In financial terms, Spotify is like a high-end mall that was just built on an earthquake fault line. Like other subscription streaming services, it’s driving the music industry’s nascent recovery with recurring revenue. But the company constructed its business in the U.S. quickly -- carelessly, but apparently with the best of intentions -- on the foundation of music licensing from another era. Now the tremors are coming in the form of high-stakes copyright infringement lawsuits -- and Spotify’s response could shake the foundations of the streaming business even more.
In July, Spotify was sued by Robert Gaudio, a songwriter and founding member of Frankie Valli and The Four Seasons, and Bluewater Music Services Corporation, which administers publishing rights for songwriters. In lawsuits filed by Richard Busch -- a top copyright litigator best known for representing Marvin Gaye’s family in the "Blurred Lines" case -- the companies allege that Spotify infringed their copyrights by streaming compositions for which it hadn’t licensed “mechanical rights.” (Spotify licenses recordings from record labels, public performance rights from collecting societies, and mechanical rights from publishers.) Spotify has said that it can’t always identify or find the owners of compositions, since the publishing business doesn’t do a good job of tracking that information, and that it sets aside money to pay them. Even if the company acted honorably, however, it didn’t file paperwork with the Copyright Office for the publishers it couldn’t identify or find, as required by law.
In response, Spotify filed a motion -- technically a “memorandum in support of motion for a more definite statement” -- arguing that, actually, it has no obligation to pay mechanical royalties in the first place. The publishers’ complaints do “not set forth a cogent theory of infringement,” because, contrary to the practice of the last decade and a half, music streams should be considered legally akin to public performances (like radio broadcasts), not a distribution of copies (like physical or digital sales), so it only needs public performance licenses from collecting societies and not mechanical licenses from music publishers.