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Mystery Redaction in Spotify Filing for Eight Mile Style Lawsuit

November 8, 2019 Comments off

“We never get accustomed to being less important to other people than they are to us.”

Holly Martins in The Third Man by Graham Greene

As MTP readers will recall (especially newsletter readers), Spotify is being sued in Nashville by the publishers of a good chunk of Eminem’s extremely popular catalogs (on albums each streamed over 1 billion times on Spotify according to the press).  The lawsuit alleges that Spotify has failed to comply with the conditional (and highly controversial) reachback safe harbor under the Music Modernization Act’s Title I.  The suit also challenges the reachback element of the Title I safe harbor giveaway as an unconstitutional “taking”.  (The case is cited as Eight Mile Style, LLC and Martin Affiliated, LLC v. Spotify USA Inc., Civil Case No.3:19-cv-00736, U.S.D.C. Mid. Dist. Tenn., Nashville Div., Aug. 21, 2019.  You can read the complaint here.)

In pre-answer pleadings, Spotify has filed a motion to dismiss for improper venue and has asked the Court to transfer the case to the Southern District of New York failing dismissal.  (Spotify was also granted a pre-answer stay of discovery which makes even less sense.)  This is because despite the fact that Spotify has a Nashville office and has spent considerable resources for a very long time on a charm offensive directed at Nashville songwriters, Spotify alleges that all of its music publishing licensing operations are in New York.  That may be true, but that doesn’t mean that a Nashville jury should be denied the right to hear the case.  It’s also unclear why it would be inconvenient for Spotify to be tried in Nashville.

Because the Internet.

But we’ll see.  What was interesting about the Spotify motion to dismiss was that it is supported by an affidavit from a Spotify employee describing Spotify’s US mechanical licensing operations for songs.  This affidavit was the normal sort of thing you’d see from a defendant trying to give the Court context about why the Court should transfer the case to somewhere else where the defendant was shopping…sorry…where the defendant was based.

And…like most Big Tech multinationals, especially public ones, Spotify wanted part of that affidavit “sealed”, meaning they wanted the Court to prohibit the public from being able to read part of it and most importantly no doubt, they wanted the plaintiffs barred from being able to speak about the sealed part.  (Google especially likes that sealed business and has been successful employing that strategy.)

Crucially, this particular case involves critical issues of public policy that strongly militate against secrecy and in favor of complete transparency.  The timing of this case is itself of critical importance as the Copyright Office is currently considering regulations to implement the very bare bones federal statute at issue in the case.  The Constitutional issue presented alone is of the essence of Title I.  Therefore, normal practice on sealing materials in this vitally important lawsuit should be balanced against strong legitimate public interest.

This is particularly true because the redaction appears to address how Spotify is handling mechanical royalties for thousands of songwriters (and potentially many, many more ) both in the U.S. and around the world, all of whom have a strong interest in Spotify’s processes and a right to know where there money is.

It might be important to remind everyone involved in the case that the eyes of the world are upon them and that the money involved is payable under a license that songwriters are compelled by law to grant.  Therefore, all information relating to the payment of those monies should be made public.  This case is different than your garden variety rate proceeding which is aspirational in nature and where redactions are common and reasonable.  This case is brought because it appears that someone screwed up with the money.  And if they screwed up with Eminem’s money, they probably screwed up with everyone’s money.

Although it must be said that reading tea leaves about redactions must be a cautious undertaking because there could always be an innocent explanation rather than artifice, here’s what’s odd about the redaction.  (You can read the entire affidavit here.)

The affidavit lists some, perhaps all, of the current and former Spotify employees involved in mechanical licensing.  We’re not focused on them right now.  Who they are is less important than what they do.

After that list comes a heading “Relevant Third Parties”.

Spotify Declaration Eight Mile Style 1.png

Unsurprisingly, Spotify lists its parent company (Spotify AB) as a “Relevant Third Party”.  While not “third party” in the normal sense, we can understand why the defendant would want to treat the parent as such as a legal fiction.  Spotify also lists HFA, which is equally unsurprising as HFA has provided services to Spotify as Spotify’s agent for many years.  (This may be a little confusing to songwriters who thought HFA just worked for them, but that’s a story for another day.  For now, suffice it to say that HFA seems to be “on the wall” and works for both sides of the same transaction in some cases albeit providing different services in many cases.)

As an aside, HFA has been, I think, unfairly maligned in the press over its handling of Spotify’s mechanical licensing.  I think this is very unfair and I have defended HFA against these attacks.  At the end of the day, while HFA may have been the company’s agent, it was Spotify who decided to do what it did and Spotify alone should be held responsible.  Criticizing HFA for Spotify’s decision is not only silly and petty in my view, I also think it’s just a bad reading of the law.  Having said that, Eight Mile Style has made some serious allegations in its complaint and bears the burden of proving them up which may turn a different direction.

