had no technology, I had no service, I had no way to collect the money.” All he did have to offer his potential university ISP customers was “a promise on the part of the labels” not to litigate against the schools or their students if they were willing to pay up. In order to sweeten the deal a bit, he also pitched it as an experiment worthy of formal research. As he describes it, he told the universities that it was a chance to “participate in something that is an academic study that we think you can get a lot of mileage out of.” The responses from universities were promising, ranging from “sounds interesting” to “Hey, you’ve gotta talk to me now!”. Out of a pool of about 50 initial targets, there were seven schools that showed sincere interest and were willing to engage in negotiations (and in at least one case, to conduct formal academic research on the business model).

¶ 5 Leave a comment on paragraph 5 0 Almost immediately, the negotiators ran into some serious conceptual problems. There were pricing questions, privacy questions, and questions regarding scope of immunity (Would it apply to overseas students? Students on vacation? Non-matriculated students?). Undergirding all of these issues was the foundational question of whether Choruss would be opt-in (allowing students to pay voluntarily for immunity), or opt-out (adding the Choruss charge as a line item on students’ university bills). “That was a big, big, big, big, big debate,” Foreman recalls, and “one thing that never got solved.”

¶ 6 Leave a comment on paragraph 6 0 If the service was opt-in, then the universities didn’t have much to gain; the non-participating students would still be subject to litigation, which would continue to pose legal and technological hassles for the schools. If the service was opt-out, then the schools would have to justify what amounted to a tuition increase even for students who had never used P2P. Furthermore, at the public universities, their state governments would have to ratify any across-the-board rate increases, which could take years of complex political wrangling. On top of all this, the labels insisted on pegging pricing to this negotiation point. If the service was opt-out, they would agree to accept $5 per month per student (which was more or less universally agreed to be a fair and feasible sum throughout the music industry); however, if the service was only opt-in, the labels would expect something closer to $20 per month (which is more or less universally viewed as excessive, and anathema to consumers).

¶ 7 Leave a comment on paragraph 7 0 Time was of the essence. As Foreman recalls, Choruss felt like a “house of cards.” If they didn’t get the project moving forward quickly, the house would collapse, and Bronfmann’s support would evaporate. Yet, in addition to the seemingly intractable impasse with the schools over opt-in vs. opt-out, the other labels appeared to be dragging their heels on the business affairs side.

¶ 8 Leave a comment on paragraph 8 0 It wasn’t that they weren’t willing to talk. “We had lots of meetings over a very long period of time,” Forman says. “We had lawyers on the phone, had contracts drawn up, all this stuff. And we were negotiating on finer points.” Yet something always seemed to prevent the contracts from getting finalized. At one point, he says, Bronfmann and Universal Music Group CEO Doug Morris failed to meet to discuss the project because they couldn’t agree on whose office they would meet in. When they did manage to meet, each label brought its own set of concerns to the table. Universal was worried that Choruss would set a legal precedent validating P2P, and specifically objected to partnering with LimeWire to track music downloads while they were litigating a high-profile case against the file sharing company. Sony was worried about a different kind of precedent – specifically, that granting immunity to P2P users would establish a degree of legal ownership over the music they’d downloaded tantamount to that conferred by a retail sale.

¶ 9 Leave a comment on paragraph 9 0 The ultimate sticking point, Foreman says, was Choruss’ foundational premise. “If you ask me why did we fail,” he says, it was “the covenant not to sue.” Even the indie labels and the music publishers balked at the idea. There is no way Choruss could have worked without it; trying to license every single track, by every single artist, composer, label and publisher, for all possible forms of distribution, was just not logistically possible within a reasonable time frame. Therefore, promising not to sue for unlicensed usage was the only feasible workaround.

¶ 10 Leave a comment on paragraph 10 0 Yet the legal departments at the labels and publishers were loath to give up the power to litigate. It wasn’t just an essential form of business leverage for their employers, it was also the attorneys’ primary function within the organizations, and therefore their job security itself was on the line. Foreman sees this as one of the key problems facing the music business in the digital age. “Lawyers are the hardest part of the industry,” he says. “Our impression is that they were working against [Choruss] the whole time.” Nor did the universities particularly care for the deal as Foreman pitched it – to them, it sounded too much like extortion, a classic protection racket. At best, it sounded like vapor: everyone at the universities kept asking, “what am I getting with my $5 per month?”

¶ 11 Leave a comment on paragraph 11 0 “So it was a balancing act, and ultimately, it all came down,” Forman says “If we could have gotten a covenant not to sue from the majors that was signed, then we could have maneuvered our way into the schools. Then we would have been able to set everything up.” Unfortunately, it was not to be; at the 18-month point, it became obvious to everyone, including Bronfmann, that Choruss had run its course. Griffin and his crew approached some VCs (including the music-averse David Pakman at Venrock) about turning it into a privately funded project, but everyone concerned realized that once it lost its major label affiliation, Choruss would have an even lower chance of bringing all four major labels on board.

¶ 12 Leave a comment on paragraph 12 0 The project never officially shuttered its doors, but without Bronfmann’s financial and political support, Choruss more or less disintegrated. After a year and a half of promising, cajoling and placating, Foreman was forced to call his would-be customers at the universities and tell them the deal was off the table. “They’re probably not all happy with me,” he says, “but I did the best I could. It brings a tear to my eye.”