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David Lowery’s lawyer says Spotify’s ‘bad-data’ line is “the worst excuse in the world”

By | Published on Thursday 31 December 2015

David Lowery

Opinion seems divided in the music community regarding the news that musician and prominent artist rights campaigner David Lowery is suing Spotify, accusing the streaming music service of failing to pay him and other songwriters millions in mechanical royalties.

Legal representatives for Lowery insist that litigation is necessary to force the hand of Spotify, and other streaming services, when it comes to the way they license mechanical rights in the US, while labelling the digital firm’s claim that the real problem is a lack of decent music data “the worst excuse in the world”.

As previously reported, Lowery’s lawsuit relates to the issue at the heart of that short-lived spat between Spotify and Victory Records earlier this year. An on-demand stream exploits both the ‘mechanical’ and ‘performing’ right elements of a copyright. Which is important when it comes to licensing song rights, because the music publishing sector has traditionally licensed these two elements of the copyright separately.

In Europe, most publishers and collecting societies have sought to provide streaming services with licences that cover both mechanical and performing rights, but in the US copyright rules have prevented the performing right organisations from also repping mechanical rights, so the two are generally still handled through separate licences.

It is the mechanical rights where there have been issues. There is a compulsory licence covering mechanicals in the US, so streaming services don’t need specific permission from a songwriter or publisher to stream their songs. However, under the compulsory licence the digital service must alert a rights owner that their music is being used, and then pay royalties at rates set by statute. Spotify, and other services, are accused of not complying with that part of the compulsory licence.

Spotify says the problem is data. With no central music copyright database, the company doesn’t know who to alert and pay. Spokesman Jonathan Prince said in reaction to Lowery’s lawsuit: “We are committed to paying songwriters and publishers every penny. Unfortunately, especially in the United States, the data necessary to confirm the appropriate rightsholders is often missing, wrong, or incomplete. When rightsholders are not immediately clear, we set aside the royalties we owe until we are able to confirm their identities”.

Prince’s colleague James Duffett-Smith, Spotify’s Global Head Of Publisher Relations, announced just before Christmas plans to build a super new database to help overcome these problems. In the meantime, Prince added: “We are working closely with the National Music Publishers Association to find the best way to correctly pay the royalties we have set aside”.

However, Sanford Michelman of Michelman & Robinson LLP, which is representing Lowery, is not impressed with Spotify’s response. “I think it’s the worst excuse in the world”, Michelman told CMU. “If you see a car for sale in the street, you can’t just break in and take it and then say, ‘But I didn’t know who was selling it’. It’s the same here. Spotify has pursued a ‘catch me if you can’ approach to licensing, and that’s a totally irresponsible business model. Spotify’s statement is an admission that they knew they were intentionally violating the copyright laws designed to protect artists”.

The basic argument from Lowery’s side is that just because it can be hard to identify who owns and controls any one song, that doesn’t mean streaming companies can ignore their obligations under the compulsory licence.

Michelman’s colleague Mona Hanna told CMU: “Besides, it’s just not true that the data Spotify needs simply isn’t available. With the songs referenced in this case, a simple search of the USPTO database would have revealed who Spotify needed to notify. And there is a process in law to follow even when you don’t have the right information. Spotify has ignored this process”.

Explaining more how the compulsory licence process works, Hanna continues: “Where the information regarding the copyright owner is unavailable, or unknown, the compulsory licence can be used to legally obtain the right to distribute the music. [But the law] requires a ‘notice of intent’ to obtain a compulsory licence be filed with the Copyright Office and then the statutory royalties for that work to be deposited to the Copyright Office until the name of the copyright holder is identified. At which point, the royalties go to the copyright owner or his agent directly”.

Sanford adds: “We don’t yet know much about Spotify’s planned new database, but I’m not sure that will address the problem, which is more about policy than data. From what we have heard, it sounds like the new database is merely a more efficient way to violate the law, rather than to cure the violation of taking artists’ works without their permission”.

