Spotify, Bluewater & Mechanical Licensing: What's Really Driving the Streaming Giant's Latest Legal Fight

Courtesy of Spotify
       

Does Spotify need mechanical licenses to stream music?

Some music industry executives are whipping up outrage over Spotify’s recent court filing that challenges whether it needs mechanical licenses for streaming -- a legal strategy that, if successful, could upend the economic foundation of the music publishing industry.

But some industry lawyers say Spotify’s move appears to be aimed simply at limiting potential defections from its class-action settlements.

Last week, Spotify’s lawyers at Baker, Donelson, Bearman, Caldwell & Berkowitz seemed to argue that streaming does not require a mechanical license in a memo to the U.S. Federal District Court in Nashville, which is presiding over the copyright infringement lawsuit brought against it by Bluewater Music Services Corp, the publisher or administrator for such songwriters as David Allen Coe, Jim Lauderdale, Al Anderson, Kim Richey, Billy Bremner, former Cro-Mags bassist Harley Flanagan and Bobby Helms.

The document says that streaming, by its very definition, cannot infringe upon either the production right or distribution right covered by mechanical licenses. While Bluewater alleges that Spotify reproduces and distributes its songs, Spotify’s lawyers argue that’s not what streaming entails, and note that Bluewater doesn’t explain how streaming equates to mechanical licensing infringement.

The Spotify memo makes all of these points without once mentioning the term mechanical licensing, although the original Bluewater complaint the memo is responding to cites mechanical licensing nine times.

"In short, the act of streaming does not reproduce copies of sound recordings or musical compositions, and equally does not distribute copies of either sound recordings or compositions," the memo reads.

It's a bold argument, given that until now, it’s been generally accepted that streaming requires two composition, or music publishing, licenses, one for performance and another for mechanical. Both can be obtained through compulsory licenses, at least with songs with BMI and ASCAP, if the digital streaming service notifies the PROs of the intention to license the performance rights for their songs.

But lawyers who generally work on behalf of digital services doubt Spotify will challenge its need for mechanical licenses beyond the Bluewater lawsuit, a move that would enrage music publishers.

Instead, these lawyers say Spotify’s legal argument appears narrowly targeted at winning the case at hand. Its memo notes, for example, that the Bluewater copyright infringement allegations "are purposefully vague," using words like reproduce and distribute, but does not sufficiently set forth a cogent theory of infringement." It also states that the “allegations simply do not inform Spotify how Spotify is alleged to have violated the law."

“I think that they are just saying that the complaint isn’t specific enough in its allegations. If I’m right, then this is just a strategic move to make the plaintiffs spend more money" on legal work, says one lawyer who works with digital services, though the person added that the broader argument could be made.

In order to obtain the mechanical right to stream songs, digital services either need to cut a direct deal with publishers; or, to obtain a compulsory license, send a notice of intent to the publishers for each song in their catalog and to all writers, or their agents, before they stream a song. If the publisher can’t be found, a service would have to file the notice of intent with the copyright office.

Spotify, like other digital services, didn’t properly follow the procedure for compulsory mechanical licenses, which left them vulnerable to a class action lawsuit led by songwriter Melissa Ferrick, which resulted in a settlement; and another settlement with the National Music Publishers’ Assn., to the combined tune of $75 million.

But as part of those settlements and its direct licenses with some publishers including the majors, Spotify conceded that it does have to pay for mechanical licenses.

“I think they are just using maneuvers to make Bluewater spend more money on legal fees,” another digital-music-service lawyer says. “Spotify is trying to discourage others from dropping out of the Ferrick class action settlement because if any publishers think that painting Spotify as Napster could lead to a slam-dunk payday if they follow the Bluewater playbook, well, they better think again now that Spotify is showing they will fight this lawsuit tooth and nail.”

Spotify also raised the question in its memo of whether the songs that Bluewater represents only as an administrator have standing to make a copyright infringement claim, and said it would follow up with a motion regarding standing. If Spotify can get those songs thrown out of the case, it would face smaller possible damages, limited to songs where Bluewater actually has an ownership stake.

Spotify’s memo further charges that Bluewater is trying to get others to opt out of the Ferrick class action settlement by portraying Spotify as a present-day Napster who should pay $150,000 per composition per copyright infringement, the maximum statutory damages that can be imposed. Spotify refutes the charge, noting it has paid over $6 billion in royalties to copyright owners.

But in case Spotify decides to broaden its argument beyond the Bluewater lawsuit that it doesn’t need mechanical licences in general, NMPA president and CEO David Israelite says “this has been a settled legal issue for over 10 years: in two previous legal settlements; in the Section 115 regulations; in legal filings of the parties in the CRB; in the business practices of all interactive streamers.

“While I am aware that defendants in lawsuits will throw up all kinds of crazy defenses, this is a road down which Spotify does not want to travel,” Israelite warns.

Spotify didn’t respond immediately to a request for comment.

Bluewater has claimed that 2,339 songs have been infringed, which would amount to statutory damages of $351 million if the maximum penalty is applied, while Bob Gaudio of the Four Seasons alleges infringement of 106 songs, which would come out to nearly $16 million.

Both publishers have hired Richard S. Busch, the renowned attorney known for filing lawsuits for artists and songwriters against labels and now digital services, of the law firm King & Ballow. Both Bluewater and Guadio are clients of Audiam, a firm founded by Jeff Price, a well-known crusader for proper licensing.

Without identifying how Spotify has allegedly violated copyright law, Bluewater has failed to show it is entitled to relief, Spotify’s memo states. If Bluewater is alleging that Spotify violates reproduction and/or distribution, it should amend its complaint to say that, so that the defendant can assert defenses against the charges. Those may include fair use, implied license, negotiated license with copyright owner or co-owner, statute of limitations and others, depending on the nature of the specific allegations. “But Spotify should not be forced to guess and aim its defenses at an unknown claim,” the memo says.