By Michael J. Weil
(Originally published in ISBA March 2018 Intellectual Property Newsletter)
On December 29, 2017 Wixen Music Publishing Inc. filed a lawsuit in California Federal Court which could impact millions of music fans in the U.S. and around the world. The complaint, lodged against the popular music service Spotify, alleges that Spotify has been streaming thousands of Wixen’s songs without permission. In response, Wixen seeks a staggering $1.6 Billion in monetary damages, in addition to injunctive relief. This is a significant development because Wixen is the exclusive licensee of several popular Spotify tracks including: “Free Fallin’” by Tom Petty, “Light My Fire” by the Doors, and “(Girl We Got a) Good Thing” by Weezer. Furthermore, Wixen also owns rights to songs by Steely Dan, Stevie Nicks and Neil Young, and administers “more than 50,000 songs written and/or owned by its more than 2,000 clients”. The publisher alleges that its songs were downloaded and streamed “billions of times” through Spotify’s Service.
Wixen’s complaint invokes parts of the United States Copyright Act. Under the Copyright Act, there are two separate copyrights inherent in every recorded song. First, there is a copyright in the sound recording (the original or “master recording”). Second, there is a copyright in the musical composition–for example, a song’s words and musical notes. Moreover, streaming services like Spotify are required to pay “mechanical royalties”. The mechanical royalties are covered through a mechanical license, which grants streaming services a broad license for a set rate. When applying for a mechanical license, the licensee is obligated to file a formal “notice of intent” or “NOI” with the Copyright Office. In this case, Wixen contends that Spotify did not obtain the required composition and mechanical licenses. Furthermore, Wixen states that Spotify did not publish a Notice of Intent.
The Wixen case is the latest in a recent line of lawsuits against Spotify. In the summer of 2017, a settlement in the class action case of Ferrick et.al. v. Spotify USA Inc. awarded over $43 million to song owners for past unauthorized uses. Additionally, Spotify had to pay the National Music Publishers’ Association roughly $25 million in a private settlement for similar infringement allegations. However, both of the settlement amounts fall well below the $1.6 Billion being requested by Wixen.
In addition to the money involved, the Wixen case is significant because it could be the last of its kind. Congress currently is evaluating a new law called the Music Modernization Act (“MMA”). Some music licensors fear that the Act will make it much harder to obtain restitution for copyright infringement: “If the Music Modernization Act passes the bill ‘would eliminate important legal remedies’ for any music publishing company’s lawsuits…filed after January 1st, 2018.” Conversely, proponents of the MMA say that the Act would create a much needed blanket license, along with a new agency and song database, aimed at modernizing America’s outdated music laws. For example, many of the laws governing United States music copyright were drafted in an era when phonographs were the predominant “music streaming” device. Accordingly, many legislators argue that the U.S.’s music laws are not suited to contemporary methods of music consumption—especially digital streaming services; as a result the bill has bipartisan support in Congress.
Finally, in addition to updating the copyright laws, the Music Modernization Act would require a change in controversial royalty rate setting practices. Currently, there is a labyrinthine method for calculating music royalty rates taking into account “service type”, like terrestrial radio, satellite radio, etc. as well as “type of copy” (ranging from a physical record to a ringtone). The result of this process is that digital forms of music cost the licensee multiple times more than physical forms. For example, a ringtone recently has been valued at 24 cents per song fragment in royalties while a record is $.091 per song or $.0175 per minute of playing time. The MMA’s supporters say that instead of having rigid rate setting based on copy and service type, the Act will open rates up to a “willing buyer/seller marketplace”.
Given these recent developments, 2018 looks to be a watershed year for music law. By the end of the year, music streaming services will likely have a clearer sense of the regulatory framework they must navigate. Moreover, if the MMA gets passed, the U.S. musical copyright laws will receive a long-overdue revamping. Overall, it will be intriguing to keep an eye on both Wixen and the MMA’s development in the months ahead.
Michael J. Weil is an associate and licensed patent attorney at Lowis & Gelien LLP in Chicago. Michael can be reached at mweil@lgcounsel.com.