Spotify may have hoped that a proposed $43 million settlement announced a couple of months ago to end a class action lawsuit would smooth over what had been developing as a trouble spot for the streaming giant; but a pair of lawsuits launched on Tuesday in Nashville indicate that on the road to a widely-expected IPO, Spotify still has a big copyright problem to solve.
One of the lawsuits is brought by Bob Gaudio, a songwriter and founding member of the group Frankie Valli and the Four Seasons. His complaint alleges that famous hits including "Can't Take My Eyes Off You" and "Rag Doll" are being distributed though Spotify without being fully licensed.
The other lawsuit comes from Bluewater Music Services Corporation, an entity that administers the publishing rights of dozens of prominent country songwriters whose works include Player's "Baby Come Back," Miranda Lambert's "White Liar" and Guns 'N Roses' "Yesterdays."
Together, the suits involve a few thousand song compositions, which in theory at least, could add up to a hefty damages bill in the hundreds of millions of dollars. The Bluewater complaint states that "anything less than the maximum $150,000 statutory damage award for each of the Infringed Works involved herein would encourage infringement, amount to a slap on the wrist, and reward a multi-billion dollar company, about to go public, that rules the streaming market through a pattern of willful infringement on a staggering scale."
Spotify certainly has some licensing deals or else it would have been sued out of existence a long time ago. It has come to deals (including equity grants) with music labels so that the streamer may use sound recordings. Additionally, Spotify has purchased blanket licenses from the likes of ASCAP and BMI so that it may publicly perform music.
However, song compositions — those owned by publishers and songwriters — are the subject over which Spotify finds itself in court.
More than a century ago, upon the emergence of the player piano, Congress passed a law that provided a compulsory license to allow anyone to make a mechanical reproduction of a musical composition. What that means is that whenever a phonograph — like a record or a compact disc — embodying a composition is created and distributed, the maker needn't negotiate terms with the publisher. The licensing rate is instead set by statute. Nevertheless, those who wish to take advantage of Section 115 of the U.S. Copyright Act must still follow certain protocol. Sending out a "notice of intention" is one step. Making required licensing payments is another.
Spotify works with the Harry Fox Agency, representing the big publishers to administer Section 115 compulsory licenses. However, HFA isn't totally comprehensive of all the song compositions out there.
In comments to the U.S. Copyright Office and elsewhere, Spotify has acknowledged that identifying and locating the co-authors of each of the tens of millions of copyrighted musical works throughout its streaming platform is a daunting task.
Varous lawsuits have claimed that Spotify's efforts on this front have been woefully inadequate.
More than two years ago, Spotify was hit by a pair of putative class actions — one led by David Lowery and the other by Melissa Ferrick. That lawsuit was consolidated and moved to New York after Spotify fought the cases on jurisdictional grounds as well as challenging whether the lawsuits were ripe for class treatment. Ultimately, before the case moved to a point where a judge would have examined the issue of mechanical licensing in the digital era, Spotify reached a settlement. This past May, Spotify agreed to a $43.45 million deal to compensate rightsholders for past infringement.
The deadline for publishers to opt out of the settlement is September. As evidenced by the new lawsuits from Gaudio and Bluewater, some songwriters and publishers intend to do exactly that in the interest of a continued fight on this front.
Estimating that there were approximately 35 billion unpaid streams between June of 2011 and the end of 2015 as well as an alleged failure to pay approximately $15 million in royalties, Bluewater asserts that past settlements, including one with the National Music Publishers Association, have done nothing "to resolve the outstanding issues with the Spotify licensing and royalty payment system."
Bluewater's lawsuit also estimates that after class action lawyers take their cut, "Spotify will be allowed to walk away after paying approximately four dollars ($4.00) per infringed composition. Such a settlement is essentially an empty gesture that encourages infringement and is entirely insufficient to remedy years of illegal activity."
Both Gaudio and Bluewater are being assisted by Audiam, a company that spots unlicensed works and has rallied publishers on the Section 115 front. The plaintiffs are also being represented by Nashville attorney Richard Busch, who became widely known for representing the Marvin Gaye family during the "Blurred Lines" case but also has other important notches on his belt such as a landmark royalties case against Universal over Eminem recordings. He writes in the complaints that Spotify has been put on notice of unlicensed compositions as well as breaches related to an alleged failure to timely serve valide NOIs and payments.
"Therefore, as provided in Bluewater’s letters to Spotify, any compulsory or other license Spotify may have initially obtained was terminated," states the complaint. "Accordingly, Spotify’s continued exploitation of the Exhibit A musical compositions have been actionable as acts of willful infringement..."
In a statement upon filing the lawsuits, Busch adds, "As we say in the Complaint, songwriters and publishers should not have to work this hard to get paid, or have their life work properly licensed, and companies should not be allowed to build businesses on the concept of infringe now and ask questions later. We look forward to litigating these cases."
The lawsuit comes as the NMPA is reported to be angling for an equity stake for its members in Spotify before an IPO potentially valuing the company at $13 billion.
This story originally appeared on THR.com.