The world’s biggest music streaming service, Spotify, has recently been sued by Wixen Music Publishing for allegedly using thousands of songs without a license and compensation to the publisher. The complaint says that about 21 percent of the 30 million songs on Spotify are unlicensed, and the plaintiff is looking for a damages award of at least $1.6 billion plus injunctive relief.
California-based publishing company Wixen, founded by Randall Wixen in 1978, licenses the catalogs of more than 2,000 artists, from rock legends including Tom Petty, Neil Young, Jefferson Airplane and the Beach Boys to alternative rockers like Black Keys and Rage Against the Machine to hip-hop acts like Missy Elliott. Per Wixen, their artists represent between one to five percent of the music streamed on Spotify.
Filed in the United States Federal District Court for the Central District of California, this is a major lawsuit that is only the latest in a string of legal actions that Spotify has faced in the past year. This series of lawsuits against Spotify are seeking remuneration for songwriters and rights holders, who are under-compensated as the music industry shifts to a streaming business model.
What provoked the lawsuit was a recent proposed settlement involving rights holders and Spotify, see Ferrick v. Spotify USA Inc, No: 1:16-cv-8412 (S.D.N.Y.). Wixen has opted out for the proposed settlement and is pursing its own action. Indeed, Wixen and its artists were among hundreds of musicians and publishers to come forward and object to the $43 million settlement, saying it is “procedurally and substantively unfair to Settlement Class Members because it prevents meaningful participation by rights holders and offers them an unfair dollar amount in light of Spotify’s ongoing, willful copyright infringement of their works.”
“From the beginning, the emphasis has always been on providing ultra-high-quality administration with extra consideration given towards royalty analysis, while both protecting and exploiting our clients’ copyrights,” Wixen says on its website. “We don’t try to function as bankers and collateralize your earnings with advances. We function simply as copyright administrators. You keep and control your copyrights, we keep our money, and you get to retain more of yours.”
“Understanding the value of music and pricing songs accordingly is very important to maintain its worth and not erode its earning power,” Wixen promises clients. “Some may call our pricing model aggressive; our clients see it as watching out for their interests and getting them the best deal for their song.”
Benjamin Semel, partner at Pryor Cashman LLP, sat down with IPWatchdog to discuss the lawsuit in detail. He told us that this lawsuit speaks to the risk for music services like Spotify to use a strategy of seeking forgiveness rather than permission. Currently, copyright law gives music services the ability to compel songwriters and publishers to license their songs, but a specific process must be followed.
“Failure to follow the process in good faith (or negotiate a direct license) can leave a music service like Spotify asking for forgiveness from an awful lot of people,” he said. “It should come as no surprise to Spotify that there are differing opinions on the price for forgiveness – particularly amidst reports that Spotify now has a $19 billion valuation ahead of its public listing.”
The compulsory license was created in 1909 when player pianos were a new form where music was starting to be copied mechanically. According to Semel, one aggressive player piano manufacturer, the Aeolian Company, was trying to push competitors out of the market by getting exclusive licenses to mechanically reproduce major songs. Back then, antitrust enforcement was less sophisticated and rather than using a scalpel to address the Aeolian Company’s conduct, Congress used a machete and created the compulsory license, allowing competition to the Aeolian Company.
“Of course, the Aeolian Company is no more, and the best explanation for the continued existence of the compulsory mechanical license is simply lobbying groups and Congressional inaction,” he explained. “In fact, the U.S. Copyright Office itself stated in a recent study of the marketplace that it ‘does not see a principled reason why sound recording owners are permitted to negotiate interactive streaming rates directly while musical work owners are not.’”
Failure to negotiate a direct license or follow the statutory process for obtaining a compulsory mechanical license means that a service does not have a license to copy the musical work, per Semel. Interactive streaming of a musical work without a mechanical license would be copyright infringement. So, willful copyright infringement can carry statutory penalties of up to $150,000 for each work infringed.
And, this is the basis for the Wixen lawsuit, Semel said. “Multiply these statutory penalties by all the songwriters whose permission was not obtained and all their works, and you can see the perils of a strategy to simply infringe and then seek to buy forgiveness,” he said.
The recent complaints in the Wixen lawsuit against Spotify are part of what the proposed Music Modernization Act (H.R 4706) is meant to address. According to Semel, among other things, the MMA would establish a music collective paid for by services and managed by copyright owners. The collective would provide blanket licenses to services that cover all musical works for which the compulsory license is available.
He added, “Spotify could pay royalties to the collective to cover all available works and be insulated from lawsuits such as the one by Wixen. On the other side, copyright owners would sign up with the collective and claim their works to ensure that they receive royalties. The MMA is the most promising music copyright reform yet proposed to address these concerns, and has the support of the major trade organizations on both sides of the industry.”
Wixen said in a recent statement, “All we’re asking for is for them to reasonably compensate our clients by sharing a minuscule amount of the revenue they take in with the creators of the product they sell,” he said. “Music fans should be able to enjoy Spotify, knowing that their favorite artists are being treated fairly.”