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Spotify settles two lingering mechanical royalty lawsuits in the US

By Chris Cooke | Published on Friday 28 June 2019

Spotify has settled two of the big mechanical royalty lawsuits that pre-dated America’s Music Modernization Act and which were still lingering, despite changes in the way mechanical royalties are being paid by streaming services in the US.

Both music company Bluewater Music Services and songwriter Bob Gaudio sued Spotify in July 2017 over unpaid mechanical royalties for songs they control that had been streamed by the digital firm’s users.

Although a compulsory licence applies to the mechanical rights in songs in the US, Bluewater and Guadio claimed that Spotify hadn’t complied with the formalities of that licence. They argued that this meant it was streaming their songs without permission, which is copyright infringement.

The two cases followed the same lines as various other lawsuits filed against Spotify and other streaming services. In the main, the claimants in those actions were correct. The streaming firms hadn’t providing the required paperwork and payments for the compulsory licence to apply, and therefore there was definitely an infringement case to answer.

However, the streaming firms argued that they hadn’t sent paperwork or payment to the writers and publishers now suing because they didn’t know who owned the songs in question. In fact, they didn’t even know which songs had been streamed.

This is because the record industry provides the streaming firms with their music, but the labels and distributors do not usually control the copyrights in the songs contained in their recordings. Nor do they tell the digital platforms what specific songs are in said tracks (there’s the track title, of course, but some songs have the same name), let alone which writers and publishers control those works.

In most other countries a collecting society ultimately takes responsibility for working out what songs have been streamed and ensuring that everyone gets paid. Which means that, even in countries where some publishers license some of their repertoire directly to streaming services, there is still a society that can provide a ‘mop-up’ licence covering any songs that are not part of a direct deal.

In the US, while there are collecting societies who do just that for the performing right royalties, there was no society able to offer a blanket licence for mechanical royalties, and a stream exploits both the performing and mechanical rights in the song. Hence the extra responsibilities on the streaming firms in the US, and the unpaid royalties and subsequent lawsuits.

The music community was somewhat divided by all this. Some blamed the streaming firms, saying that they knew their obligations under law and that they should have set up better systems for paying mechanical royalties. Said people would also usually point out that the compulsory licence actually provides a process for music users when they don’t know who owns any one song copyright.

But other music types conceded that the real problem was a fucked up song licensing system in the States. And therefore it would be better for everyone if – like in most other countries – a collecting society was set up to take responsibility for the payment of mechanical royalties where direct deals with publishers didn’t exist.

That’s what the aforementioned Music Modernization Act – passed last year – sets out to do. In negotiating that act, the streaming firms pledged to fund the creation of a new collecting society and licensing system, providing it meant they could no longer be held liable for copyright infringement whenever they don’t know what songs they are streaming.

The MMA meant an end to the steady stream of new multi-million dollar lawsuits being filed on this issue in the US. But it didn’t mean an automatic end to those that had already been instigated, like the lawsuits of Bluewater and Gaudio.

Those cases continued to go through the motions, with some acrimonious back and forth as both sides put together their respective arguments. However, a settlement has now been reached, with a joint motion filed with the court on Wednesday postponing the so called discovery stage of the case. Terms of the settlement are not known.

Spotify will be pleased that it is slowly but surely putting to rest its various mechanical royalty legal woes, able to draw a line under that whole debacle thanks to the MMA. Although, of course, the debate has moved on somewhat regarding what and how the streaming firms pay songwriters and publishers.

And while the music industry was divided on who was really to blame when mechanical royalties went unpaid under the old system, it feels like pretty much the whole songwriter and publisher community is fully united in its outrage over Spotify’s decision to appeal the Copyright Royalty Board ruling on what those royalties should actually be. So at least the songs business is now united on something. That’s progress of a kind.