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Spotify faces two new mega-bucks lawsuits over US mechanicals

By | Published on Wednesday 19 July 2017


More mechanical rights lawsuits involving Spotify? You bet. I mean, you can’t have enough mechanical rights lawsuits involving Spotify, can you?

Unless, I suppose, you’re Spotify. If you’re Spotify, you can definitely have enough mechanical rights lawsuits involving Spotify. For Spotify, we passed the quota of required mechanical rights lawsuits involving Spotify on the day the first mechanical rights lawsuit involving Spotify was filed in an American court. But that’s not stopped the filing of further mechanical rights lawsuits involving Spotify.

It seems like only yesterday that I was last sat here explaining why Spotify has run into legal problems Stateside over mechanical rights. Mainly because it was only yesterday that I was last sat here explaining why Spotify has run into legal problems Stateside over mechanical rights. But in case you weren’t paying attention, let’s run through it all again very quickly.

A stream exploits both the reproduction and the communication element of the copyright. In music publishing, these two elements of the song copyright – the so called ‘mechanical rights’ and the so called ‘performing rights’ – are often licensed separately, sometimes by different entities.

Which means in some countries a streaming service needs to do two sets of deals just to get permission to stream songs – one covering the mechanical rights and one covering the performing rights. This is in addition to any deals granting permission to stream recordings – which are separate copyrights controlled by the record companies.

So far so tedious. Though in most countries both the performing rights and the mechanical rights in songs can be licensed via the collective licensing system. And even where publishers license their rights directly with the streaming services, a collecting society usually handles the administration tasks associated with collecting and processing any royalties due.

Because one of the problems for the streaming firms in this domain is that, while they know which labels provided them with which recordings and therefore who to pay when those tracks are streamed, they don’t know what songs are contained within those recordings, nor who owns those compositions.

In most countries the collecting societies do the leg-work to overcome this problem, by processing track-based usage data provided by the streaming platforms and then telling the digital service providers what songs have been used and who needs to be paid.

But in the US, while there are collecting societies licensing the performing rights and administrating the royalties associated with them, on the mechanicals rights side there is no industry-wide collecting society to help.

On the up side, there is a compulsory licence covering mechanicals, so songwriters and publishers are obliged to license those rights at rates set by statute. But on the down side, the compulsory licence requires the streaming service to notify and pay rights owners in a timely fashion, which brings us back to the problem of streaming services not really knowing what songs are being streamed.

Spotify uses a company called the Harry Fox Agency to process mechanical royalties. Previously owned by the National Music Publishers Association, HFA is the closest the US has to a mechanical rights society like the UK’s MCPS.

But HFA doesn’t have every writer and publisher on its system, which means not everyone has been getting notified and paid. And if you don’t comply with the formalities of the compulsory licence, the compulsory licence doesn’t apply. Which means any subsequent streaming of songs where rights owners have not been notified constitutes copyright infringement.

There have been an assortment of lawsuits in relation to unpaid mechanicals in the streaming domain pursued by various writers and publishers against various streaming services. The highest profile to date were the class actions launched by musicians David Lowery and Melissa Ferrick, which were ultimately merged into one.

As those cases got underway in early 2016, the National Music Publishers Association announced a settlement with Spotify over unpaid mechanicals which indie publishers were encouraged to sign up to. Meanwhile the Lowery/Ferrick class action was ultimately settled back in May this year. Both settlements included payment of unpaid royalties, some form of compensation, and vague commitments about how mechanicals will be paid in an efficient fashion moving forward.

But if Spotify thought that, via those two costly settlements, it had put the mechanicals dispute to bed – and just in time for its listing on the New York Stock Exchange as well! – it was being overly optimistic. Two new lawsuits have now been filed in Nashville on this very issue. The plaintiffs are publisher Bluewater Music Services and Bob Gaudio, the latter both a music publisher and the primary songwriter for Frankie Valli And The Four Seasons.

Both are represented by notable entertainment industry lawyer Richard Busch, these days probably best known for repping the Marvin Gaye family in the ‘Blurred Lines’ case.

He is quoted by The Tennessean of saying about the new cases: “As we say in the complaint, songwriters and publishers should not have to work this hard to get paid, or have their life work properly licensed, and companies should not be allowed to build businesses on the concept of infringe now and ask questions later. We look forward to litigating these cases”.

Meanwhile the Bluewater lawsuit specifically references the NMPA settlement on this issue, reckoning it was unsatisfactory. Among other comments, the legal papers state: “The NMPA settlement did nothing to resolve the outstanding issues with the Spotify licensing and royalty payment system as the settlement allowed Spotify to continue to not pay accurately and did not require it to build any systems moving forward”.

While everyone agrees that songwriters should get paid whenever their songs are streamed, the music community is somewhat divided on who is really to blame here. Some argue that the well financed streaming firms should have put in place a system to identify what songs are being streamed and make payments accordingly, or at least alerted the US Copyright Office of all the songs that could not be identified, as the compulsory licence requires.

Though others are more sympathetic to the streaming firms, arguing that the real problem here is the failure of the US music publishing sector to ever put in place a proper industry-wide system for collecting mechanical royalties, even though that’s arguably one of its primary tasks and a main reason for it existing.

And, of course, if the music industry could just get around to making a publicly available global music rights database – rather than just hosting regular panel debates where everyone agrees one is needed – then monies could start flowing directly to writers and publishers without even relying on collective licensing systems that may or may not be up to the job of processing all that streaming income.

Although, technically, in the eyes of American copyright law the obligations do fall on the users of music here, ie the streaming firms. And under the statutory damages system of US law, writers and publishers whose songs have been streamed without licence even just a few times could still push for $150,000 per infringement. So, fun times hey?