Music Streaming Company ‘Spotify’ Facing Massive $150+ Million Lawsuit Over Improper Licensing and Royalty Payment Dispute
Spotify is currently facing a class action lawsuit, filed by David Lowery—lead singer of Camper van Beethoven and Cracker— on December 28, 2015. The lawsuit is estimated to be worth at least $150 million. Lowery is alleging that Spotify “knowingly, willingly, and unlawfully reproduces and distributes copyrighted compositions without obtaining mechanical licenses.”1
Though typically unknown, songs have two separate copyrights—one for the song’s composition, and one for the song’s sound recording. In order for Spotify to obtain permission for the sound recording, it must pay royalty fees to the song’s distributor, at a negotiated rate, to obtain a license to use the sound recording. Additionally, Spotify must obtain a license from the publisher of the song’s composition. In order to obtain such a license, Spotify must either get it directly from the publisher, or they must send a Notice of Intent to use the song to the publisher at least 30 days prior to the song being used. Payment must also be made to the publisher, at 9.1 cents per sale, for use of the composition—this is called a mechanical royalty. Paying the mechanical royalty is crucial in obtaining what is known as a “mechanical license,” and therefore being able to distribute the song.
The claim is based on Spotify’s lack of obtaining the mechanical licenses to distribute songs created by the plaintiffs, and for not making the required royalty payments to those same publishers. In not obtaining permission, and by not paying the royalties that they are supposed to be paying, Spotify is alleged to be distributing unlicensed songs to its users. They are alleged to have not directly obtained the licenses from the publishers, nor have they sent out the Notices of Intent. The songs at issue are estimated to have reached roughly 75 million users.
According to Spotify, due to the often occurrence of missing information to identify the proper rights holders of songs, royalty payments will be set aside until they can identify the correct parties to pay. According to unnamed sources, Spotify has a separate fund set aside with the royalty payments waiting to be dispersed—it contains somewhere between $17 million to $25 million to be distributed to the rights holders of the alleged unlicensed songs.
The class action suit is seeking relief in the form of: (1) restitution of the profits they have made from the songs; (2) damages to be determined at trial: and (3) an injunction prohibiting Spotify from continuing to offer the songs to their users.
Recently, Spotify tried to challenge the jurisdiction selection, and argued that California, where the claim was filed, did not have personal jurisdiction over Spotify. Additionally, Spotify argued that even if there was personal jurisdiction, the proper venue would be the Southern District of New York, because the relevant employees to the action are located there. Spotify cited a recent Facebook case, in which the plaintiff, who filed the claim in Illinois, was challenging Facebook’s collection of biometric data as violating user privacy. The court ruled that Illinois did not have specific jurisdiction over Facebook, because Facebook did not intentionally target Illinois residents, and dismissed the case. Here, Spotify is arguing that, much like Facebook, it distributes its service across the world, and did not intentionally target California. The court has yet to rule on this jurisdictional question.
Lastly, a new development involving a letter sent by Spotify to Lowery may complicate the lawsuit a bit further. Spotify is now claiming that by making overly broad claims, a clause in Spotify’s contract with Warner Music was triggered, enabling them to remove the content as needed. Additionally, a footnote in Spotify’s letter indicates that Lowery failed to identify whether he is making a sound recording or a publishing claim for the affected tracks. If this is merely a deliberate attempt on the part of Spotify, then they may be facing liability for tortious business interference.
How this litigation will play out, and the impact that Spotify’s letter has on the case, is going to be hotly contested, and will be very interesting to watch play out in the next several months.
Initial Copyright Suit:
Y. Peter Kang, Spotify Hit With $150M Copyright Infringement Suit, Law360 (Jan. 4, 2016), http://www.law360.com/articles/742167/spotify-hit-with-150m-copyright-infringement-suit [https://perma.cc/X8HJ-B7JV].
Ari Herstand, Why Exactly Is Spotify Being Sued and What Does This Mean?, Digital Music News (Dec. 30, 2015), http://www.digitalmusicnews.com/2015/12/30/why-exactly-is-spotify-being-sued-and-what-does-this-mean/ [https://perma.cc/QH2J-BQQB].
Ed Christman, Spotify Hit With $150 Million Class Action Over Unpaid Royalties, Billboard (Dec. 29, 2015), http://www.billboard.com/articles/business/6828092/spotify-class-action-royalties-david-lowery-cracker-150-million [https://perma.cc/SYF9-UZZJ].
Nick Statt, Spotify sued by another musician for copyright infringement, The Verge (Jan. 9, 2016), http://www.theverge.com/2016/1/9/10743032/spotify-lawsuit-copyright-infringement-music-royalities [https://perma.cc/5SL4-ANSM].
Spotify’s Jurisdictional Argument:
Kurt Orzeck, Spotify Tries To Duck Musician’s $150M IP Infringement Suit, Law360 (Feb. 16, 2016), http://www.law360.com/articles/759261/spotify-tries-to-duck-musician-s-150m-ip-infringement-suit [https://perma.cc/CBB6-ZH9S].
Lowery v. Spotify USA Inc., No. 2:15-cv-09929, 2015 WL 9584042 (C.D.Cal.), available at http://apps.npr.org/documents/document.html?id=2657558-Lowry-Spotify-Lawsuit [https://perma.cc/C9RR-8XEQ].
Leaked Letter from Spotify to David Lowery:
Paul Resnikoff, Sketchy Document Surfaces In Spotify’s $150 Million Lawsuit, Digital Music News (Feb. 19, 2016), http://www.digitalmusicnews.com/2016/02/19/sketchy-document-surfaces-in-spotify-vs-lowery-lawsuit/ [https://perma.cc/9RME-4V86].
Ed Christman, Spotify Hit With $150 Million Class Action Over Unpaid Royalties, Billboard (Dec. 29, 2015), http://www.billboard.com/articles/business/6828092/spotify-class-action-royalties-david-lowery-cracker-150-million [https://perma.cc/SYF9-UZZJ]. ↩