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Spotify settles its big mechanical rights dispute Stateside

By Chris Cooke | Published on Tuesday 30 May 2017

Spotify has settled the class action lawsuit that it faced in the US over unpaid mechanical royalties. The deal will see the streaming firm set aside a fund worth $43.4 million to compensate songwriters and publishers whose songs it streamed without licence.

As previously reported, it is generally agreed that streams exploit multiple elements of any one music copyright – so both the so called performing rights and the mechanical rights.

In some countries, the music publishing sector has traditionally licensed the performing and mechanical rights separately through different entities, meaning streaming firms need to ensure that – not only do they have deals in place for both recordings and songs – those deals cover both the performing and mechanical rights of any works streamed.

In the US this has proven challenging, because while there are collecting societies that licence performing rights, there is no one-stop society that represents mechanical rights. In other countries where the two elements of the copyright are licensed separately, there is a mechanical rights society that can provide a licence to cover any songs that are not subject to direct deals between the streaming firms and the big music publishers.

On one level this shouldn’t matter because there is a compulsory licence covering mechanicals in the US, which includes a set statutory rate to be paid, so streaming services don’t need to negotiate terms and they know from the outset what the mechanical costs will be. However, the compulsory licence obliges the streaming service to alert each and every rights owner that it intends to exploit their work or – where they can’t identify the owner – it should file paperwork with the US Copyright Office instead.

Few services did this, mainly because of the big music rights data problem, whereby there is no one stop publicly accessible database to tell you who controls which song copyrights, nor which song is contained in which recording. However, by failing to adhere to the formalities of the compulsory licence, whenever a streaming service streams a song in the US which is not covered by one of its direct publisher licences, it is technically committing copyright infringement.

There have been various lawsuits against various streaming platforms in relation to this technicality, though the highest profile suits were those respectively pursued by songwriters David Lowery and Melissa Ferrick against Spotify. The two suits were ultimately merged into one multi-million dollar class action.

After Lowery and Ferrick’s lawsuits had been filed, Spotify announced a settlement with the National Music Publishers Association in the US over the unpaid mechanicals, under which unpaid royalties would be handed over, a compensation fund would be set aside, and the big publishers and the streaming firm committed to tackle the continuing music rights data problem. However, any rights owners who didn’t actively sign up to that settlement were still free to join the class action instead.

It’s that litigation – another headache for Spotify as it prepares to list on the New York Stock Exchange – that has now been settled, subject to court approval. Like with the NMPA settlement, in addition to the $43 million set aside to compensate songwriters whose songs have been streamed without licence, the two sides in this dispute will also “work collaboratively to improve the gathering and collecting of information about composition owners to help ensure those owners are paid their royalties in the future”.

Of course, there has been much talk in recent years about possible solutions to the big music rights data problem, and various projects are now underway, some involving the briefly buzzy blockchain. It remains to be seen whether any of those initiatives – or Spotify’s endeavours with the NMPA and the members of this class – actually overcome the issues.