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Grooveshark could face mega-damages bill in Universal legal battle

By Chris Cooke | Published on Monday 27 April 2015

Could this be the beginning of the end for often controversial streaming service Grooveshark? The “YouTube of audio” in that it lets users upload music and tells rights owners that they have to issue takedown notices if they want it removed. Which provides the digital firm with an extensive catalogue of tunes despite not having licensing deals in place with most record companies.

As much previously reported, Grooveshark has always insisted that its operations are entirely legal under America’s Digital Millennium Copyright Act because of the so called ‘safe harbours’ that protect tech companies when their users infringe copyright (and the abolition of which recently became target number one for the music industry’s lobbyists).

While many in the music business have always reckoned that the Groovesharkers were rampantly exploiting a major loophole in US copyright law, the labels and publishers were often nervous about testing the safe harbours in court, because it wasn’t at all assured they’d win.

But then Universal Music got its hand on some evidence that staff at Grooveshark HQ had also been adding tracks to the firm’s servers without the permission of copyright owners. And the DMCA provides no safe harbour protection if companies themselves – rather than their customers – do the infringing. Grooveshark management denied the allegations of staff members uploading content, but a judge ruled against them last September.

And now a jury will be asked to set the damages the digital firm must pay for those infringements. And last week judge Thomas Griesa, who will preside over those proceedings, said in a court order that because the copyright violations were “wilful” and made “in bad faith”, the jury would be given the option to award Universal the maximum damages allowed under copyright law of $150,000.

But that could be awarded per track infringed, and at last count Grooveshark was accused of infringing nearly 5000. So damages could reach a massive $736 million, which the Grooveshark company could never afford to pay, but it would likely push the digital firm out of business. Which – it’s always seemed – has long been Universal’s real agenda here. That figure is the worst case scenario for Grooveshark and the jury could set damages at a much lower sum. Though juries often pitch surprisingly high on copyright damages.

Though, while this could be the litigation that finally kills off Grooveshark, a long term thorn in the music industry’s side, another lawsuit against the service could actually have more significance. EMI – before becoming part of Universal – had its own legal battle with Grooveshark, at one point settling and doing a deal with the streaming service, and then later revoking the deal and going legal again.

That case didn’t rely on the staff-uploading allegation (or the other technicality Universal sued on – based on the whole pre-1972 thing), but rather tested whether Grooveshark was actually entitled to safe habour protection under the DMCA. Which made it a braver lawsuit on the label’s part, and the ruling in EMI’s favour just before Easter all the more significant.

The judge in that case said that Grooveshark’s takedown system was not of a higher enough standard to ensure safe harbour protection (which is pretty good going, given that judges in previous US safe harbour cases have generally set that standard pretty low). In particular, said the judge hearing the EMI case, Grooveshark didn’t do enough to tackle users who repeatedly infringed.

After that pre-Easter ruling Grooveshark immediately announced an overhaul of its takedown process, with a three-strikes and you’re out system for repeat infringers. Meanwhile a hearing is set for next month to consider damages for EMI. Though if things swing in Universal’s favour big time on the damages front this week, there may well not be a company left to attend that hearing.