The Mechanics of Online, On-Demand Streaming

                        An Older Version of Spotify’s Logo

In 2008, Spotify introduced an online music streaming service that completely upended the industry. But this upheaval has simultaneously led to an increasing number of lawsuits filed against the service. To date, Spotify has spent over $60 million in settlements.¹

Over the summer, songwriter and publisher Robert Gaudio and music administrator Bluewater Music Services Corporation filed a joint lawsuit in the United States District Court in Tennessee against Spotify for failure to pay mechanical royalties.² Gaudio was a founding member of Frankie Valli and the Four Seasons, while Bluewater Music represents prominent country artists including Miranda Lambert and Guns ‘N Roses.³

The plaintiffs allege that a streaming service such as Spotify is required to obtain several licenses including sound recording licenses, performance licenses, and, in dispute here, mechanical licenses.⁴ Mechanical licenses compensate songwriters and music publishers directly “for the reproduction of composition[s].”⁵ However, Spotify argues that it is more akin to public performances, like radio broadcasts, and therefore only has to pay performance royalties, which compensate organizations for performance rights.⁶ According to Spotify, “[i]f [a] service streams a song, then the stream is an ‘isolated public performance of a sound recording.’”⁷ Spotify furthers that it has already negotiated for the requisite performance licenses from companies such as BMI and therefore has fulfilled its statutory obligations.⁸

Under Section 115 of the Copyright Act, “[C]ongress passed a law that provided a compulsory license to allow anyone to make a mechanical reproduction of a musical composition.”⁹ Instead of negotiating directly with a publisher, under Section 115, companies must instead send a “notice of intention” and make certain licensing payments.¹⁰ Spotify contends that complying with these requirements is a daunting task in that locating co-authors to thousands of copyrighted works is almost impossible.¹¹ Yet, between Gaudio and Bluewater Music, almost 2,505 compositions are at stake, which Spotify has allegedly failed to pay royalties for.¹²

If the plaintiffs prevail on all of their claims, under the statutory maximum of $150,000 per infringement, Spotify could end up paying close to $366 million.¹³ Conversely, in the seemingly unanticipated case the court finds Spotify is not obligated to pay mechanical royalties, half of the revenue of on-demand streaming paid to composition owners could be lost.¹⁴

It appears that either scenario is unforgiving. First, if Spotify is required to pay the full damage award of $366 million, that could disincentivize other streaming services from entering the marketplace. Under Article I of the Constitution, the purpose of copyright law is “promote the Progress of Science and useful Arts,” and any inhibition on allowing the spread of musical compositions is arguably contrary to this constitutional purpose.¹⁵ On the other hand, forcing Spotify to pay an unprecedented sum deters future non-compliance and ensures that artists and publishers alike will be sufficiently compensated for their creative contributions. In a time when technological innovation and artistic rights are constantly in tension, this most recent Spotify lawsuit only highlights this dissonance further.