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Spotify settles Wixen’s $1.6 billion mechanicals lawsuit

By | Published on Friday 21 December 2018

Spotify

Spotify has settled the mechanical royalties lawsuit that captured by far the most headlines. That being the $1.6 billion action launched by music publisher Wixen right at the end of last year.

While the potential damages bill – coupled with the eminent list of songwriters Wixen represents – meant that particular litigation was very widely reported, it was merely the latest in a number of lawsuits focused on the payment, or not, of mechanical royalties by streaming services in the US. Most of those unpaid mechanical royalties were the result of a flawed licensing system in America, flaws that this year’s Music Modernization Act seeks to address. Although it was one element of that new legislation that prompted Wixen to sue.

Streaming services exploit both the so called mechanical and performing rights of the song copyright, and in some countries those two elements are licensed separately. However, in most countries there are collecting societies representing both mechanical rights and performing rights. This means that – even where some publishers license some of their songs to some digital service providers directly – there is a society that can provide a DSP with a ‘mop-up’ licence covering pretty much any song on its platform not already covered by a direct deal.

In the US, while there are collecting societies representing performing rights, there is no society for mechanical rights. American copyright law actually sets a compulsory rate for mechanical royalties, but the DSP must send paperwork and payments to each song’s publisher. The problem is, the DSP doesn’t actually know what precise songs are contained within any one recording, let alone who wrote or published that song. So it doesn’t know who to pay.

There are rights agencies in America which can help to identify what songs are in what recordings and send off the paperwork and payments. Some of these traditionally helped the record labels, who always needed to sort out the payment of mechanical royalties on CDs and downloads. But sorting out such things for a DSP with 40 million tracks on its system is different to helping a label licence a new ten track album. As a result, a certain portion of the songs on Spotify’s platform (and other DSP platforms) were not fully licensed in the US.

Once that became apparent, songwriters and music publishers started to sue for copyright infringement. Under American law, when you sue for infringement, you can claim so called ‘statutory damages’, which is a fixed sum per infringement, oblivious of what mechanical royalties might actually be due. Which is how, when you have a publisher like Wixen with many songs on Spotify, the total potential damages could reach something like $1.6 billion.

While some songwriters and publishers blamed Spotify and the other streaming services for not properly navigating the US mechanical rights licensing system and ensuring all songs on their platform were fully licensed, others in the music publishing sector conceded that the real problem was that that licensing system wasn’t fit for purpose.

Some of the latter group started to champion copyright law reform to overcome the issues, which resulted in the MMA – passed by US Congress in September – via which a mechanical rights collecting society will be set up able to offer DSPs one of those mop-up licences. That society will be paid for by the DSPs but run by the music community.

That was all very sensible. Although one element of the MMA was to draw a line in the sand on 1 Jan 2018 and say that from that point onwards songwriters and publishers could no longer seek statutory damages from DSPs over unpaid mechanicals, providing the DSP sought a licence from the new society. Where a DSP didn’t have a direct relationship with a publisher, royalties would be paid to the new society, and writers and publishers could claim what they are due from there.

Worried that this element of the MMA might stop it from suing over past unpaid mechanicals, Wixen quickly filed its lawsuit at the end of last year before that proposed deadline. The independent music publisher was actually already participating in negotiations to settle an earlier class action on the mechanical royalties issue, but said that it had to also file its own legal action in case it wasn’t happy with that settlement and then the MMA prevented new litigation.

At the time the publisher’s President, Randall Wixen, said in a statement: “We are very disappointed that these [streaming] services will retroactively get a free pass for actions that were previously illegal unless we actually file suit before 1 Jan 2018. Neither we nor our clients are interested in becoming litigants, but we have been faced with a choice of forfeiting rights and damages, or taking action at this time”.

Although Wixen insisted that his company “loved” the Spotify service, he was at times very critical of the company and its management, and of its attempts to settle the aforementioned class action. But behind the scenes talks continued between the two businesses, even as Spotify listed on the New York Stock Exchange, something that again put the streaming firm’s mechanical royalty woes in the US back under the spotlight. And now a deal has been done, with Wixen becoming much more complimentary about the Spotify company and its bosses.

Name-checking both Spotify’s CEO and General Counsel, Wixen told reporters yesterday: “I want to thank Daniel Ek and Horacio Gutierrez, and the whole Spotify team, for working with the Wixen team, our attorneys and our clients to understand our issues, and for collaborating with us on a win-win resolution”.

He went on: “Spotify is a huge part of the future of music, and we look forward to bringing more great music from our clients to the public on terms that compensate songwriters and publishers as important partners. I am truly glad that we were able to come to a resolution without litigating the matter. Spotify listened to our concerns, collaborated with us to resolve them and demonstrated throughout that Spotify is a true partner to the songwriting community”.

Although specifics of the settlement are confidential, the two companies said in a statement: “Wixen Music Publishing Inc and Spotify USA Inc have agreed to a final dismissal of the lawsuit filed by Wixen Music Publishing late last year. The conclusion of that litigation is a part of a broader business partnership between the parties, which fairly and reasonably resolves the legal claims asserted by Wixen Music Publishing relating to past licensing of Wixen’s catalogue and establishes a mutually-advantageous relationship for the future”.

Confirming the settlement for Spotify’s side, the aforementioned Gutierrez said: “We’d like to thank Randall Wixen and Wixen Music Publishing for their co-operation in helping us reach a solution. Wixen represents some of the world’s greatest talents and most treasured creators, and this settlement represents its commitment to providing first-rate service and support to songwriters while broadening its relationship with Spotify”.



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