Surprise! Spotify Says They Don’t Owe Anything for ‘Mechanicals’

Looks like Spotify has a totally different game plan for dealing with pesky publishers and songwriters.  So you can take your ‘mechanical’ license and…

If you’re just tuning into this imbroglio, then welcome to the juiciest part.

Just this morning, Spotify’s lawyers decided that the ‘mechanical’ publishing license doesn’t pertain to them.  Which means that all of these lawsuits related to mechanical licenses are basically BS (at least from their perspective).

That’s right: Spotify is turning the car around.  That is, despite settling previous mechanical licensing lawsuits for nearly $75 million.  Guess that was Spotify’s tipping point: now, the company is battling back and calling the whole exercise a scam.

And yes, we have it in written court testimony.

Here’s what Spotify just argued in its massive, $365 million-plus lawsuit involving Bluewater Music Services and Bob Gaudio from Frankie Valli and the Four Seasons.  Those lawsuits are also focused on mechanicals, and considered the tip of a legal iceberg that could cross into the billions.

Accordingly, Spotify is turning its handshake into a monstrous middle finger.

(Don’t worry, I’ll translate the legalese afterwards).

“Plaintiff alleges that Spotify “reproduce[s]” and “distribute[s]” Plaintiff’s works, thereby facilely checking the boxes to plead an infringement of the reproduction and distribution rights. But Plaintiff leaves Spotify guessing as to what activity Plaintiff actually believes entails “reproduction” or “distribution.”

The only activity of Spotify’s that Plaintiff identifies as infringing is its “streaming” of sound recordings embodying Plaintiff’s copyrighted musical compositions.

But “streaming” – by its very definition – cannot infringe upon either the reproduction right under 17 U.S.C. § 106(1) or the distribution right under 17 U.S.C. § 106(3).”

What this basically says is the following: the ‘mechanical’ publishing license is all about reproduction.  It was created to cover the actual reproduction of a song onto a physical medium (like a vinyl record).  Streaming is a completely different format based on access, and it isn’t ‘reproducing’ anything.

Therefore, Spotify shouldn’t be paying anything for mechanicals.

So who is reproducing in the digital age?

That would be any download-focused platform, including Apple’s iTunes and pirate pioneers like Napster.  It’s simple: streaming isn’t downloading, so there.

“Spotify bears no resemblance to Napster.  [I]t is likewise wholly unlike any other ‘primitive illegal file sharing company’ (i.e., Napster, Scour, Aimster, Audiogalaxy, Morpheus, Grokster, Kazaa, iMesh, and LimeWire).  Its business practices bear no resemblance to those piratical and unlawful peer-to-peer networks. Nor does its technology.”

But what about Spotify’s $75 million+ settlements with the likes of the National Music Publishers’ Association and a class action of independent songwriters?  This seems like a shocking turnaround, except that those were settlements, not actual judgments.  Which means the parties agreed to something without Spotify accepting a formal ruling or creating a legal precedent.

That part might be critical, because Spotify’s attorneys are now pointing to the court decisions that actually exist.  And those decisions delineate between streaming and downloading.

“In fact, courts have acknowledged a key distinction between streaming and downloading — like the downloading facilitated by the ‘illegal file sharing companies’ that Plaintiffs reference in their Complaint… If a service enables users to download a song, then that service engages in the ‘reproduction and distribution of a sound recording’ and of the musical composition that sound recording embodies. But if the service streams a song, then the stream is an ‘isolated public performance of a sound recording,’ and of the musical composition that sound recording embodies.”

But what about my mechanical licensing settlement money?

+ How to Claim Your Piece of Spotify’s $43.5 Million Songwriter Settlement

Earlier, we’ve published articles helping songwriters claim their piece of various Spotify settlements (see above).  And those settlements clearly involved unpaid mechanical royalties.  But now that Spotify doesn’t think they should be paying those licenses, can you still claim your money?

Great question, but one without any answers at this stage.

But wait: is Spotify descrambling the entire f—d up music industry as we speak?

