Marena Diaz
Associate Editor
Loyola University Chicago School of Law, JD 2019

It is no secret that streaming services have been a highly controversial issue in the entertainment industry in recent years. Artists from all over the world have been affected by the rise of music streaming; many believe it is no different than piracy. Nevertheless, Spotify is in fifty-eight countries, and the user base consists of over fifty million subscribers globally, with twelve and a half million paying subscribers. As Spotify has grown, questions have risen surrounding the rights that artists, producers, and writers have to their music that the public has access to through ‘streaming’. As technology advances, the music industry will continue to change. The recently filed lawsuits against Spotify show that this is an underdeveloped area of the law that needs to be explored. The decisions regarding Spotify’s streaming service and compliance with copyright laws will have major implications for not just Spotify, but the entire music industry.

Complying with the Copyright Act

Spotify, as a licensed music streaming service, must secure various licenses pursuant to Section 106 of the Copyright Act in order to make music available to the public to stream. Under Section 106, there are six exclusive rights that a copyright grants the holder to, which include:

1. to reproduce the copyrighted work in copies or phonorecords;
2. to prepare derivative works based upon the copyrighted work;
3. to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
4. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audio visual works, to perform the copyrighted work publicly;
5. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to displace the copyrighted work publicly; and
6. in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission

Let the lawsuits begin

In late 2015, two separate class actions were filed in federal court by David Lowery, and singer-songwriter Melissa Ferrick, alleging that Spotify willfully engaged in copyright infringement by failing to pay mechanical licenses, which is granted by a composer to a manufacturer of a record, tape, CD, etc. This mechanical license covers the rights for Section 106(1) and 106(3), to reproduce and distribute copyrighted work. Pursuant to the Copyright Act, Spotify to required to pay record labels to use sound recordings, and publishers to use the compositions. At issue in Lowery and Ferrick’s case, was that mechanical royalties are paid directly to publishers, but the correct publisher must be identified by Spotify. Spotify claimed that improper metadata is often entered into their system, making it difficult to track down where the money should go. So, Spotify sets that money aside to identify the publisher when possible. However, this practice is not exactly in compliance with copyright law….or is it?

Lowery and Ferrick’s lawsuits were combined, and Spotify created a $43.4 million settlement fund to pay for the mechanical licenses it failed to secure. That fund will compensate publishers and songwriters whose compositions are used by Spotify. As an advocate for songwriters, publishers, and music creators, Lowery recognizes little success concerning lawsuits against Spotify and other streaming services in the past. However, in waiting for a final order by the court he remains optimistic stating, “I’m kind of hopeful that this pushes the entire industry- songwriters, record labels, everybody- towards a big fix for all of this.”

The mechanical license “requirement”

Many musicians were not satisfied with the settlement of the Lowery-Ferrick case. Whether Spotify is required to obtain mechanical licenses to stream the music provided by the service is still unanswered. In 2016, Spotify found itself involved in a $30 million settlement with the National Music Publishers’ Association (NMPA). The parties discussed forming a committee among mainstream music industry groups, in order to facilitate mechanical licensing and the “digitization of pre-1978 copyright records for free use by the public.” Some publishers agreed to the settlement, while others refused to relieve Spotify of liability.

Hence, the lawsuits filed by Bluewater Music and Robert Gaudio earlier this year. Bluewater Music and Gaudio claimed that Spotify failed to property license and compensate songwriters. Many lawsuits have now been filed by an ongoing list of music creators feeling that they were being ‘lowballed’ by this settlement. Bluewater and Gaudio’s lawsuit contains damages approaching $365 million, and the other separate claims have damages reaching $150,000 per infringed work.

Spotify fires back

In response to the lawsuits piling up, Spotify is arguing that streaming is completely different from reproducing music. The mechanical license that artists and producers claim is required, is only required by statute for music that is reproduced onto a physical medium, according to Spotify’s attorneys. Spotify claims that because their streaming service, by definition, does not reproduce or distribute the songs it streams, they are in compliance with Section 106 of the Copyright Act. Spotify has licenses for public performance and licenses sound recordings from copyright holders pursuant to the Copyright Act, and in an attempt to finally put a stop to all these lawsuits, they argue that is all that is required of them.

What does this mean for the future of streaming? What about the future of songwriters and publishers that feel they are not being compensated for the use of their work? These questions remain unanswered, but there are potential resolutions that may lie in the decisions that will be rendered in the subsequent lawsuits filed against Spotify, and even within conversations among the mainstream music industry groups at conferences such as the SXSW. The 2016 Austin Convention Center conference was largely focused on the data, rights management, and transparency of the music industry. The stakeholders of the music industry were bantering about who is to blame and contemplating potential solutions, but it seemed like all parties involved are moving in one tangible direction. The big players like Music CEO Benji Rogers, have already begun making moves to create a public benefit corporation. He says an open system is the only way to address the industry’s problems and while it might be hard, “the danger of not doing it is too terrifying to contemplate.”