But back to the affidavit–observe the outline form of that redaction.  The redaction covers three paragraphs in a separate heading under the affiants’ “Relevant Third Parties” bullet. The redaction aligns with both “Spotify AB” and “Harry Fox Agency” bullets above it.  Whatever the redaction says, it appears to be describing a third entity that is neither Spotify AB nor HFA but that provides third party services similar to both.

Spotify Declaration Eight Mile Style 1 Annotated.png

Maybe nothing but maybe something.  If it is something, it appears to be an entity involved with handling songwriters money in yet a sixth lawsuit (including a class action) filed against the same company.  One could easily make a compelling argument that this is a lawsuit filed against the very company that drove a major amendment to the licensing practice under the Copyright Act in the form of Title I originating with David Lowery’s and Melissa Ferrick’s class action against Spotify.

And it appears from both the compliant and the affidavit that not much has changed after the passing of the Music Modernization Act. If you look at all the cases against Spotify, they all have one thing in common.  Spotify had many, many chances to settle the claim before it became a case.  They either ignored the claims before they went legal, or didn’t take them seriously.  Expensive oversight for the shareholders, but given Spotify’s governance by dual class voting stock, no surprise that the insiders’ moral hazard cuts against shareholders.  Here, Spotify not only had an opportunity to avoid liability, they even amended the Copyright Act to provide themselves a lifeboat.

If something was fixed at Spotify by the MMA, please tell me because I’m missing it entirely.  There does seem to be the strong possibility that unless something gets fixed at the company, the pattern will be full again very soon.  Eight Mile Style’s attorney Richard Busch must have become something of a bête noire for Spotify–is this the fifth lawsuit against them or are there more?  I’ve lost count.  Removing the Eight Mile Style case to Timbuktu won’t change the attorney though.  And even though it’s a stones throw from Spotify’s luxurious offices in World Trade Center, the SDNY just might be getting tired of seeing Daniel Ek’s smiling face in their chambers.  Maybe not yet.  But maybe they’d actually be better off staying in Nashville.

Someone should ask this question, so why not us–who is this mysterious third party who does Spotify’s mechanical royalty licensing or accounting that we are compelled to use by the statutory license?

How do they have their mitts on our money?  And why so secretive?

Holding the Line on Tradeoffs for Statutory Damages

October 1, 2017 1 comment

It is very likely that we will hear about a move to make significant amendments to the Copyright Act at some point before the beginning of campaign season in 2018.  There are a high number of copyright-related bills that have been introduced in the House of Representatives in the current session, so brace yourself for an “omnibus” copyright bill that would try to cobble them all together Frankenstein-style.

A Frankenstein omnibus bill would be a very bad idea in my view and will inevitably lead to horse trading of fake issues against a false deadline.  Omnibus bills are a bad idea for songwriters and artists, particularly independent songwriters and artists, because omnibus bills tend to bring together Corporate America in attack formation.

MIC Coaltion

The MIC Coalition

When you consider that Google and Facebook are part of Corporate America (not to mention Apple), the odds of the independent songwriter and artist, but really any songwriter and artist, just holding onto the few crumbs they currently have crash and burn.  The odds of actually righting wrongs or–God forbid–getting rid of the legacy consent decrees that protect Big Business vanish into the limit.

Of course, what certain elements of Big Tech would really like to do is push all licensing of music into one organization that they could then control through consent decrees or other government regulation and supervision by exercise of the massive lobbying and litigation muscle of the MIC Coalition and DIMA.  While I realize that may actually sound anti-competitive, it is typical of monopolists to use the antitrust law to destroy competition (as Professor Taplin has taught us).   That’s certainly what has happened with the PRO consent decrees–reduced competition and lower royalties.  Not to mention such a licensing organization would collapse under its own complexity.  This is probably why the Copyright Office envisioned a “Music Rights Organization” that would combine the PROs and mechanical rights licensing but provided the relief valve of an new opt-out right so that songwriters could escape the madness.  (“Under the Office’s proposal, except to the extent they chose to opt out of the blanket statutory system, publishers and songwriters would license their public performance and mechanical rights through MROs.”  Copyright Office Music Licensing Study at p. 9)

If you want some ideas about the kinds of property rights that Big Tech wants the government to take away from songwriters and artists, just read Spotify’s most recent filing in the songwriter litigation in Nashville where their lawyer tries to define away mechanical royalties (unsurprisingly, the lawyer is a long-time protege of Lessig).  Why?  Because they are being brought to a trial by their peers on statutory damages for copyright infringement and the potential for having to pay the songwriters’ lawyers due to a statutory right to recover attorneys fees.  (Statutory damages for copyright infringement has long been an attack point of Big Tech and we get a preview of where they want it to go in Pamela Samuelson’s “Copyright Principles Project”–essentially abolished.)

