Spotify’s latest legal issues are snowballing into something that could be more consequential than anyone imagined.
This week, the music streamer was hit with another lawsuit over songwriter royalties and a barrage of criticism from some high-profile artists over the $43 million settlement it made to a similar class-action lawsuit earlier this year. Rather than swatting away these lawsuits with pricey settlements, Spotify is only seeing them pile up further.
As the legal back-and-forth between Spotify and music publishers heats up, it’s starting to raise bigger questions about the streaming business model itself. In response to two lawsuits filed on behalf of songwriters over unpaid mechanical royalties in July, Spotify made a legal argument recently that struck at the very heart of the initial complaint, if not the very definition of streaming: In its response, Spotify challenges the idea that streaming services are legally responsible for paying mechanical royalties to songwriters in the U.S. at all.
Why? Because Spotify says streaming music is not the same as copying it.
The argument hinges on the definition of “reproduction” and whether streaming is legally the same as physical media or downloads. Music platforms pay “mechanical” royalties when they reproduce music, which is a separate matter from paying royalties to labels and performance societies like BMI and ASCAP.
The National Music Publisher’s Association is now saying they’re in a “state of war” with Spotify, according to Billboard. Yikes.
Yesterday, a new group of songwriters–including Tom Petty, Kenny Rogers, Kim Gordon, and David Cassidy–challenged the impending $43 million settlement Spotify agreed to pay to compensate songwriters for unpaid royalties in May, saying it’s “substantively unfair” and doesn’t go far enough. On top of that, Spotify is facing a third lawsuit filed by music industry attorney Richard Busch, who is best known for winning the infamous “Blurred Lines” lawsuit filed by Marvin Gaye’s estate against Robin Thicke and Pharrell.
At the heart of all these lawsuits is Spotify’s alleged failure to pay out royalties to some songwriters, which the company says stems from inadequate meta data (an industry-wide problem that it may be hoping to address with blockchain technology). Unlike the deals Spotify negotiates directly with record labels and performance rights organizations (PROs) over the rates it pays to stream sound recordings, the rates paid to songwriters for the underlying compositions (mechanical royalties) are determined by U.S. law and can be secured using what’s called a compulsory license–either by negotiating with the publisher directly, or sending a “notice of intent” with the U.S. Copyright office and committing to pay a legally defined licensing fee. The recent lawsuits accuse Spotify of not just failing to secure many of these licenses, but also failing to file these notices of intent.
Keeping Track of The Tracks
It’s worth noting that Spotify isn’t the only company that has had issues with mechanical royalty payments. Almost every music streaming platform–most of which outsource mechanical royalties to the Harry Fox Agency–appears to have an incomplete picture of who wrote which songs. In this sense, Spotify has become a bit of an industry punching bag on this subject.
Still, its new argument–that streaming platforms may not be legally required to pay mechanical royalties at all–seems bold given the potential PR blowback, the sensitive timing as it prepares to go public, and the fact that Spotify’s biggest competitors are all deep-pocketed tech giants that seem to have no problem with the idea of paying out mechanical royalties.
Like its predecessors, these more recent lawsuits could wind up being settled out of court. But if any of them proceed to the courtroom, the questions they raise could have huge consequences for Spotify (which could be forced to pay out millions in damages and potentially derail its plans to go public) or songwriters and their representatives (who could lose a vital source of income, if a judge sides with Spotify’s bold new position on the mechanical royalties question). Either way, what started as yet another copyright lawsuit could leave a major mark on the music business.