Spotify Continues to Navigate Legal Hurdles in 2018

By Trevor Maxim, Esq. Legal Perspectives January 16, 2018

As music streaming service Spotify prepares for its highly anticipated initial public offering (IPO) this year, reported to take place in late March or April, it continues to deal with conflicts and uncertainty surrounding copyright issues.

Mechanical License Litigation

Spotify has been hit with a series of lawsuits from rights holders in musical compositions alleging widespread infringement via failure to comply with the formalities of the “mechanical license” laid out in 17 U.S.C. § 115.  The growing tension poses an expensive problem for Spotify: last May the company reached a $43 million settlement in a class action case involving David Lowery and Melissa Ferrick (subject to judicial approval), and the most recent suit, filed on December 29 by Wixen Music Publishing, seeks damages of at least $1.6 billion and injunctive relief.

The term “mechanical license” originally meant the right to mechanically reproduce a musical composition on a player piano roll.  Before the advent of recorded music, the arrangement of perforations on the roll determined what sounds the piano keys would produce, allowing it to imitate popular songs for listeners.  In the world of vinyl records and compact discs, the mechanical license allowed record companies to reproduce musical compositions on “phonorecords” (any material objects in which sounds are fixed) and distribute them to the public.        

Fast forward to 2018.  The interactive streaming industry has reached an informal understanding that streaming requires a service to obtain mechanical licenses for compositions played.  This industry standard, however, is not reinforced by any binding case law, and Spotify can raise a compelling argument that the act of streaming does not “distribute phonorecords of the work” (17 U.S.C. § 115) and instead merely makes a temporary copy of the work available to the listener.  Spotify brought forward this argument in a motion for more definite statement last August in a case with Robert Guadio, but the judge denied that motion, and it’s unclear whether Spotify will attempt that position again in the Wixen case.

For now, Spotify must face the serious allegation from Wixen that up to 21 percent of its 30 million songs are unlicensed through a failure to follow the “notice of intention” and payments specified by the Section 115 compulsory mechanical license process.

Music Modernization Act

Congress may come to the rescue if it takes action on the Music Modernization Act, a bill introduced in December by Rep. Doug Collins (R-Ga.) and Rep. Hakeem Jeffries (D-N.Y.).  This bipartisan effort would create a new database to help streaming services like Spotify locate rights holders in musical works, and would form a Mechanical Licensing Collective to grant blanket mechanical licenses to the services, guaranteeing compensation to songwriters and publishers while freeing Spotify of its burden to pay for each composition individually. 

The Music Modernization Act would also alleviate some of Spotify’s concerns over the recent 2nd Circuit decision in United States v. Broadcast Music, Inc.  That case involved a separate but related issue of public performance licenses for musical works, which Spotify obtains in addition to mechanical licenses.  Unlike the mechanical license, Spotify already has blanket licenses through ASCAP and BMI to perform any compositions in their catalogues.  In the BMI case, however, Judge Stanton affirmed that BMI only needs to provide “fractional” licenses for the portion of a work that it controls, whereas Spotify preferred the government’s position that a licensor must transfer rights to the full work.  The database proposed by the Music Modernization Act would make Spotify’s job easier because even though it must track down each co-author, a complete list of who owns which piece of a song would allow certainty that a work is properly licensed.

There is widespread support for the idea that copyright law desperately needs updating for the digital era.  In all likelihood, however, symbolic gestures toward advancing new legislation will give way to the political reality that other areas demand more immediate attention from Congress.  As reform efforts stall, Spotify will keep relying on judicial interpretations and informal agreements to navigate the complex world of copyright.

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