Recently, there's been rumors and rumblings about a possible Spotify IPO (initial public offering) for the online music streaming service.  The technology to listen to music online has been around for quite a while. However, Spotify came to prominence as being one of the first streaming platforms to allow music selection on demand, as opposed to Pandora’s radio station model, while simultaneously boasting access to an incredibly large selection of music compositions and songs. With whispers and rumors of Spotify hitting the stock market possibly later this year, speculation of Spotify's business value increase. Potential investors and critics of the streaming service have re-focused on lawsuits that loom over the service. Additionally, very specific allegations that the multi-billion dollar business has no true assets because all of its “property” is virtual.

Amidst Potential Spotify IPO, Critics Focus on Licensing Concerns

Specifically, critics/plaintiffs allege Spotify never properly or legally built the infrastructure needed to ensure it is a legitimate business.  Namely, the plaintiffs allege that Spotify was first-to-market with such a huge collection of songs because Spotify never bothered to secure the proper licensing agreements necessary to lay right to such music compositions and songs, and subsequently, Spotify has been “profitable” and successful because these songs were never properly licensed in the first place, consequently resulting in Spotify similarly failing to pay royalties to songwriters and publishers as would be necessitated by such agreements.

Willful Infringement Claims

In the most recent complaint, these plaintiffs allege that that Spotify is guilty of willful infringement of each work. They claim Spotify publicly admitted acknowledging a failure to obtain proper licenses to reproduce and distribute songs via their service. Plaintiffs claim that Spotify’s failure to obtain mechanical licenses was with full awareness that such licenses were required.

Plaintiffs assert that, even after Spotify had notice of its infringing actions, it continued to ignore the compulsory licensing requirements. Additionally, they claim Spotify failed to cease playing certain compositions when licenses were terminated.  As a result, the plaintiffs have asked the court to give relief in the form of a percentage of the profits made by Spotify from the alleged infringement as well as from damages caused by the infringement.  In the alternative, the plaintiffs have signaled a willingness to accept statutory damages, under a finding of willful infringement, of $150,000 for every musical composition to be found infringed upon.

Impact of the Proposed Music Modernization Act

Spotify is no stranger to copyright infringement actions. It has been sued by The National Music Publishers’ Association (“NMPA”).  Spotify also has earlier settled a class action for similar infringement claims.  The newest wrinkle, however, comes from a recent bill introduced in the U.S. House of Representatives. It is called the Music Modernization Act.  If passed by Congress, the Act would require all compositions, such as the songs at issue here, be registered with the “Mechanical Licensing Collective” before being eligible to collect royalties.

Experts in the field disagree over whether such a law is necessary and if it could even be successful.  While lawmakers argue that the Act will allow the rate-setting system for compositions to be more market-based and realistic, many critics note that it could have a severe chilling effect on copyright infringement litigation.

New Laws and Potential Spotify IPO

While only time will tell whether this newest lawsuit against Spotify will gain any traction in the courts, the past history of quick settlements in favor of Spotify, combined with the newest law introduced by the House of Representatives, does not seem to bode well for the plaintiffs that seek relief and damages on the grounds and claims of copyright infringement.

For more information on this topic, please visit our Copyright Licensing service page, which is part of our Software & Copyrights Practice.

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.  Additional information about the copyright firm and its copyright attorneys may be found at www.klemchuk.com.

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