Earlier, we questioned whether the music industry was making it impossible for Spotify (or any other music tech competitor) to survive.  Not only is the mechanical license a huge stretch for streaming platforms, but the industry has completely failed to create a rights database that any entrant can reliably use.

The result? A totally murky set of rights requirements, and an even murkier set of information on who to pay for these licenses.  Oh, and if you don’t get it right?  Here’s a $365 million lawsuit to chew on.

Music Publishers Offered to Help Spotify Figure Out Royalties. Now, They’re Suing Spotify for Taking Their Advice.

Sounds pretty ludicrous, especially for investors.  But by pushing back against the insanity, Spotify may be creating some clarity.  For example: what about a clear precedent regarding mechanical licenses for streaming platforms?  Now that’s a lasting contribution, folks.

Meanwhile, efforts are underway to create some sanity on the licensing database front.  Earlier, ASCAP joined forces with BMI to create a centralized database of rights owners.  But that’s just one of several efforts, not to mention royalty-related companies like STEM, Kobalt, Vydia, Audiam, Rebeat’s MES, and Exactuals that are slowly injecting some order into the chaos.

Stay tuned.

33 Responses

  1. Avatar
    Miguel

    What about the feature where you can listen to music offline? It’s essentially downloaded music.

    • Avatar
      Anonymous

      Yup, those are called limited downloads, or tethered downloads. And those certainly qualify as reproductions which require a mechanical license. Even when you stream something, in order for the music to get to the end user, there are server copies made en route, as well as a copy made in the user’s cache. Those are called ephemeral copies, which are also reproductions that require a mechanical license.

      This appears to be a hail mary pass. It’s not going to work.

      • Avatar
        Netvalar

        actually it could have an interesting result. After all the radio industry went through something similar waaaayyyy back in history. That ended with radio having a different license similar to mechanical (or did they decide on a subset??) but less expensive per play.

        I could see something similar to that working for streaming, though have to agree the play offline factor has to fall under Mechanical licensing even if the download is temporary. I can’t for the life of me find any way offline can be equated to what radio went through early 20th century.

      • Avatar
        Anonymous

        Except that the courts have already set a precedent that distinguishes streaming as not reproductive.

    • Avatar
      Lord Yogaroth

      you’re right. it’s downloaded on “their” platform though, so the end user isn’t technically in full control of it right? I mean, it’s slightly different than having an .mp3 on a hard drive that you can share. So much ambiguity here. The music industry is so old school and wants to always maintain control. New tech is inherently disruptive though, so I imagine streaming giants will continue to face issues with the music industry, just like apple has over the years. maybe some day the industry can adapt, accept that streaming is here to stay, and maybe help institute some common sense royalty structuring that helps the artists, publishers, streaming services, etc. live peacefully…or maybe I’m just crazy with my optimism. “The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.” – Hunter S. Thompson

  2. Avatar
    Uncle Sam

    This is a hail mary. Kind of hard to argue against something that
    1) Is cleary codified in the CFR
    2) they clearly complied with for years
    3) They offer “offline” listening of these songs (copy and distribution)

    • Avatar
      Anonymous

      Well, #2 is a bit iffy. They did have some mechanical licenses. The problem is they made all the music available, whether they had mechanical licenses for all that music or not. They weren’t willing to only make available those works in which they had mechanical licenses, based on the belief that they wouldn’t be able to compete with YouTube or piracy with anything less than a full catalog, licensed or not.

    • Avatar
      Anon esq.

      #1 is a bit iffy as well. The fact that a stream implicates the mechanical right is not codified in the CFR. The only thing that is codified in the CFR is an industry-wide agreement between music services and the publishers, which agreement was accepted by the CRB, to pay mechanical royalties for both interactive streaming and conditional/limited downloads.
      A very fine point, but a huge difference from a legal perspective. This is one fight I am watching very carefully.

      On #2, Spotify tried to comply, even stating to the copyright office in written comments that they are required to obtain mechanicals. Highlight is 20/20, but probably would have been better to say that 17 CFR 385 obligated them to pay mechanical royalties, but does not establish that a mechanical right is implicated.

