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CMU Beef Of The Week #253: The Music Industry v Grooveshark
By Andy Malt | Published on Friday 1 May 2015
And so, it came to pass, that on the 30th of April in the year two thousand and fifteen (Eastern Daylight Time), the oft controversial music streaming service Grooveshark did shut down forever. Amen.
Grooveshark’s settlement with the major labels yesterday ensured that the company not only shut down, but also issued a grovelling apology and handed ownership of all of its intellectual property to those music companies.
No money seemingly changed hands though, which was a bullet dodged – though the company’s founders are reportedly on the hook for $75 million if they break any terms of the settlement. But they could have been liable for damages nearly ten times that sum if they’d refused to settle at all.
So the Groovesharkers, while no doubt a bit sad, are probably breathing a sigh of relief. And the three major labels and their lawyers are probably dancing around the room, happy in the knowledge that they successfully sued Grooveshark to the bottom of the ocean.
But how did we even get here? It has been a long and winding road. Or maybe I should say a long and winding swim. I haven’t decided if I’m going to keep the shark/water puns yet.
It all began way back in 2009, when EMI was still not only a thing, but a thing that had decided it didn’t much like this other thing called Grooveshark. The company was one of a number of fledgling streaming services attempting to gain ground, but was different from the others in that it relied on its users to upload content to its servers, rather than the labels and their distributors.
A lawsuit came after licensing negotiations between the then major label and Grooveshark broke down. It was at this stage Grooveshark possibly made its first big mis-step. Back then, being just a little start-up with big ideas.
So the story goes, at that stage Grooveshark didn’t have much legal representation, and was unsure how you were supposed to go about reacting to being sued by a multi-national company. In the end, someone at Grooveshark found an attorney through a family friend, and duly sent him in to negotiate with EMI’s lawyers.
Legend has it that the major’s legal team did not react kindly to a small town divorce lawyer being sent in to this meeting, viewing it as some sort of bold and offensive statement rather than a bit of fairly idiotic naivety. We’re not entirely sure if this story is true, but certainly the Groovesharkers seemed adept at winding up the labels at every opportunity from the off.
Still, a month later an agreement had been reached, Grooveshark had its first licensing deal with one of the majors, and it was on its way to becoming The YouTube Of Audio – something Grooveshark very much wanted to be and a term that would become more important as time went on.
But as 2010 began rolling, Universal Music decided to sue Grooveshark too, for failing to have a proper licence in place for music it owned that was being made available on the streaming service. This litigation specifically criticised the lack of a content-blocking system, stopping tracks from being re-uploaded to Grooveshark’s servers after takedown notices had been issued against them a first time. Something The YouTube Of YouTube (aka YouTube) did have in place.
This lawsuit focussed, as many subsequent lawsuits have, on technicalities relating to catalogue released prior to 1972. In the US, such recordings are covered by state, rather than federal law, which firstly meant Universal could have the case considered in a New York court, rather than having to head to Florida to deal with Grooveshark on home turf. But, more importantly, it also meant – the majors hoped – that its new enemy couldn’t rely on the YouTube defence: Safe harbours.
Grooveshark wheeled this one out all the time. It said that under America’s Digital Millennium Copyright Act, because its users uploaded the content, and it operated a takedown system allowing rights owners to request said content be removed, it was protected from any liability for copyright infringement. This was what protected YouTube (even pre-Content ID), and Grooveshark, remember, was The YouTube Of Audio, so clearly must be protected too. Right?
The counter to this from the record companies and music publishers was that Grooveshark operated a deliberately shoddy takedown system (unlike YouTube’s far more robust one), so that takedown notices could never keep up with new content being uploaded. But – although recent developments might change things – in the main the US courts have accepted pretty shoddy takedown systems as being DMCA compliant.
Either way, the pre-1972 lawsuit initially faltered, with Grooveshark winning at first instance before that ruling was overturned on appeal. However, by this point Universal had something more powerful in its arsenal. In 2011, it launched a second lawsuit, claiming to have evidence that employees of Grooveshark and its parent company Escape Media had uploaded copyright infringing content as well as the firm’s users (over 100,000 unlicensed tracks, it was claimed – though this was later reduced to nearer 5000).
This was key, because although DMCA safe harbours and takedown rules are something of a grey area, the law is quite clear that those protections only extend to instances where third party users of a website upload illegal content, not if the company itself is doing it.
Initially, it seemed that Universal’s claim was based mainly on a comment made on an article on the Digital Music News website by someone claiming to be an employee of Grooveshark. That anonymous person said that they were routinely told by their bosses to upload content even though they weren’t licensed to do so. Grooveshark refuted this, demanding – though ultimately unsuccessfully – that DMN reveal the identity of the commenter.
However, Universal also said it had found evidence of illegal activity in data Grooveshark had been forced to hand over as part of the previous lawsuit. Among this were emails between execs at the streaming service, showing how cocky they felt about their legal wrangles. In one, an investor noted that “we bet the company on the fact that it is easier to ask for forgiveness than it is to ask for permission”.
Next, Warner and Sony joined Universal’s new lawsuit, and EMI withdrew its aforementioned licence agreement, suing not once but twice and then ultimately being included in the case brought by the other majors when Universal’s acquisition of its recordings division was approved in September 2012.
But Grooveshark remained bullish, sticking to its position that it was just an audio version of YouTube, though cracks did begin to show – CEO Sam Tarantino admitting in 2013 that the company had been forced to downsize and that he was now paying himself ‘only’ $60,000 a year.
Still, the company continued to operate. Despite the ongoing disputes with the major labels, the company had managed to secure licensing deals with some indies and publishers, including the biggest of the majors on the publishing side EMI and Sony/ATV. It also rolled out new products in an attempt to placate the labels or at least operate more within the rules. Though, as any former LimeWire employee will tell you, there comes a point where it doesn’t matter how good your legit product is, the majors are still going to try to put you out of business.
There was also a sideshow to all this, in which Grooveshark saw its apps removed from iOS, Android, and Chromecast app stores, its Facebook page deleted, and eventually the term ‘grooveshark’ blacklisted from Google search.
But still the plucky Florida firm fought on, still seeming confident that it would eventually make it out alive. Only last month it launched a brand new version of its website, claiming to have improved discovery tools and addressed “the industry’s desire for more flexibility in controlling content”. The update pushed its Broadcast streaming radio service, licensed through SoundExchange and thus not requiring direct label support, more than the controversial on-demand streaming element.
But the end was already in sight by this point. In September last year, Grooveshark had been dealt a blow in Universal’s second lawsuit, the court siding with the record industry. And in another subsequent legal action the digital firm’s entire ‘but we have a takedown system, DMCA, blah blah’ defence was weakened.
Grooveshark said it planned to appeal the ruling in the Universal case, but the next hit came last week, when a judge ruled that a jury would decide the damages that Universal should be awarded, and that the maximum of $150,000 per infringement could be considered – meaning Grooveshark was potentially facing being order to pay $736 million to the major label.
Obviously, Grooveshark would never have been able to pay that amount, but such a bill would certainly put it out of business. Seemingly recognising that this wasn’t looking good, the service finally accepted a settlement deal, cut its losses, and got out. And now that the three major labels essentially own the company, I look forward to them spitefully relaunching it in the future. Because look how well Napster and Kazaa did once they went legit.
And there’s your potted history of Grooveshark’s six years of legal battles. If you want to relive the whole thing in stunning high definition, check out this timeline featuring all of our reports from that period.
