Dance music label Ministry of Sound has reportedly sued Spotify in the United Kingdom over playlists of MoS’ well-known compilation albums -- even though MoS doesn’t license to Spotify. How can you tell it’s an MoS compilation? Because Spotify’s playlists say so.

And therein lies the rub.

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While the case turns on the application of U.K. and potentially European law to the facts, there are several overarching themes that should interest rights holders and producers everywhere. This is particularly true as Apple prepares its iTunes Radio streaming service, which will more likely be designed to stimulate digital sales.

Compilation problems for digital retailers: MoS’ core problem with Spotify isn’t new. When digital retailers restarted the singles business, they fought album-only downloads, which is tough for
compilation producers.

Streaming services like Spotify are a similar but different problem. When a compilation producer licenses tracks for its record from other labels (including remixes commissioned by the producer), it’s common for the licensing label to refuse to grant streaming rights to the producer. That means that when Spotify users search for the compilation, they typically do not find a page for the album, just the original artist’s page.

Compilation producers usually don’t get a streaming royalty on these licensed tracks, even though their brand is pushing the streams through user playlists. This is partly because the service doesn’t distinguish why the user streamed the track, just that it was streamed.

And streaming services do not offer a business solution to this problem. The usual Internet reaction of “but it’s promotional, sell some T-shirts” doesn’t work in this setting because the user doing the searching already knows what he or she is searching for because of the producer’s marketing efforts or brand. Hence the appearance of a free ride.

MoS apparently doesn’t license to Spotify, but Spotify does let users create playlists of tracks using the MoS brand. These playlists for well-known compilations use the compilation’s brand as a keyword to deliver search results that essentially re-create the entire compilation. MoS wants this to stop and believes -- as I do -- that it has a protectable interest in its compilations.

The broader challenge presented by MoS is what to do about keyword searches for identifiable compilation brands if digital retailers are free-riding on the producer’s efforts. Should the producer be compensated in the physical environment, but not in the digital? If so, why?

User-generated playlists and safe harbors: User-generated playlists that use MoS’ brand -- playlists that, I hope, were generated organically by real users -- are at the center of MoS’ allegations. If users created playlists that were identical to MoS compilations without using the MoS brand, the label’s claims would be weaker. But by allowing the unauthorized use of a producer’s brand, Spotify may confuse consumers into thinking that the play-lists are “official” and authorized. MoS would need to prove this confusion (and damages), but it seems plausible.

Spotify will probably seek protection of the variety of safe harbors available to online operators. Statutory safe harbors are typically reserved for companies that don’t know and had no reason to know that a problem was occurring, so safe harbors for Spotify will be fact-specific after discovery in litigation.

Spotify has a bigger headache: Making peace with compilation producers who don’t license to Spotify but believe that the service is getting a free ride on their work. Spotify needs to find a commercial solution to this problem that can turn lemons into lemonade.

Being a good partner: Spotify shouldn’t be shocked that it’s judged by a different standard than a search engine that also has a music service. Regardless of outcome, when MoS has to sue for respect, Spotify shouldn’t be surprised to find that other compilation producers are taking notes.

The issue will come up again. But next time, it may not be MoS -- it may be your compilation.

Chris Castle is managing partner of Christian L. Castle Attorneys in Austin.

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