Infringe Now--Apologize Later Is Class Action a Viable Remedy for Songwriters Claiming Copyright Infringement by Spotify? by Ryan Sullivan

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Infringe Now--Apologize Later Is Class Action a Viable Remedy for Songwriters Claiming Copyright Infringement by Spotify? By Ryan Sullivan

Spotify launched in 2008 into a new music streaming market that was revolutionizing the way that consumers listened to and purchased music. The primary attraction of streaming services is the access to a vast number of songs, often for a flat fee or even free. While these new streaming platforms have helped contribute to a decline in piracy and rising profits in the music industry [1], it also may be causing song writers to lose money. [2] Spotify’s compensation model pays out royalties to the record labels, which then compensate the artists and performers. [3] However, Spotify cites the record labels as the reason that artists are not getting paid, [4] but that explanation glosses over whether or not Spotify has infringed upon the copyrights by streaming songs that the company does not have the license to. The streaming service is currently facing the threat of two class action lawsuits that allege that their payment model infringes song writers’ copyrights. The two questions, here, are: Has Spotify infringed upon the copyrights of owners of works that the service streams? Will a class action suit be the remedy for infringement, if infringement can be shown?

Using a copyright owner’s work without notice violates Section 501 of the

Copyright Act of 1976 for Infringement of Copyright. [5] In order to prove that an owner’s copyright has been infringed in this situation, the owner must establish

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that they own the compulsory (mechanical) rights to the composition and that

Spotify has reproduced or distributed those compositions without license or authorization. [6] Under §106 of the Copyright Act, the copyright owner of a musical composition has the exclusive rights to reproduce and distribute the compositions in phonorecords and to perform the copyrighted work publicly has been defined as “by means of a digital audio transmission”, classifying Spotify’s use of works that they do not have a license to as infringement. [7]

The issue has really taken off in the past two years because of people like Jeff

Price who founded Audiam, a digital distribution and monitoring company that helps songwriters and publishers track their songs on streaming platforms like

Spotify. In October of 2015, Audiam came out with a report on behalf of its client,

Victory Records, that Spotify had not paid royalties on 53 million streams of songs that belong to the record label. [8] The estimated rate for royalties paid out for each stream is $.000043, bringing the total owed to Victory Records to $23,000. While

$23,000 may only seem like a drop in the proverbial “music-business-bucket.”

Spotify’s claims that on average “per stream” the payout to rights holders is between $0.006 and $0.0084 [9], showing that the Victory totals should be much higher according to Spotify’s data, if the Audiam report is true. The Victory Records controversy exposed the tip of the iceberg that songwriters have long suspected-

Spotify is willingly infringing upon copyrights to run their service.

The controversy with Victory Records is just one of many other claims that

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their business model. [10] Music Publishers Association president and CEO, David

Israelite, estimates that as much as 25 percent of royalty payments are not being paid to publishers, or are being distributed to the wrong entities. Israelite estimates payments as low as $50 million or as high $100 million not being paid out to publishers. [11] Spotify contends that as of 2014, the company had paid out over $2

Billion in royalties to the record labels and that the money should be going down the proper avenues to reach the songwriters from there. [12]

Regardless of whether Spotify has paid the record labels what they figure to be the proper amount of money, the infringement issue is front and center in a recent legal dispute that has been lodged by songwriter, David Lowery, challenging

Spotify on violating Section 501 of the Copyright Act for infringement by not having exclusive rights to copyrighted work under Section 106 of the Act. [13] Lowery, frontman of 90’s alternative band, Cracker, initiated a class-action lawsuit against

Spotify in December 2015 for damages and injunctive relief for violation of Sections

106 and 501. [14] Lowery filed his complaint in the US District Court for the

Central District of California, alleging that Spotify failed to secure the compulsory licenses necessary to use the copyrighted work of his and many other artists that he is hoping to join the class. [15] This class action against a streaming company appears to be a novel legal issue.

