Music streaming website Spotify was recently hit with another lawsuit over copyright infringement. According to court documents lodged in the Central District Court of California, the popular streaming service has been targeted for allegedly failing to pay for the “mechanical rights” for many of the songs played through its music streaming program. 

Mechanical rights refer to the original owner’s control over the reproduction of their music. The playing of a copyright holder’s song requires the payment of a royalty. The class action lawsuit, led by David Lowery of the bands Cracker and Camper Van Beethoven, alleges Spotify’s streaming of songs constitutes a reproduction of music, and the provider failed to pay for the rights to a large number of songs.

(I Can’t Get No) Satisfaction

According to the lawsuit, the statutory damages for copyright infringement are incalculable: “Unless the Court enjoins and restrains Spotify’s conduct, Plaintiff and the Class Members will continue to endure great and irreparable harm that cannot be fully compensated or measured in monetary value alone,” the lawsuit read. Nevertheless, the class action lawsuit is seeking, at least, $150 million in damages, calculated on damages for copyright infringement ranging from $750 to $30,000 per infringed song and $150,000 per song for fulfilling infringement.

According to Spotify, it has paid $3 billion in royalties to date from its database of more than 30 million songs and 75 million users. According to sources, the subscription service has a $25 million reserve fund to pay royalties for “pending and unmatched song use”. Spotify has admitted it occasionally plays songs without knowing who to pay royalties, blaming inaccurate data: “Unfortunately, especially in the United States, the data necessary to confirm the appropriate rights-holders is often missing, wrong, or incomplete.”

When the Music Stops

Spotify’s current payment agreement to artists and songwriters is set at 70% of gross revenue. This payment division is 10% of its revenue to songwriters (divided between mechanical and performance royalties) and 60% to artists. Spotify does not negotiate with record labels or songwriters – a country’s governing music rights body sets this percentage. In Australia, the Australasian Mechanical Copyright Owners Society (AMCOS) oversees the mechanical right for both composers and music publishers.

With the decline of CD sales, calculation of royalties is harder to measure. Previously, mechanical royalties were paid when music was licensed (the production of CDs and vinyl). Today, with the prevalence of streaming music and on-demand services, mechanical royalties are paid when listeners stream music. It is called a mechanical right as the royalty should be paid automatically every time a song is played. Where Spotify fails to record accurately plays, this enters controversial territory regarding the payment of royalties.

Good Vibrations

Whether you are self-releasing, under an indie label or a major label, the payment of royalties will depend on the avenue you choose to distribute your music. When music is streamed online, this is considered reproduction of a musical work or public communication of a musical work. AMCOS offers reproduction and communication licences on behalf of its members for rights associated with online streaming. We will be closely watching the lawsuit against Spotify and how this will shape the future of copyright law in Australia for distribution of music.

Questions? Let our intellectual property lawyers know.

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Anthony Lieu
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