Whoops: Spotify Executive Says That ‘Mechanical’ Licenses Should be Paid — In a Federal Filing

Spotify's mechanical licensing mess intensifies
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Words can kill, especially those from a certain Spotify head of licensing and business affairs.

Did Spotify just f—k up their entire IPO?  That might be going too far, but this seriously complicates things.

Unfortunately, the streaming giant just handed opposing attorneys a bombshell contradiction — in the form of a federal filing.  And you can thank a bunch of high-priced attorneys and executives who seem to be having some serious communication problems.

Enter former Spotify head of licensing and business affairs James Duffett-Smith.  In documents shared with Digital Music News, Duffett-Smith told the US Copyright Office that mechanical reproduction rights are required licenses for streaming services.  Which is a problem, because Spotify’s attorneys just argued in front of a federal judge that mechanical licenses aren’t required for streaming services (you can read all about that turnaround here).

It’s just the kind of contradictory bombshell that can destroy lawsuits.  Not to mention a company’s Wall Street valuation.

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

The damning document was filed with the US Copyright Office on May 24th, 2014.

It was part of a broader filing on copyright reform, and the very significant issues Spotify experiences with royalty compliance.  Here’s what Duffett-Smith, on behalf of the streaming platform, wrote:

“To operate the Spotify Service, we need to secure multiple rights from multiple copyright owners.  These rights include, among others, the right to reproduce sound recordings and the musical works embodied therein, the right to distribute sound recordings and the musical works embodied therein, and the right to publicly perform sound recordings and the musical works embodied therein by means of digital audio transmissions.”

And later in the document:

“All of these licenses are secured pursuant to the legal regime created by the Copyright Act, which has a significant impact on how we operate the Spotify Service.”

And how does the streaming giant feel about these laws, which apparently include the provision to pay mechanical reproduction licenses?

“The Copyright Laws are balanced at the moment and, while in need of modernisation in some relatively small respects, do allow Spotify to conduct its business for the benefit of American consumers, authors, and creators.”

The document, coupled with a pair of mega-settlements with publishers topping $75 million, puts the streaming company in a quandary.  For starters, it now appears that Spotify is conveniently changing its mind over its obligation to pay mechanical damages.  And you can thank the specter of billions in licensing damages for the abrupt change-of-heart.

All of which could prompt a rough decision by a federal judge.  Currently, Spotify is fighting for its life against a pair of warring publishers, including a former member of Frankie Valli and the Four Seasons.  The damages in that case are estimated to exceed $365 million — and that’s just the first big domino.

But what should the actual US copyright law say about this?

The bubbling imbroglio has drawn howls from both sides of the aisle.  And in Spotify’s defense — a ‘reproduction’ license sounds like a stretch for a service that hardly ‘reproduces’ anything.  Indeed, DMN commenters properly pointed to cached, ‘offline’ downloads for paying subscribers.  But outside of those obvious reproductions, Spotify is mostly in the business of access, not song copies and ownership.

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

Then there’s the utter lack of a comprehensible industry database for actually paying said mechanical rights.  Accordingly, Duffett-Smith took the reader down the rabbit hole of incomplete and contradictory rights information.  Indeed, major publishers sold Spotify a mechanical solution — only to litigate against them when it somehow didn’t work.

As for Duffett-Smith, it’s hard to blame someone obviously toeing the company line. Either way, Duffett-Smith has now taken his considerable licensing know-how to a formidable competitor: Amazon Music.

9 Responses

  1. Anonymous

    Yeah, this doesn’t help their case. This filing is well written and informative though, and worth reading in its entirety. The lawyers in this case probably should’ve read it as well. I’m not sure I’m a fan of the blanket 115 license idea, just because it would only result in another black box.

    You know, just thinking outside the box here… maybe Spotify should take down all the unlicensed music? I know, it sounds crazy, but just wanted to throw that out there for discussion.

  2. Felix

    Kind of like Trump – says he has unlimited powers on Immigration and can ban travel from certain countries. But when it comes to DACA, sorry, can’t do anything.

  3. Faza (TCM)

    Leaving aside the matter of whether mechanicals or public performance royalties are the “clearly appropriate” method of compensating songwriters (observation: mechanicals have the benefit of being a single regimen, that applies to both streams and offline access), the bit about lack of databases and such is just dumb.

    As the Trichordist pointed out recently, there’s a dead simple way Spotify could have avoided this mess: by making provision of publishing information by licensing labels mandatory and securing actionable warranties that the information was current and correct at the time the masters are delivered and that the licensing label will promptly notify the service of any changes to such information it is made aware of – as a condition of accepting a track for streaming.

    While this might not be a foolproof way to avoid lawsuits, it would put Spotify in a much better position. For a start, they would have the option of clawing back infringement damages from the labels – not to mention the PR benefit of being seen as a responsible actor.

    This is so obvious, I’d find myself amazed it wasn’t SOP – if I hadn’t been following Spotify’s rise for years. They deserve everything that’s coming to them.

    • Anonymous

      You mean… labels actually figuring out who the writers and publishers are, and providing the information to Spotify so they can license the publishing rights prior to Spotify making the album available? What sorcery is this?!

      I seem to remember some time ago, the major labels having to pay $264M in black box settlement royalties to the NMPA for failure to pay mechanicals, because they didn’t know who to pay. I somehow doubt that situation has improved very much. Though if Spotify were to not make albums available in which the publishing wasn’t licensed, perhaps the labels will find the motivation they need to get off their asses and ensure Spotify has the information necessary to license those rights. Assuming Spotify survives this.

    • Paul Resnikoff

      Well, I’m a college educated chap, but… this was one course I missed. I’ll wordsmith my way out of this one. Thanks for the enlightening.

      • Anonymous

        Whatever happens to Spotify next, I find it highly doubtful that there will be any lubrication involved.

  4. dhenn

    This whole, we don’t know who the writers/publishers are is a load of CRAP! I can’t sell a song on CD Baby without entering that info. The majors know exactly who wrote what and who the publishers are and it’s all registered with the PRO’s. Everyone needs to stop lying that they don’t know who wrote what they are streaming/selling. The info is there and it doesn’t take a damn database to figure it out and I created databases for a living!