      • Avatar
        Esquire

        Does a federal agency (USCO) have authority to make law on this scale? Does power to price piano rolls include authority to define interactivity, streams and prescribe two different rights for the same stream? Highly unlikely to withstand scrutiny from conservative courts.

        Is the codified agreement actually a codified restraint of trade, reached as it was between parties that did not include those expected to pay? What business did the USCO have doing this?

        This dual path is problematic, likely forced by publishers unwilling to commit either performance or mechanical agents to extinction by consolidating rights that cry out for consolidation. Why not simply pay songwriters? Because doing so commits a middleman to irrelevancy? Indeed, why not simply pay a price for music, streamlining and growing payment?

        How do you bring together countless small businesses for a non-legislative solution without raising anti-trust issues? It seems impossible to bring them together because so many simply will not follow any leader (and Israelite is a good leader — after all, he settled this but some chose not to follow).

        Legislation is the only answer. It ensures there is one solution, else any agreement violates competition laws (and will be incomplete because Lowerey will always go his own way). He and a few others are the flies in the ointment for songwriters, and if justice has its way they will be rolled over by lawmakers and properly blamed for destroying one or more groupa that has well-represented them for decades.

        Sadly, hoping this Congress and POTUS legislate is not a well-lit, oft used path. Things may need to get much worse to get much better.

    • Avatar
      Anon esq.

      On #3, I don’t believe the complaint mentions the limited download feature. The plaintiff focused solely on streaming so unless they amend their complaint to add limited downloads and Spotify is successful is arguing that streaming does not implicate a mechanical, the complaint fails to state a claim so can fall under a motion to dismiss.

    • Avatar
      Ricardo

      hi spotify!! I just got this to say…

      codec,codec,codec,codec. As soon as a lawyer jumps on that – your interpretation of “streaming” becomes irrelevant !!

  3. Avatar
    Paul Resnikoff

    Well, well, well… look at this document that I have in my hands right here. Goldman Sachs might want to assassinate these Spotify lawyers right about now. That’s because Spotify’s attorneys might have just assassinated the entire IPO.

    I’ll drop this bombshell document a little later.

    • Avatar
      Anonymous

      Uh oh! Shit’s getting real now! Time to go grab some popcorn.

    • Avatar
      Esquire

      As usual, Spotify is doing music a long-term favor forcing this issue, though they are less likely to take it to its conclusion, such a can of worms does it present.

      Streamline music payment! Why forestall long-term health for a short-term IPO? Because, well … bankers.

      Spotify highlights a real problem here. We’re only as sick as our deepest secrets, and this is/was one of them.

  4. Avatar
    Nicky Knight and the 3rd door to the left

    Actually, Spotify may be more akin to a music broadcast station in which case isn’t it all about performance royalties (and not about mechanicals..)..

  5. Avatar
    Esquire

    In fact, Spotify is correctly observing the obvious truth: US copyright law does not address streaming. Nothing passed by Congress and signed by the President defines streaming or a split between mechanicals and performances. You simply cannot prove otherwise.

    Explain this: How can the movement of the same digits at the same time be both a performance and a mechanical, requiring both licenses?

    Even if we grant commenters here the notion that limited temporary downloads are reproductions, what is the argument that they are performances at the same time? That notion was rejected long ago.

    • Avatar
      Esquire

      Change streaming to “interactive streaming” — non-interactive streaming was addressed in the DMCA and is licensed statutorily by SoundExchange.

    • Avatar
      Anonymous

      Actually, it’s very true that limited downloads do NOT have a public performance aspect to them. They are only a mechanical, and only require a mechanical license for the publishing rights.

      I suppose one could make the argument that a stream, at least in an interactive context, really isn’t a performance either. It’s certainly a performance in a non-interactive internet radio context. But for interactive, the user is just retrieving a copy of the song temporarily from the server to listen to. Perhaps they would only need a mechanical license.

      Granted, Spotify doesn’t have mechanical licenses for all the songs in their catalog, so they’re still screwed regardless. But it’s an interesting discussion.

