Spotify faces second multi-million mechanical royalties lawsuit

By Chris Cooke | Published on Monday 11 January 2016

The big story in music remains the rapid growth of everything in the streaming sector, you know that. Continuing that trend, Spotify has just doubled the number of multi-million dollar mechanical royalty lawsuits its tackling in less than a month. Everything’s booming in Streamsville.

So yes, as expected, a second lawsuit has been filed over Spotify’s alleged failure to pay mechanical royalties to at least some publishers and songwriters in the US. This one is being led by law firm Gradstein & Marzano, last seen in these parts successfully repping Flo & Eddie in their legal fight for royalties from satellite radio station Sirius, for the airplay of their pre-1972 hits as part of the 1960s combo The Turtles. In the mechanical royalties domain the firm’s client is singer-songwriter Melissa Ferrick.

As previously reported, musician and artist rights campaigner David Lowery filed a lawsuit against Spotify on the same issue just before New Year. Both Lowery and Ferrick claim that Spotify failed to comply with the rules of the compulsory licence that covers the mechanical rights in songs in the US, and therefore cannot rely on that licence for the songs it streams.

In the absence of direct licences with Lowery and Ferrick or their reps, that constitutes copyright infringement, which is what both lawsuits are alleging. In America there are statutory damages for copyright infringement, which can go as high as $150,000 per song if you can show the infringing activity was “wilful”.

The key element of the compulsory licence that Spotify – and others in the on-demand streaming domain – have seemingly failed to rigorously comply with is the requirement to file a ‘notice of intent’ with each and every publisher whose works you intend to exploit. Spotify sympathisers in the music community say that part of the problem there is a lack of a central database identifying which publishers rep what songs.

Legal reps for Lowery and Ferrick say that [a] that’s no excuse and [b] it’s easier to identify who reps their clients’ songs that Spotify’s sympathisers suggest. Which is probably true, though it’s still quite a challenge when you’re trying to sort out the licensing admin on a 30 million plus catalogue, many songs in which are likely repped by different agents in different territories.

However, one of Lowery’s lawyers, Mona Hanna, told CMU that even where a copyright owner cannot be identified, there is a system in place under the compulsory licence.

She explained: “Where the information regarding the copyright owner is unavailable, or unknown, the compulsory licence can be used to legally obtain the right to distribute the music. [But the law] requires a ‘notice of intent’ to obtain a compulsory licence be filed with the Copyright Office and then the statutory royalties for that work to be deposited to the Copyright Office until the name of the copyright holder is identified. At which point, the royalties go to the copyright owner or his agent directly”.

Spotify is yet to comment on the specific allegations in either Lowery or Ferrick’s lawsuits, except to say that it wants all creators to be paid when their works are streamed, that copyright data is the issue, and that it has already committed to invest more to tackle that problem in 2016 with a big fat new database.

It seems likely that most on-demand streaming services in the US have failed to properly comply with the terms of the compulsory licence for the mechanical rights in songs. Which means, in the absence of direct licences, they are technically infringing copyright, even if they are paying performing right royalties on the same songs via collecting societies BMI and ASCAP.

Though it’s also likely that streaming services of the Spotify kind were advised, when entering the US market, that no one ever really enforces the terms of the compulsory licence, and that everyone knows that the payment of mechanicals in the US is at best inefficient. So providing such services set aside the statutory royalties due on each stream – and then hire the services of a reputable mechanical rights agency to try to identify rights owners and beneficiaries – all would be well.

That advice – if it was, indeed, the advice that Spotify received – ignored rising frustration in some quarters of the American songwriting community about the way streaming services operate. Frustration that began with Pandora (which, as personalised radio, doesn’t pay mechanicals) but which quickly extended to Spotify et al. And angry songwriters in control of their own publishing are more likely to enforce the compulsory licence to the letter.

That advice possibly also relied too much on the abilities of America’s mechanical rights agencies to deal with digital income. Spotify relied on the biggest, the music publishing sector’s own Harry Fox Agency. But, says Ferrick’s lawsuit, HFA “was ill-equipped to obtain licences for all of the songs embodied in the phonorecords distributed by Spotify”.

When speaking to CMU, Lowery’s lawyers were pretty dismissive of Spotify’s pre-Christmas pledge to invest in a super-duper new song rights database to improve royalty payments to songwriters, speculating that the announcement had been rushed out to pre-empt the lawsuits that the streaming service by that point knew were incoming.

Meanwhile, on that plan, Ferrick’s legal papers say: “That is an investment and process that Spotify should have undertaken before it decided to reproduce and distribute embodying unlicensed musical compositions to the service’s millions of users, not over four years after Spotify launched the service in the United States. At this point, Spotify’s failure to properly obtain licenses is much more than what it euphemistically describes as an ‘administration system’ problem; it is systemic and wilful copyright infringement for which actual and statutory damages are the remedy”.

The ‘wilful’ word is key there because, as mentioned above, that’s what boosts the potential statutory damages in these cases to $150,000 per song. That could make this dispute much more expensive for Spotify to settle than simply handing over the mechanical royalties which have gone unpaid, which the streaming service insists it has set aside. These are both class actions, meaning any songwriters who have had music streamed by Spotify in the US without licence could pursue damages.

It is thought that Ferrick has been working with Jeff Price’s Audiam on identifying what mechanical royalties she is owed. Price also works with the publishing side of Victory Records, which had a short-lived spat with Spotify over mechanical royalties last year. He has also been very vocal on this issue for sometime, to the extent that on-demand streaming services possibly should have seen this problem brewing a few years back, when it might have been easier, quicker and cheaper to solve.

It remains to be seen how Spotify formally responds to both these lawsuits which, as class actions, could as yet be merged into one. Presumably the streaming service will want to have this matter resolved ahead of any IPO plans, if and when those rise to the top of the agenda. It may also be hoping that its supporters in the music publishing sector – who see this as a rally call to finally sort out copyright data and mechanical right weaknesses in the US market – can help to an extent. Though that might be optimistic.

The squabble continues.

READ MORE ABOUT: Melissa Ferrick | Spotify