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Spotify could pay $5 million to settle mechanical rights quagmire

By Chris Cooke | Published on Wednesday 9 March 2016

Spotify may write a cheque for $5 million in a bid to make the mechanical royalties mess in the US go away, or at least to curtail the number of new lawsuits being filed over the sector-wide failure by streaming services to properly comply with the terms of the compulsory licence that covers the mechanical rights in songs in America.

As previously reported, numerous streaming services are now on the receiving end of litigation from US songwriters who claim that – because the streamers didn’t comply with the terms of the aforementioned compulsory licence, in particular the requirement they alert a copyright owner before using their work – those services are liable for copyright infringement, and that means being liable for up to $150,000 per song streamed.

The digital services insist that they always intended to pay the mechanical royalties at the rate set by the compulsory licence, but that the lack of decent music data has hindered that process. In particular, while there are, in fact, databases in the US that tell you who owns what song, there isn’t a database that tells you what song is contained in what recording.

Critics argue that the compulsory licence acknowledges that issue by saying that, if a service can’t identify a song, it should send paperwork and royalties to the US Copyright Office instead, which no one did. Which means the songwriters pursuing infringement action against Spotify et al do seemingly have a good case.

Though plenty of people in the music publishing sector acknowledge that the industry itself is at least partly to blame for the mechanical royalties issue, not least because this is a uniquely American problem, and publishers and collecting societies elsewhere in the world have been able to provide a system via which mechanical royalties from streaming services can be collected and distributed.

And, of course, many of the streaming services hired the Harry Fox Agency – then owned by the National Music Publishers’ Association – to handle mechanicals in the US. Something it then seemingly did with an impressive level of incompetence.

Which is possibly why the NMPA is now trying to help Spotify settle this matter out of court. According to Billboard, the proposed settlement might see the streaming service pay $5 million in damages on top of the up to $25 million in mechanical royalties it is thought may have gone unpaid.

As previously reported, the deal would also formalise Spotify’s commitment to set up a database to enable efficient payments moving forward, something some publishers and songwriters argue the well-financed streaming services should have done years ago.

The specifics of the Spotify settlement remain unknown, though Billboard’s sources say that any deal it strikes up with the NMPA will likely form a template that the trade group will then take to other streaming set-ups facing their own mechanical royalty issues.

Assuming that such settlements are reached, publishers and songwriters in control of their own copyrights will then have to decide whether to opt into the NMPA’s arrangement, or to join one of the class action lawsuits that have been filed on this issue.

As also previously reported, in its first strike against the mechanical royalty litigation, Spotify is attempting to persuade the courts to deny the cases class action status, which would mean only the songwriters specifically pursuing the legal action could benefit from any win in court. That would then likely persuade more publishers and songwriters to go the settlement route, leaving just a handful of outstanding cases to fight in court, probably long after any settlement arrangement has been finalise.

But how the courts will respond to Spotify’s request in that regard remains to be seen. Meanwhile, details of the NMPA settlement could be incoming pretty soon.