      • Avatar
        Anonymous

        You know, it’s probably worth mentioning… if it were decided that streaming isn’t a performance, that would actually be good news to songwriters. The mechanical royalty rate is a pro-rated percentage of revenue, EXCLUDING any royalties paid for public performance. If there are no public performance royalties to exclude, songwriters get paid the full amount as mechanical royalties, and the PROs don’t get to deduct any administration fees from those royalties, as they would for performance. Songwriters actually end up with more money, and the only people getting screwed are the PROs themselves. But seriously, fuck those guys. As long as the songwriters are getting paid, that’s all that really matters.

  6. Avatar
    Mad songwriter

    someone please show me where in the copyright code it says a stream is a reproduction. It doesn’t! The streaming mechanical was always a handshake deal and now litigious songwriters like Melissa Ferrick and hacks like jeff Price are playing with fire without understanding the law. These frivolous lawsuits risk $ for all songwriters and gain nothing.

    • Avatar
      Esquire

      You got that right, Mad Songwriter. There exists today a balance outside the law (because there is no US copyright law addressing interactive steaming) that is now challenged in the extreme by a few complaining songwriters.

      This will prove a can of worms that may prove very adverse to the interests of creators. The deal that led to the Spotify solution generated many billions. Upset that deal and billions a yr go away.

      One thing is for sure: The same set of digits that constitute a phonorecord (DPD) cannot be both a performance and a mechanical simultaneously en route to an end user. Someone’s going to lose in this game of tug of war.

      Another thing: During the tug of war or in its wake, commerce is at peril until such time as a new agreement is reached, hopefully one with the force of law, passed by Congress and signed by the President. Do not hold your breath for such unprecedented action.

    • Avatar
      Anonymous

      The copyright law says a “digital phonorecord delivery” is a reproduction. The argument is that an interactive stream is a type of digital phonorecord delivery, albeit a temporary one.

      Take a look at https://copyright.gov/title37/201/37cfr201-18.html, paragraph (3), where it defines a “digital phonorecord delivery”. I’m inclined to think interactive streaming and limited downloads both fall within that definition, even if those specific words aren’t used. Also seems to indicate that a digital phonorecord delivery can also be a performance (though not necessarily). It’s certainly not beyond the realm of possibility that a music use can invoke multiple rights. There’s also a part that says a DPD can be either permanent or temporary.

      I don’t think songwriters will suffer. If Spotify goes down (and they’re not too big to go down), those billions will simply funnel through a streaming service that actually is following the rules. They exist.

      As for Jeff Price being a hack… well actually, I guess I can’t argue with that one.

  7. Avatar
    Paul Resnikoff

    Now THIS is a discussion. Thanks to everyone who’s chimed in so far.

    One big thing that keeps coming up: cacheing (ie, temporary/tethered downloads) are definitely reproductions, albeit not permanent ones. But how many people are cacheing Frankie Vallie? I’d hazard just a small percentage of overall streamers.

    One solution is to simply enable cacheing only for those songs that have a verified mechanical payout process established. Meaning, the owners and their remittance addresses or accounts have been properly verified. There are many companies that could have this up and running for Spotify in a matter of a few months (if not sooner). I’ve met with the CEOs of at least 3 of them in the past 3 months.

    But back to these lawsuits: I’d also bet that a reasonable judge might decide that temporary downloads are the ONLY component of streaming that require a mechanical reproduction, and that’s the only part that Spotify is liable to pay.

    Gavel… dropped.

  8. Avatar
    JD

    I was under the impression that countries already started to address streaming in the WIPO / WPPT treaties but a final resolution wasn’t found. I think Spotify is spinning on the identification of delivery and will push towards creating a new definition/payout of streaming rights. Ultimately sales and streaming both fulfil the same function: mechanical delivery systems for copyrighted material. But it’s a deep pit.

