Monday, September 18, 2017

Spotify’s latest mechanicals motion denied, though it could persist with its bold new argument | UNLIMITED | CMU


The judge overseeing one of Spotify’s ongoing mechanical royalty lawsuits has knocked back its ‘motion for a more definite statement’, which was the court submission where the streaming firm introduced the dramatic new argument that it didn’t actually exploit the so called mechanical rights of the song copyright. Though last week’s ruling on the matter doesn’t mean Team Spotify can’t continue to make that controversial new argument.

As much previously reported, Spotify – and other streaming firms – have been on the receiving end of multiple lawsuits in the US over unpaid mechanical royalties. To date the streaming firms have generally claimed that the unpaid royalties are simply the result of the US music publishing sector having never established a collecting society for mechanicals.

This month’s “we’re not sure mechanical royalties are even due” argument is new. Because to date, it has generally been agreed that an on-demand stream exploits both the ‘performing rights’ and the ‘mechanical rights’ of the copyright.

This is important in the songs business, because in some countries the two elements of the song copyright have traditionally been licensed separately. Though, even where that is the case, you can usually get industry-wide blanket licences (or ‘mop-up licences’ covering anything not licensed directly) from a local collecting society, even if you need to get one blanket licence for performing rights and another for mechanical rights.

However, in the US there are only collecting societies for the performing rights. Royalties due for exploiting the mechanical rights need to be paid directly to the publisher.

That means a digital service needs to work out what songs it has exploited and who controls those songs. Which – with no publicly-accessible industry-wide database of music rights information available – has proven to be a tricky a task. Or, at least, those streaming firms who hired US mechanical royalty specialists The Harry Fox Agency to process the monies haven’t been getting everyone paid.

Which resulted in those mega-bucks lawsuits, in which unpaid songwriters or publishers can sue for statutory damages of up to $150,000 per song, oblivious of what mechanical royalties are actually due from any one streaming service.

Although it’s been generally accepted within the music industry that an on-demand stream exploits both the performing and the mechanical rights, copyright law is generally silent on such things. Hence Spotify’s bold new argument that its streams only exploit the performing rights; an argument mainly based on legal precedent in the US that says personalised radio services like Pandora don’t exploit the mechanical rights.

That new argument – contained within the aforementioned ‘motion for a more definite statement’ filed in relation to two recent mechanical royalty lawsuits – has been rejected not only by the lawyer leading on that litigation, but also by plenty of Spotify’s friends in the music publishing sector, and the US National Music Publishers Association.

Given that Spotify isn’t actually trying to reduce its overall payments to songwriters and publishers here – just alter the way it makes those payments – you might wonder why the pro-streaming music publishers would object to the idea. It would simply see the streaming firm push all its royalty payments through the performing rights organisations that it already has licensing relationships with.

The PROs would then work out which songwriters and publishers need to be paid, and protect Spotify from legal claims for statutory damages from writers and publishers who don’t dig the new fangled streaming business.

Though in some countries, publishing contract conventions mean that publishers prefer mechanical right royalties to performing right royalties, because a chunk of the latter are generally paid directly to the songwriter, even if said writer is yet to recoup their most recent advance paid by the publisher. Therefore publishers don’t want all the streaming money to go through the PROs, which – in the US – are also subject to those pesky consent decrees.

With all that in mind, it will be interesting to see if Spotify continues to put forward its new mechanicals argument in the US courts.

In its ‘motion for a more definite statement’ earlier this month, Spotify basically argued that the lawsuits filed in July by Bluewater Music Services and Bob Gaudio were high on bluster but low on legal argument. In particular – the streaming firm added – the lawsuits took it for granted that mechanical royalties were due, but – in Spotify’s newly formed opinion – that’s not a given, and the plaintiffs should have presented arguments proving that is so.

According to Billboard, the judge overseeing the case rejected that motion on Thursday. In doing so, judge Jon Phipps McCalla was basically saying that the plaintiff’s arguments are already sufficient for the case to proceed. Which means no new legal filing is require from the Gaudio camp. Though Spotify could now file a motion to dismiss the case using the same ‘no mechanicals are due, mate’ argument. So we await its next response with interest.


No comments: