Spotify Faces Lawsuit Over Alleged Underpayment of Royalties

Spotify, the renowned music streaming service, is currently facing a lawsuit filed by the Mechanical Licensing Collective (MLC) in a New York federal court. This highlights ongoing legal challenges within the industry. For allegedly underpaying songwriting royalties on tens of millions of songs, Spotify faces lawsuit and scrutiny. Filed late Thursday, the lawsuit claims that Spotify significantly underreported its revenue. This was purportedly to avoid paying millions of dollars owed to songwriters.

Spotify has misrepresented its service

According to the complaint, which references a report from Billboard, the lawsuit Spotify faces could potentially cost songwriters nearly $150 million over the next year. The MLC is a royalty-gathering nonprofit appointed by the U.S. Copyright Office. It asserts that Spotify has misrepresented its service by adding audiobooks without adequately adjusting the royalty calculations. This mischaracterization, they claim, could unjustly reduce the royalties owed under the current compulsory licensing agreement. Despite no changes to Spotify’s Premium plan or a decrease in its revenue streams.

In response to the lawsuit, a Spotify spokesperson stated on Friday, “Spotify paid a record amount to publishers and societies in 2023 and is on track to pay out an even larger amount in 2024. We look forward to a swift resolution of this matter.” Despite the lawsuit, this statement conveys the company’s view that the allegations will be resolved without significantly affecting their operations.

Fair compensation for songwriters and music publishers

Kris Ahrend, CEO of the MLC, emphasized the seriousness of the allegations. He stated that the organization ‘takes seriously its legal responsibility to take action. This lawsuit represents a significant effort by the MLC. Consequently, it marks a fight to ensure fair compensation for songwriters and music publishers on platforms like Spotify. This enhances industry equity.

U.S. copyright law provides streaming services the ability to obtain a blanket “compulsory license” for copyrighted music at specific royalty rates. They need to simplify the music licensing process while ensuring compensation for creators. The MLC’s role is to collect these royalties on behalf of songwriters and publishers. This ensures they receive their fair share of the revenue from services using their music.

The legal complexities of this potentially landmark case

The lawsuit has raised concerns about the potential implications for Spotify’s relationship with songwriters and the music industry at large. Particularly regarding how music streaming services manage their revenues and determine royalties. The MLC has requested the court for an unspecified amount of monetary damages for the alleged unpaid royalties and associated late fees, highlighting the gravity of the Spotify faces lawsuit.

The case, titled Mechanical Licensing Collective v. Spotify USA Inc, is about to unfold in the U.S. District Court for the Southern District of New York. It is under case number 1:24-cv-03809. Representatives for the MLC, Jay Cohen and Darren Johnson of Paul Weiss Rifkind Wharton & Garrison, are keen to navigate the legal complexities of this potentially landmark case.

Source: Reuters / Photo: AI generated