Lowery’s class action complaint charges that Spotify is knowingly and willingly infringing on the mechanical rights to his music and that the company has a reserve fund of royalty payments that it wrongfully withholds from artists. [16] 3 Copyright © 2015 Boston College Intellectual Property & Technology Forum

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The complaint cites the existence of this fund as a reflection of a practice and pattern of copyright infringement as a business model. The evidence that Spotify is willingly engaging in numerous cases of copyright infringement, can carry damage awards between $750 and $30,000 for each infringement, and up to $150,000 for a willful infringement according to § 504 of the Copyright Act. [17]

This issue infringement is further complicated by trying to group the copyright owners into a single class because copyright disputes are often unique in nature due to the possibility that each member of the class may have different degrees of alleged infringement. [18] Lowery contends that Spotify has not obtained the proper licenses that have to be in place by providing notice to the Copyright

Office before reproduction or distribution. [19] Class action suits alleging copyright violations are especially challenging because each with each claim of alleged infringement, the copyright owner must prove that notice was given and that payment was not made after the notice of use was given. [20]

Spotify filed a motion to strike class allegations, contending that this lawsuit cannot move forward as a class action because the nature of copyright cases do not lend themselves to class-action treatment. [21] Spotify argues that the Lowery’s attempt at class certification does not encompass a “common question” that constitutes relief which is the basis for a class action suit. [22] Spotify argues that this case does not have a “common question” because every claim is fact-specific and requires “numerous legal and factual inquiries specific to each and every one of the

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compositions at issue” meaning that each copyright owner’s case is fact-specific and too unique to be in a class. [23]

Spotify is arguing that a class certification cannot be granted for three main reasons. [24] First, Lowery’s proposed class is not “fail-safe”, meaning that any assumed class member that Spotify successfully defends itself against would drop out of the class. Spotify argues that it will be impossible to prove that some in the class actually have a claim of infringement and will benefit if the suit wins, but will not be bound by an adverse judgment if the class loses and can still take further action against Spotify. The issue with this is that plaintiffs get to take multiple shots at Spotify in court and exposes the company to unnecessary litigation. [25]

Second, Spotify argues that the class is not ascertainable due to the fact- specific inquiry to each person or artist claiming copyright infringement. [26]

Spotify asserts that this type of fact-finding mission makes a class action unmanageable because each individual claim must be resolved on its own merits.

[27] Spotify’s argument here may have some traction with the court because it is not clear that there is a reliable way to ascertain class membership. [28]

Third, Spotify argues that there is no “common question” here because each case is individualized and fact-specific, not only to the owner of the copyright but regarding every composition in question as well. [29] Spotify’s argues that Lowery’s complaint does not allow for Plaintiff to sweep all of these separate inquiries into one class. [30]All three of these issues have been individually addressed in

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preceding copyright cases [31], but not as one encompassing question dealing with streaming services and copyright infringement of many artists work.

In addition to Lowery’s suit, Boston based artist, Melissa Ferrick, has filed a similar suit looking to receive class certification charging Spotify with the with copyright infringement. [32] Ferrick’s complaint is looking for relief of $200 million dollars in damages for copyright infringement for violating § 106 (1) and (3) of the

Copyright Act that states that the owner of a musical composition has the exclusive rights to reproduce and distribute the composition. [33] Ferrick’s complaint cites that Spotify did not have the rights to use her copyrighted songs. [34] Spotify has not answered Ferrick’s complaint as of yet, but based on their motion to strike

Lowery’s class action, Spotify may make similar arguments that Ferrick’s attempt at class certification cannot be granted because there is not a common question.

Ferrick’s complaint drives to the heart of the issue stating that Spotify’s promise to deliver an essentially unlimited catalogue that Spotify knew that “until such time as it had obtained all necessary licenses, or it would have to employ a now familiar strategy for many digital music services – infringe now, apologize later.” [35]

The Ferrick and Lowery suits are an indication that we are only in the beginning of the legal battle over copyright infringement in regard to streaming platforms. As streaming platforms have negotiated with the labels in the past, in the future they may have to find a means of negotiation with the songwriters as well. [36] Without a change in the model, Spotify can expect to see more lawsuits like Lowery’s and Ferrick’s in the future. 6 Copyright © 2015 Boston College Intellectual Property & Technology Forum

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SOURCES

[1] See Luis Aguiar, Joel Waldfogel,Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales?, European Commission JRC Technical Report, (2015), https://ec.europa.eu/jrc/sites/default/files/JRC96951.pdf.

[2] See Ed Christman, Publishers Said to Be Missing As Much as 25 Percent of Streaming Royalties, Billboard (Oct. 20, 2015), http://www.billboard.com/articles/business/6737385/publishers- songwriters-streaming-25-percent-royalties.

[3]See Barry Collins, Revealed: how much Spotify really pays artists, alphr (Nov. 12, 2014), http://www.alphr.com/spotify/spotify/25362/revealed-how-much-spotify-really-pays-artists.

[4] Id.