The lawyers concede that Spotify is not the only streaming company with a mechanical rights problem in the US, and they hope this case will set a wider precedent.

“We have focused on Spotify because of its size and scale”, says Sanford. “We hope this action will make others comply with the law as well. Our message is that everyone must comply. And if you enter this market anew, you can’t build market share simply by ignoring your obligations under copyright law. We cannot, and should not forget, that the underlying issue here is that the artists pour their heart and souls into their work and Spotify is taking it without permission to do so and making money off of it. That’s just wrong”.

Lowery’s lawsuit is a class action, which means, if successful, it would benefit other songwriters who believe Spotify owes them mechanical royalties. “We have artists from all over reaching out to us about this case”, Sandford says, “telling us that this has been a key concern of theirs for some time now, and that they are grateful that David Lowery is doing something about it at last. We’ve had a lot of contact from across the industry and the support is tremendous”.

That said, as we noted, the music community is divided on this issue, with even some artists and songwriters siding with Spotify. Those on that side of the fence argue that Spotify has actually done more than any other digital service to try to overcome licensing complexities and database issues to ensure the right labels, publishers, artists and songwriters are paid.

In a blog post about Lowery’s litigation, digital music consultant Sammy Andrews – until recently also Head Of Digital at Cooking Vinyl – calls on the music industry, which has long discussed the need for better music data, to finally rise to the challenge in 2016, and work with the streaming sector to produce the publicly accessible global music rights database everyone agrees is needed.

Andrews writes: “It actually saddens me that, of all the digital service providers he could have chosen to go after, he’s going after one that actually recognises [the need for a music rights database] and is actively trying to build one. I’ve seen a lot of people on social networks posting in support of the lawsuit without any comment on why this occurred. Read past the headlines and actually think about why this happens! If Spotify are found to be at fault here, every DSP will be guilty of this without exception. But I believe the fundamental fault here lies with us, the industry, not the service, and we have a collective responsibility to sort this out”.

Back at Michelman & Robinson LLP, Hanna agrees to an extent, saying that “in my opinion, the long term solution requires all the parties to come to the table to discuss an equitable arrangement. I’m not necessarily saying what that solution should be, but it must be fair to all parties. And that means artists and songwriters as well as labels, publishers and distributors”.

However, she and Sandford insist that, whatever data issues there may have been, and whatever data solutions Spotify or the industry may come up with in the coming year, the core allegation of Lowery’s lawsuit still stands: ie the claim that the streaming service has simply not complied with its obligations under the US compulsory licence. And if a service wants to exploit the mechanical rights of songs in America, they add, those obligations must be met.

“We hope Spotify will do the corporately responsible thing and come forward and fix its business model”, says Sanford. “We believe that their recent statements are basically an admission of liability. If we can address this matter out of court, it could take less than a year to settle. I do want to stress that this is a watershed moment, so to speak, for Spotify. If they truly care about doing the right thing, then they will resolve this matter and set the standard for the rest of the industry. They have an opportunity to be a good corporate citizen”.

But settling the case won’t be as simple as speedily handing over any unpaid mechanical royalties. Sanford concludes: “I don’t think Spotify can just say, ‘Oh, sorry, we forgot to pay you’, and then hand over what it unilaterally believes it owes. It has enriched its balance sheet by ignoring its legal obligations, and no company should get away with that. A clear message needs to be sent to new businesses operating in this space, that legal obligations must be met from the off. So yes, we will be pursuing damages for our client in this case, but more importantly, to protect the artists and the industry”.

For a guide to how digital services are licensed check this free trends article, or the ‘Dissecting The Digital Dollar’ report produced by CMU Insights for the UK’s Music Managers Forum.

Premium CMU subscribers can also check this review of the music industry’s data challenges, while Bruno Guez of Revelator discusses the same in this free to access interview here.