Tag: mechanical licenses

Spotify Still Wrangling with Songwriter Royalties

On January 8 of this year, The Trichordist ran a story that the Huffington Post apparently rejected in which indie musician Blake Morgan describes a closed-door meeting between Spotify executives and a group of musicians.  According to Morgan, he actually had to explain that Spotify’s “product” is not Spotify itself but music—music that Morgan and his friends make, and which Spotify monetizes.  And that’s fine, even welcome, if the company pays for licenses.

But Spotify has a big—potentially very big—problem when it comes to paying for mechanical licenses, which compensate songwriters and composers for their compositions, regardless of which artist(s) perform the work.  These licenses are required for reproduction under §106(1) or distribution under §106(3) of the Copyright Act; and based on precedent, a streaming service like Spotify is held to both reproduce and distribute musical compositions.

Unfortunately, the company has allegedly failed to pay for mechanicals for thousands of compositions, which is why it currently faces litigation from several complainants with potential damages running into billions of dollars.  Biggest among these is the Wixen Publishing suit, filed on the eve of the Music Modernization Act (now law) first being introduced in committee.  The suit implicates around $1.6 billion in damages for failure to license works by songwriters including Tom Petty, Stevie Nicks, Neil Young, et al.

With such prominent names in the mix, one might think that Spotify’s original defense (i.e. that rights holders are hard to find) would not have held up very well.  And it did not hold up very well, as exemplified by the comparatively modest Lowery/Ferrick class-action suit, which settled in May 2017 for a $43 million fund to various songwriters.   

Then, with the pending Music Modernization Act, which would bring an end to new litigation over failure to obtain mechanicals, late 2017 saw a spate of new complaints against Spotify for its apparently sweeping failure to secure these licenses.  And perhaps it was the extinction-scale degree of the potential damages that then inspired fresh creativity in Spotify’s defenses.

In a September 2017 post, I described the suits filed by Bluewater Music Services and songwriter/musician/producer Robert Gaudio.  In its initial response to this complaint, Spotify implied that, as a streaming platform, it was never obligated to pay for mechanical licenses.  This drew immediate reaction from the National Music Publishers Association and CEO David Israelite’s declaration that the platform was then “in a fight with all songwriters.”

Spotify’s rationale in that brief was that streaming only implicates the right of public performance and not distribution; but as I noted in that post last September, even if a court agreed with this interpretation (and that is a big IF), this would still leave the reproduction right, for which a mechanical license is still required.  This no-license-needed defense remains among Spotify’s arguments in its current filings, but according to a recent article by Eriq Gardner in The Hollywood Reporter, the streaming company has introduced a new theory to the Bluewater case.

Because Bluewater administers copyrights for publisher clients, but is not the owner of those copyrights, Spotify questions whether the company has standing to sue for infringement of the mechanical right for all the titles named in its complaint.  Spotify’s theory turns on the premise that because a) Bluewater is not empowered to license for less than statutory rates without written consent of its publisher clients; and b) because any party can obtain a mechanical license at the statutory rate by filing a Notice of Intention (NOI) with the Copyright Office, then Bluewater’s authority to grant the license is non-exclusive. If that’s the case, Spotify contends, then Bluewater does not have standing to sue for these alleged infringements.

Spotify’s argument hinges substantially on the fact that mechanical licenses are compulsory.  No songwriter/composer can deny any party a mechanical license to use a musical work as written.  On the other hand, these owners can authorize parties like Bluewater to administer those rights on their behalf, so if this reads like a very fine parsing on Spotify’s part, it will be interesting to see whether the court thinks so, too.  In either case, a mechanical licensing after January 2018 is subject to the terms of the MMA, so it seems doubtful that the Sixth Circuit opinion will have substantial effect going forward regardless of how it rules.

It was Devlin Hartline at the Center for the Protection of Intellectual Property (CPIP) who shared this story on Twitter, so I asked his view, and he replied …

“It’s quite noteworthy that Spotify summons no support in the case law for its newfound position that there can be no exclusive licensee of the mechanical rights in a musical work at the statutory rate since there’s no exclusivity given the compulsory license. The compulsory mechanical license has existed since the Copyright Act of 1909. If the argument had any merit, you’d think Spotify would be able to find at least some precedent in support. Instead, this move comes across as another desperate attempt by Spotify to avoid paying for the works that it failed to license properly in the first place.”

Further, Hartline opined in his tweet Spotify counsel Christopher Sprigman’s presentation of this unique defense might be another reason to be concerned about his leading the Restatement on Copyright Law initiative at the American Law Institute.  As described in a January post, some prominent copyright skeptics have pushed for this Restatement project, which is unprecedented in the annals of all statutory law—not just copyright.  As I wrote in that post …

ALI Restatements have never been written for comprehensive federal laws like copyright because these are already statutory, or black-letter, laws.  Congress writes the statutes, the judiciary interprets them, and attorneys make their arguments; but everybody’s working from the same statutes and a much more narrow body of case law than common law entails.   Hence, this request for a Restatement of copyright law represents an end-run around Congress—an effort to reshape the Copyright Act without a legislative process.

Sprigman is counsel for Spotify; he’s the lead Reporter on this ALI Restatement project; and he’s the co-author of a paper called The Second Digital Disruption (see two-part response here), which rather speciously asserts that because market data reduces risk, this obviates the author’s need for strong copyright protections.  Not that I generally like picking on any one individual, but it just so happens that Sprigman’s name seems to feature in a trifecta of the anti-copyright agenda—litigation, policy, and academia—and largely in the service of billion-dollar tech companies like Spotify that don’t even know they’re in the music business.  