[5]Copyright Act of 1976, 17 U.S.C. § 501 (2010); see Class Action Complaint for Damages and Injunctive Relief, at 2, Lowery v. Spotify USA Inc., (No. 2:15-cv-09929-BRO-RAO), (C.D. Cal. Dec. 28, 2015).

[6] 17 U.S.C. § 501 (a).

[7] 17 U.S.C. § 106 (1),(3),(6).

[8] See Ryan Faughnder, Meet the music entrepreneur who’s taking on Spotify, Tribune News Service (Jan. 21, 2016), http://www.postbulletin.com/entertainment/meet-the-music-entrepreneur-who-s- taking-on-spotify/article_20461688-abc8-5256-9b21-1a6a4072f8b1.html.

[9] See http://www.spotifyartists.com/spotify-explained/.

[10] See Ed Christman, Publishers Said to Be Missing As Much as 25 Percent of Streaming Royalties, Billboard (Oct. 20, 2015), http://www.billboard.com/articles/business/6737385/publishers- songwriters-streaming-25-percent-royalties.

[11] See id.

[12] See Barry Collins, Revealed: how much Spotify really pays artists, alphr (Nov. 12, 2014), http://www.alphr.com/spotify/spotify/25362/revealed-how-much-spotify-really-pays-artists.

[13] 17 U.S.C §§ 106 and 501; Class Action Complaint for Damages and Injunctive Relief, at 8, Lowery v. Spotify USA Inc., (No. 2:15-cv-09929-BRO-RAO), (C.D. Cal. Dec. 28, 2015).

[14] Id.

[15] Id. at 2.

[16] Class Action Complaint for Damages and Injunctive Relief, at 1, Lowery v. Spotify USA Inc., (No. 2:15-cv-09929-BRO-RAO), (C.D. Cal. Dec. 28, 2015).

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[17] 17 U.S.C. § 504 (c)(1-2).

[18] See Tidenberg v. Bidz.com, 2010 WL 135580, at 3 (C.D. Cal. Jan. 7, 2010).

[19] Class Action Complaint for Damages and Injunctive Relief, at 8, Lowery v. Spotify USA Inc., (No. 2:15-cv-09929-BRO-RAO), (C.D. Cal. Dec. 28, 2015).

[20] Defendant Spotify USA Inc.’s Memorandum of Points and Authorities in Support of Motion to Strike Class Allegations at 7, Lowery v. Spotify USA Inc. No. 2:15-cv-09929-BRO-RAO (C.D. Cal. Feb. 12, 2016).

[21] Id.; see Football Assoc. Premier League Ltd. v. YouTube. Inc., 297 F.R.D. 64, 65 (S.D.N.Y. 2013) (“copyright claims are poor candidates for class-action treatment”).

[22] Id. at 12.; Fed. R. Civ. P. 23(a)(2).

[23] Id.; Tidenberg v. Bidz.com, 2010 WL 135580, at 3 (C.D. Cal. Jan. 7, 2010) (“determining class membership…essentially requires resolving the merits of each individual’s claim”).

[24] Id. at 1-2.

[25] Defendant Spotify USA Inc.’s Memorandum of Points and Authorities in Support of Motion to Strike Class Allegations, at 5-6, Lowery v. Spotify USA Inc. No. 2:15-cv-09929-BRO-RAO (C.D. Cal. Feb. 12, 2016.

[26] Id. at 7.

[27] Id.

[28] see Copyright and the Music Marketplace, A Report of the Register of Copyrights, Feb. 2015, http://copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf, (“there can be little doubt that the current music licensing landscape is severely hampered by the lack of publicly accessible, authoritative identification and ownership data”).

[29] Defendant Spotify USA Inc.’s Memorandum of Points and Authorities in Support of Motion to Strike Class Allegations, at 12, Lowery v. Spotify USA Inc. No. 2:15-cv-09929-BRO-RAO (C.D. Cal. Feb. 12, 2016.

[30] Id.

[31] Id. at 5-9.

[32] Class Action Complaint for Copyright Infringement; at 2; Ferrick v. Spotify USA Inc., No. 2:16- cv-00180 (C.D. Cal Jan. 8, 2016).

[33] 17 U.S.C. § 106 (1), (3).

[34] Class Action Complaint for Copyright Infringement; at 9; Ferrick v. Spotify USA Inc., No. 2:16- cv-00180 (C.D. Cal Jan. 8, 2016).

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[35] Id. at 2.

[36] See Anandashankar Mazumdar, Streaming’s Future Might Be in Negotiated Rates, Bloomberg BNA, (Dec. 21, 2015), http://iplaw.bna.com/iprc.