The $400 million legal war between SoundExchange and SiriusXM has officially reached a critical turning point. What started as a dispute over accounting practices has spiraled into an appeal before the U.S. Court of Appeals for the Second Circuit—and the final ruling could permanently reshape how music royalties are collected, enforced, and paid out across the digital audio industry.

If you are an artist, indie record label, or music rights holder, this isn’t just corporate legal noise. It directly impacts your bottom line.

Here is a plain-English breakdown of how SiriusXM allegedly sliced millions off its royalty bills, why a federal judge dismissed the case on a technicality, what’s happening at the Second Circuit, and the exact steps you need to take right now to secure your retroactive royalties.

1. How SiriusXM Allegedly Carved Out $400 Million

To understand the lawsuit, you first have to understand how digital radio royalties work in the United States.

Under Section 114 of the U.S. Copyright Act, satellite radio platforms like SiriusXM operate under a statutory license. They don’t have to negotiate individual deals with every record label on earth; instead, they get automatic access to stream copyrighted sound recordings, provided they pay fixed, federally mandated royalty rates. Congress designated SoundExchange as the sole entity responsible for collecting these royalties from services and distributing them directly to artists and record labels.

So, where did the $400 million gap come from?

The Bundling Loophole

SiriusXM sells subscriptions that combine traditional satellite radio with internet streaming options (webcasting). Under federal regulations, satellite radio revenues are subject to statutory royalty rates, but services are allowed to make certain deductions for revenue generated by non-satellite streaming or non-music content.

SoundExchange alleges that SiriusXM exploited this rule by artificially inflating the value of the webcasting portion of its subscription bundles while undercounting its satellite radio revenues. By shifting subscription revenues into categories exempt from statutory satellite rates, SiriusXM allegedly lowered its total statutory royalty base.

Audit Escalations

What started as a smaller discrepancy expanded rapidly following comprehensive compliance audits. When auditors dug through years of accounting data, the estimated underpayment ballooned to over $400 million in unpaid performance royalties, plus interest.

SiriusXM denies all wrongdoing, maintaining that its accounting practices strictly follow federal rules and that its revenue allocations across bundled packages are reasonable, tested, and legally sound.

2. The Shock SDNY Dismissal: A Legal Technicality

Just when the industry expected a high-stakes trial over accounting methods, the U.S. District Court for the Southern District of New York (SDNY) threw a massive wrench into the proceedings.

In August 2025, the SDNY granted SiriusXM’s motion for judgment on the pleadings, dismissing SoundExchange’s lawsuit entirely. Crucially, the court didn’t evaluate whether SiriusXM actually underpaid royalties. Instead, it dismissed the case based on a fundamental legal question: Does SoundExchange even have the legal right to sue?

The Core Arguments in Court:

• No Explicit Private Right of Action: The judge ruled that while Section 114 of the Copyright Act gives SoundExchange the explicit duty to collect and distribute statutory royalties, it does not expressly grant the organization the power to file federal enforcement lawsuits against delinquent services.

• Statutory Comparison: The court noted that when Congress updated music licensing laws in other areas—such as Section 115 under the Music Modernization Act, which created the Mechanical Licensing Collective (MLC)—it explicitly gave the MLC direct litigation and enforcement powers. Because Congress omitted that clear language in Section 114, the court ruled that SoundExchange lacked statutory standing to sue.

3. The Second Circuit Showdown & What It Means for You

SoundExchange quickly appealed the decision to the U.S. Court of Appeals for the Second Circuit, arguing that a statutory collective created by Congress must have the implied authority to enforce the very payments it was established to collect.

Oral arguments in September 2026 focused heavily on legislative intent and whether SoundExchange has associational standing to sue on behalf of thousands of recording artists and record labels.

What’s At Stake for the Music Industry?

4. Your Action Plan: How to Claim Retroactive Royalties

If SoundExchange recovers these unpaid funds through a court order or a major settlement, that money won’t sit in a bank forever. It will be paid out as retroactive distributions to the rights holders whose tracks were played on SiriusXM during the audited years.

However, SoundExchange calculates retroactive payouts using historical play logs provided by the service. If your track metadata doesn’t match their system at the time of distribution, your money gets stuck in “unmatched royalty” limbo.

Here is what you need to do immediately to make sure you get paid every dollar you are owed:

Step 1: Complete a Full Catalog Audit

Log into your SoundExchange account and audit your full discography. Do not assume your record label or distributor registered everything correctly. Check every single track title, release name, and main performer field to ensure zero missing entries.

Step 2: Lock In Accurate ISRC Codes

Every sound recording needs a unique International Standard Recording Code (ISRC). SoundExchange relies on automated matching engine algorithms to map SiriusXM’s historical play logs against its member database. If an ISRC code is missing or mistyped, the algorithm will skip your track, and your royalty money will sit unclaimed.

Step 3: Detail Your Performer Lineups

Under Section 114 statutory licenses, digital performance royalties are split according to a strict legal formula:

• 50% goes to the Sound Recording Copyright Owner (usually the record label or self-releasing artist).

• 45% goes to the Featured Artist.

• 5% goes to a fund for non-featured musicians and vocalists (administered by SAG-AFTRA and AFM).

Make sure every registered track clearly identifies the main featured performer and rights owner so the distribution engine routes the correct percentage to your account automatically.

Step 4: Keep Track of Historical Releases

If you released music years ago under a previous stage name or independent label that has since dissolved, verify that those old catalog entries are still linked to your current payout account. Retroactive settlements cover multi-year periods, meaning historical play logs will pull up older releases you might have forgotten about.

Final Thoughts

The SoundExchange v. SiriusXM lawsuit is far more than a corporate dispute over accounting formulas. It is a critical test of whether the statutory royalty system built by Congress can effectively protect artists in the digital streaming age.

While the Second Circuit judges weigh the legal arguments, your best strategy is preparation. By auditing your metadata, verifying your ISRCs, and maintaining an error-free SoundExchange catalog, you will be first in line to collect when the retroactive payouts start flowing.