Rhapsody Hit With Class-Action Suit Over Royalties
At issue are mechanical licenses, which streaming services need to obtain in order to distribute songs, as opposed to recordings. They can do this either by negotiating directly with the music publisher that controls the rights or by sending the copyright holder a "notice of intent" and paying a royalty set by law. (Streaming services pay songwriters and music publishers public performance royalties as well as mechanical royalties.) In many cases, streaming services haven't done so.
That could end up being a costly mistake. All of the class-action lawsuits against streaming services seek damages for willful copyright infringement, which can reach as high as $150,000 per work. Since damages would be assessed by numbers of unlicensed songs, not how many times they were streamed, smaller services like Rhapsody and Slacker could be hit especially hard. Since streaming services already have an obligation to pay these royalties -- and do to most songwriters -- the overall economics of the streaming business wouldn't change.
Streaming services say that they can't identify or find some songwriters in order to pay them. That may be true -- although Lowery can be found easily enough online -- but the Copyright Act requires streaming services to get a mechanical license before they use a song. Indeed, in the event that Lowery's case goes to trial, Spotify's decision to set aside money for future royalty payments could potentially demonstrate either that the company has been acting in good faith or that it knew it did not have mechanical licenses for at least some of the songs it was streaming.
"The law is pretty black and white," says Donald Passman, a veteran music business lawyer and the author of All You Need to Know About the Music Business. "If you're using someone's songs, you have to pay them."
Spotify's $150 Million Legal Tangle Explained
Rather than argue these cases in court, streaming services will probably try to prevent classes from being certified -- Spotify already filed a motion to dismiss Lowery's case on jurisdictional grounds. The high cost of federal litigation would make it impractical for the vast majority of songwriters to pursue legal action on their own.
The $150 million question is how these potential class-action suits will be affected by an impending National Music Publishers Association settlement with Spotify, which a source close to the talks says could be finished quite soon. The deal is said to involve a payment of $5 million in damages as well as the mechanical royalties owed publishers for unlicensed songs, and smaller companies and songwriters who publish their own work will be able to opt-in to that deal. Although the settlement will only apply to Spotify, it could serve as a template for similar deals with other streaming services -- which the National Music Publishers Association is already in talks with.
Both the lawsuits and the pending settlement have turned a problem into a potential opportunity -- it turns out that there may be a considerable amount of money in helping streaming services solve their mechanical royalties problems. Predictably, everyone wants a share. The more songwriters who sign on to the National Music Publishers Association, however, the fewer would be available to join a potential class action lawsuit. "To the extent they're settling, it could diminish the class," Passman says.
If enough small publishers and songwriters join the National Music Publishers Association settlement, it could leave the potential class-action lawsuit with less leverage -- and Lowery worries that the settlement would favor large publishing companies. David Israelite, National Music Publishers Association president and CEO, disagrees. "No one else's rights or royalties would be affected," he says. The settlement is said to allow participating publishers to claim mechanical royalties that haven't been allocated correctly, then divide the unclaimed funds and the damages, according to market share. Songwriters who publish their own work wouldn't get much in the way of financial damages from such a deal, but they would get the royalties due them. Or they could decline to join the settlement and instead sign on to one of the class-action lawsuits, getting a chance to collect more money in the future.
Lowery himself is more interested in making a point, however. "If I wanted to make a lot of money, I would have done it as a personal lawsuit," he says. "I want to get this cleaned up."