  9. Avatar
    Jody Dunitz

    The “reproduction” activity in a stream is imperceptible and of no economic value in the chain of streaming commerce — so it is ripe for a debate about whether it is reasonable, under Copyright laws, to compel a royalty payment for it. But, it is a royalty that publishers absolutely prefer over performance royalties. 50% of performance royalties are paid directly (by the PROs) to the writers — publishers have no dominion over that payment portion at any time. In contrast, 100% of mechanical royalties are paid to the publishers — who then take their share (10%-25%), and apply the balance (the writer’s share) to recoup advances paid to or other debts owed by the writer under applicable publishing contracts. It’s a huge benefit to publishers to be the recipient of the entirety of mechanical payments.

    • Avatar
      John Smith

      But PROs are also taking their share of the performance royalties – sometimes even twice if foreign performance royalties are being collected by foreign PROs. In the end – depending on the publisher’s terms – there’s not that much difference in the payout for songwriters between mechanical and performing rights.

  10. Avatar
    GG

    I think the definition of ‘reproducing’ or ‘reproduction’ could be more CLOSELY examined here.. When music or video is streaming it is in essence being reproduced on some sort of media player. The sound is being reproduced for the listener to hear it… You wanna pick the fly shit out of the pepper? lets do it

  11. Avatar
    paul rapp IP attorney Monterey MA

    Mechanicals are supposed to apply to compositions embodied in physical objects, starting with piano rolls starting in like 1909. A stream is arguably not a physical object. Actually it’s not even arguable. It’s not a physical object! Copyright law is woefully inadequate for the digital age. OF COURSE songwriters should get something like 50% of the revenue from the stream of a digital recording. But the law (and the various royalty rates set by the mysterious copyright royalty tribunal) is totally fucked, unduly complicated and convoluted, etc and so on. I don’t blame Spotify; it’s getting away with everything it can get away with under the law, which is what corporations are supposed to do. And remember, the major labels have a big stake in the company, and their interests are in many ways opposite those of songwriters! Expecting Spotify to be “fair” and to “do the right thing” is nonsensical. It’s the law that has to change.

    • Avatar
      Esquire

      Respectfully, Counselor Rapp, the stream of digits does reach a tangible object, a physical drive in a device. Inherently so. If I throw such a device at your head you will acknowledge it tangible, I assure you.

      Your proposal is seriously to deliver half the money from the interactive stream of a sound recording to the song’s owner/writer when the sale of that same sound recording earns the song’s owner/writer roughly a tenth of the sale value?

      What makes you think the real market value of the song is five times the current rate? Do you think that’s achievable through legislation? You are certainly suggesting a massive shift of value from sound recordings to songs when it is the sound recording company that invests in the track’s production, signs the act, markets the product/service and more.

      Here’s a modest proposal for your consideration: Give writers a 50% raise to about 15% of the value of a sound recording and create one price for music, a unitary license that includes the sound recording and the song, processed through a single efficient middleman, SX (current admin rate approx four percent), which now has a publishing arm in addition to its traditional role with sound recordings.

      We need less fragmentation, less middlemen, less administrative fees and easier licensing, a one-stop shop for those who would use music and pay.

    • Avatar
      Anonymous

      I think any reproduction can be considered a mechanical. Back in the old days, the only type of reproduction that could exist was when it was fixed in some sort of tangible object (piano rolls, vinyl, etc.), but that doesn’t mean the law is inadequate with respect to digital reproductions.

      Spotify could’ve avoided all of this by simply not making music available in which the mechanicals weren’t licensed, which would’ve forced the labels to provide all the information necessary to license those mechanicals. But no. Ensuring songwriters were getting paid would’ve created too much friction in releasing albums, and would’ve cut into Spotify’s precious catalog size that they use to compete with other services. Their illegal actions are why they are the top streaming service. In addition to screwing songwriters out of their royalties, it gave them an unfair competitive advantage. They don’t deserve their crown. If they’re not willing to legitimize their business by only making music available that’s licensed (and everything I’ve seen thus far seems to indicate that’s the case), then they need to be made an example out of.

  12. Avatar
    Music Biz Soon-to-be Graduate

    I’m trying to understand how or why it is determined that interactive services are subject to mechanical licenses, but noninteractive services are not.