Spotify Gets Its Day In Court Against Massive Songwriter Royalty Increases

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Earlier this week, Digital Music News was first to report that music streaming services — including Spotify, Amazon Music, and Pandora — had scored a victory in their battle against the Copyright Royalty Board’s proposed 44 percent songwriting-royalty increase. Now, these and other companies are set to voice their opinions on the matter in the courtroom.

Previously, we indicated that the three D.C. Circuit judges who ruled on the Copyright Royalty Board’s suggested mechanical royalty hike – which, it’s worth mentioning, only two of the three CRB’s copyright royalty judges approved – had vacated and concurred with multiple portions of the proposal.

Moreover, the federal judges also ordered the Copyright Royalty Board to reconsider the subject, though their qualms (as well as the topics they agreed with) were unclear, as the corresponding courtroom document was sealed. However, DMN has now obtained an exclusive copy of the expansive filing.

After laying out the matter’s underlying details – the nuances of recordings and compositions, the nature of the Copyright Royalty Board, and the elements associated with prior royalty-calculation procedures – the 65-page-long legal text summarized key elements and possible implications of the CRB’s aforementioned mechanical royalty decision.

“In other words, the only backstop identified by the Board majority was the prospect that sound recording copyright owners would want the existing interactive streaming services to survive rather than (for example) preferring to replace them with their own in-house streaming services,” the filing stated. The line specifically addressed the possibility that heightened mechanical royalties would have a dramatic financial impact on cash-stressed streaming services like Spotify and Pandora, prompting them to reduce recording royalties and, in turn, inspire labels to jump ship.

Copyright Royalty Judge Strickler, the lone judge to dissent from the CRB majority, mentioned the possibility of streaming services’ facing heightened fiscal difficulties – and record labels simply opting to roll out their own streaming services – in explaining his disapproval of the proposed mechanical royalty uptick.

The D.C. Circuit judges, for their part, agreed with Spotify and others that the CRB “failed to provide adequate notice of the final rate structure…and failed to identify under what authority it substantively redefined a term after publishing its Initial Determination” in January 2018 and publishing its final determination in February 2019. However, the federal judges disagreed with the streaming services that the CRB sought to retroactively apply its rates and specifications, writing that “there is nothing retroactive about the Board’s rate determination.”

Lastly, the court agreed with the streaming services and vacated the CRB’s mechanical royalty structure, noting that “no party had proposed or even hinted at the structure the Board ultimately adopted—an uncapped total cost content prong combined with significantly increased rates.”

Elaborating upon their stance, the judges appeared to suggest that the CRB isn’t prohibited from making such changes down the line, but that it must do so after giving the involved entities fair warning and a chance to voice their opinions. “The Board’s decision deviated substantially and unforeseeably from the parties’ pre-hearing proposals, the arguments made at the evidentiary hearing, and the preexisting rate structures,” the ruling reads.

The National Music Publishers’ Association (NMPA), a vocal proponent of the songwriting royalty boost, addressed the court’s opinion in a statement: “To be clear, the decision did not reject the top line rate increase for songwriters; rather, the D.C. Circuit Court of Appeals asked the CRB for further explanation as to why it had rejected one particular supposed benchmark. It also asked the CRB to explain its authority for modifying ‘service revenue’ in regards to music bundles. We believe these things are easily done by the CRB.”

Nevertheless, Spotify, Amazon, Google, and the other streaming giants at the center of the Copyright Royalty Board’s decision will evidently have an opportunity to make known their stance on the proposed mechanical royalty uptick.

More as this develops.