Spotify in Songwriters’ Crosshairs Again

In July, two new lawsuits were filed against the streaming service Spotify, alleging willful copyright infringement on a “staggering scale.”  Publisher Bluewater Music Services and songwriter, musician, and producer Robert Gaudio (formerly of The Four Seasons) both accuse the streaming service of infringing the reproduction and distribution rights of songwriters by failing to obtain mechanical licenses for several thousand songs represented by the two complainants combined. 

In late August, Spotify filed a motion with the court alleging that the complainants were treating their service as though it were “a new Napster,” asserting that the complaints are unclear in their allegations, and, therefore, requested a More Definite Statement. Spotify further indicated that they are prepared to defend themselves if the complainants can more clearly articulate exactly what Spotify is supposed to have done.  States Spotify …

“Plaintiffs allege that Spotify “reproduce[s]” and “distribute[s]” Plaintiffs’ works, thereby facilely checking the boxes to plead an infringement of the reproduction and distribution rights. But Plaintiffs leave Spotify guessing as to what activity Plaintiffs actually believe entails “reproduction” or “distribution.” The only activity of Spotify’s that Plaintiffs identify as infringing is its “streaming” of sound recordings embodying Plaintiffs’ copyrighted musical compositions.”

The Gaudio and Bluewater complaints lay out a broad narrative that accuses Spotify of building a multi-billion-dollar business while knowingly exploiting thousands of songs over a period of years without obtaining mechanical licenses, hence the “don’t call us Napster” response from Spotify. The complainants further state that the $43-million settlement resulting from a class-action suit brought by David Lowery and Melissa Ferrick was little more than a slap on the wrist; that it amounts to $4 per infringement; that it provides no disincentive to continue infringing; and that the lion’s share of the money will go to the major labels anyway.

Further, with Spotify poised to go public, the complaints also cite the major labels’ agreements to exchange sound recording rights for equity in the streaming company. Gaudio/Bluewater describe these deals as an obstacle to the labels themselves holding Spotify to account for using unlicensed works. 

Counter to this narrative, however, Digital Music News reports that the music publishers represented by the National Music Publishers Association (NMPA) have “declared war on Spotify,” citing CEO David Israelite stating that Spotify’s assertions in its response mean that it is now in a fight with “all songwriters.”  What did Spotify say to trigger Israelite’s comments?  Well …

Despite the demand for a “more definite statement,” the Spotify brief is a bit cryptic itself.  It balks at some of the language in the Gaudio/Bluewater complaints, defending the company as an above-board, legal service that should not be compared to pirate sites et al. They may be protesting a bit much, though.  The “infringe now, settle later” strategy of which they’ve been accused is implicit in the Lowery/Ferrick suit and is certainly an approach consistent with most tech companies whose core business depends on the exploitation of creative works.

The only salient, triable issue at the bottom of all the rhetoric is the question ofwhether Spotify repeatedly infringed Sections 106 (1) & (3) of the copyright act by making use of songs without mechanical licenses.  To this, the Spotify brief comes extremely close to claiming that they don’t need mechanical licenses. The music site Complete Music Update published a whole article under exactly that headline, and the declaration was precisely what triggered the unequivocal response from Israelite at the NMPA.

Spotify has asserted that streaming only implicates the public performance right (§106(4)), which they state is amply covered by paying license fees to the performing rights organizations (PROs) that manage those rights.  Mechanicals are required separately—and obtained as compulsory licenses for rates set by a rate court—for anyone seeking to reproduce or distribute a song. For instance, an artist who wants to record a cover song on her new album needs a mechanical license.

While it may not be completely unreasonable to argue that streaming is a public performance rather than a distribution, that would only alleviate the infringement of §106(3).  It is not possible for Spotify to provide its service without reproducing files on its servers; and there is sufficient case law (including Napster) to affirm that this type of copying implicates the reproduction right (§106(1)). Moreover, as the CMU article observes, it is worth asking why, if Spotify believes it does not need mechanical licenses, the company settled the Lowery/Ferrick class-action suit, which was entirely based on the use of songs without mechanicals.

Additionally, Spotify’s mobile app enables downloading, at least for subscribers, and this would seem to implicate distribution.  Anticipating this response from the complainants, the Spotify brief bizarrely states that it would assert a defense of fair use.  Not only does that sound like a non-starter, but it’s a pretty odd thing to say after asserting that you never needed the mechanical license in the first place. 

As for the some of the more rhetorical aspects of the briefs, Spotify accuses Gaudio/Bluewater of “dangling” big money in front of the Ferrick class members and of painting the streaming service with the same brush as Napster and other piratical enterprises.  Meanwhile, Gaudio/Bluewater make an intriguing point that as Spotify continued to raise hundreds of millions of dollars for its growth, none of those resources were apparently directed toward improving the company’s ability to ensure the mechanical licenses were paid for all the music on the platform.

Based on Israelite’s statement, if Spotify doesn’t walk back the claim, this fight could turn existential for the streaming company. As a matter of copyright history, the transition to music streaming may be one of those threshold moments that ultimately requires Congress to recalibrate the statutes according to the intent of IP in the first place. Because if the courts were to agree with Spotify that mechanicals are simply not required for streaming, and we consumers do nearly all of our listening via streaming, this would undermine the incentive for songwriters and composers, which is foundational to the existence of copyright.