One way or another, the Big Tech cartel (which includes all the companies in the MIC Coalition and MIC Coalition member the Digital Media Association which itself has members like Spotify and, curiously, Apple) is very likely going to go after statutory damages and try to create yet another “safe harbor” for themselves with no burdens–a “friction free” way to infringe pretty much at will because the actual damages for streaming royalties will be pennies.

If the cartel succeeds in eliminating statutory damages and attorneys fees awards, this will truly make copyright infringement litigation toothless and entirely eliminate the one tool that independent songwriters and artists have to protect their rights.  It will neuter massive copyright infringement as alleged in all of the Spotify class actions, not to mention cases like Limewire.

Oh, you say–did you just switch from song copyrights to sound recording copyrights by referencing Limewire?  Yes, I did–because that’s exactly what I predict the DIMA and MIC Coalition have in mind.  Why do I say this?  Because that’s what these companies are backing in the radioactive Transparency in Music Licensing and Ownership bill (HR 3350).  And if you blow up all the current separate bills into one omnibus copyright “reform” bill, the pieces may reconstitute in forms you didn’t expect.

But realize that in almost all the many copyright bills currently before the House of Representatives, the other side is trying to bootstrap unjust harm into a negotiation chip to shakedown creators.  And it’s not just pending legislation–the shakedown is especially observable with the millions of notices of intention to rely on statutory mechanical licenses for songs filed with the Copyright Office.  That’s a nice song you got there, it would be a shame if something happened to it.

Big Tech’s basic negotiation method is to rely on a loophole, bootstrap the loophole to build up the pressure on people who can’t fight back, then run the shakedown to get concessions that should never be made.  This is what Google has done with the DMCA and is the same shakedown tactic on mass NOIs taken by Google, Amazon, Pandora, Spotify, and others–but curiously not Apple.  Somehow Apple has made it work with the most successful digital music platform in history.

Let’s go down the issue list:

Bootstrapped Issue Fix Bill
Pandora and Sirius stopped paying artists for digital royalties on pre-72 recordings—because of loophole based on federal copyright protection for sound recordings Start paying artist royalties on classic recordings made before 1972 CLASSICS Act
Terrestrial radio created a loophole so they don’t have to pay performance royalties to artists on sound recordings; stop artists from opting out Start paying artist royalties for broadcast radio (with protection for noncommercial and small broadcasters) Fair Pay Fair Play Act, PROMOTE Act
Big tech suddenly started using a loophole to file millions of “address unknown” NOIs with Copyright Office after indie songwriters filed class actions Require Big Tech to use existing databases to look up copyright owners or don’t use the songs or recordings. None
No “central database” that has all songs (but no requirement to actually look up anything), requires double registration If songwriters and artists don’t register, then no statutory damages Transparency in Music Licensing and Ownership Act

Blown up into parts:

–Avoid raising mechanical royalty rate or paying artist royalties on terrestrial at all

–How to use the lack of the mythical “central database” as a bright and shiny object to avoid paying royalties and shirk liability for not doing copyright research, an absurd position for companies that owe much of their wealth to their unprecedented ability to profile people around the world and “organize the world’s information”

–Avoid paying statutory damages

–How to avoid paying royalties that should have paid anyway (pre-72, terrestrial, mass NOI) through distorted interpretations of the law or even safer harbors

–Avoid an obligation to actually look up anything (new databases)

–Use any work they want if all they have to pay is actual damages and no attorneys fees

–Keep songwriters and artists from opting out

–Create biggest black box possible

It should be apparent which way Big Tech is trying to push the creative community.  It is important for creators to understand that any legislative concession that the MIC Coalition or DIMA win against songwriters or artists they will then turn around and try to extract in the next shakedown–authors, photographers, film makers, all the copyright categories.

It is in everyone’s interest to support a healthy creative community that will continue to engage fans and do enough commerce to create value for the tech monopolies.  But–it is crucial to understand that it doesn’t work the other way around.

The purpose of the creative community is not to create value for tech monopolies.  It is to support compelling artists and help them engage with fans, and sometimes it is art for art’s sake alone.  If those artists throw off some commercial gain that the tech monopolies can turn to profit themselves, fine.  But creating profit for these monopolists is not the goal of artists.

Instead of creating fake problems to try to extract concessions that further undermine creators like offering ice in winter, the tech monopolies like Google, Spotify, Amazon and Pandora should identify real problems and work with us toward real solutions–and not a loophole-driven shakedown.

 

 

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