What’s happened?
After a five-year-long court battle, Spotify has effectively won a court case in which it was accused of having streamed Eminem songs without permission.
The music streaming giant won the case despite the court finding that Spotify did not have a license to stream those tracks.
The court also concluded that, if Spotify were to be on the hook for copyright infringement, the penalty would have had to be paid by… Kobalt Music Group.
Yet the biggest loser in this case is Eight Mile Style, the co-publisher of 242 Eminem tracks, including the rapper’s biggest hit, Lose Yourself, and other hits such as Stan, The Real Slim Shady, The Way I Am, and Without Me.
So how did Spotify manage to win? Why would Kobalt have been on the hook if Spotify had been found liable? And why did a legit music rights owner just have their copyright claims rejected?
Simply put, this is a story of just how complicated and confusing music administration has become in an era when music rights have become a hot commodity, and the new “retailers of music” – the streaming services – deal in tracks by the tens or even hundreds of millions.
It’s a long and complicated case, but there are some important lessons here for anyone involved in the music business. Here’s how it all breaks down.
2019: Eight Mile sues Spotify
In August of 2019, Eight Mile Style – a publisher that’s not formally affiliated with Eminem – filed a lawsuit against Spotify, alleging that Spotify had no license to stream its catalog of 242 Eminem tracks, and “acted deceptively” by pretending it did.
It was reported at the time that Eminem wasn’t aware of the lawsuit until it had launched.
(Note: The case originally involved 243 tracks, but Eight Mile has since conceded that it doesn’t own the rights to My Name Is, Eminem’s breakout hit from 1999. That, alone, is a foreshadowing of the complicated issues ahead in this story.)
Eight Mile’s lawsuit alleged that Spotify had instructed rights management and mechanical licensing agency the Harry Fox Agency (HFA) “to send purported ‘royalty statements’ out, when Spotify and HFA knew the compositions were not licensed via [a] compulsory license, or otherwise, to further lead Eight Mile and others into believing the songs were licensed and Eight Mile was being paid properly. In fact, neither was true.”
Although the Eminem tracks in question had been streamed “billions of times” on Spotify, the streaming service “has not accounted to Eight Mile or paid Eight Mile for these streams but instead remitted random payments of some sort, which only purport to account for a fraction of those streams,” the lawsuit alleged.
The lawsuit also alleged that Spotify had issued “NOIs” – notices of intent to obtain a compulsory license – to the US Copyright Office on the argument that it didn’t know who owned the rights to the underlying musical compositions behind those Eminem tracks, and that those NOIs were back-dated sometimes by years – a violation of the practice of NOIs, which, under the law at that time, required them to be sent in advance of making a track available for streaming.
“Spotify simply committed willful copyright infringement and did not pay for the vast majority of the more than billion unlicensed streams of one of the most well-known songs in history.”
Eight Mile Style’s accusation in the 2019 lawsuit
Eight Mile called that “an indication, if not an outright admission, that the musical compositions were not licensed,” and said it was “absurd” that Spotify and HFA couldn’t identify the copyright owners.
“Spotify, and HFA, its agent… certainly knew (and had the easy means to know) that Eight Mile is the copyright owner of Lose Yourself,” Eight Mile said in the complaint, filed with the US District Court for the Middle District of Tennessee.
“Spotify simply committed willful copyright infringement and did not pay for the vast majority of the more than billion unlicensed streams of one of the most well-known songs in history,” the complaint asserted.
The complaint went on to suggest that Spotify and its shareholders – which at that time included some of the largest music rights holders in the industry – were more interested in ensuring a high stock price for Spotify at its IPO than in ensuring that the company was doing business above board.
The lawsuit also challenged the (at the time) recently-passed Music Modernization Act (MMA) of 2018, which, among other things, established The Mechanical Licensing Collective (MLC) to collect mechanical royalties in the US. (The MLC is itself now fighting Spotify in court, in a separate legal battle.)
The MMA also limited the liability that music streamers like Spotify would face if they were caught streaming unlicensed music. The rights owners would now be able to recover only the amount they would have been owed for royalties on those streams, and not the (much larger) sums they could potentially gain by suing for damages in court.
Eight Mile called this part of the MMA “an unconstitutional denial of due process… and an unconstitutional taking of vested property rights,” and asked the court to strike down that part of the law.
2020: Spotify says it’s Kobalt’s fault
Roughly a year after Eight Mile filed its lawsuit, Spotify responded with a somewhat novel defense: It’s Kobalt’s fault.
The streaming service brought a “third-party complaint” against Kobalt, in effect bringing Kobalt’s administration and mechanical licensing arm into the lawsuit as another defendant.
“Spotify was, in fact, licensed by Eight Mile’s agent, Kobalt, to reproduce and distribute the compositions,” the streaming service said in its third-party complaint, which can be read in full here.
“Specifically, Kobalt executed a direct ‘Mechanical License Agreement’ with Spotify … agreeing to indemnify Spotify for claims by any third party (such as Eight Mile) alleging that Spotify infringed the third party’s rights.”
Spotify alleged that Kobalt had misled it into believing that Kobalt controlled the administration of Eight Mile’s catalog, and had agreed to indemnify Spotify in the event that someone sued it over Eight Mile’s rights.
Spotify also asserted that, for years, Eight Mile didn’t complain when it received royalty payments for Eminem songs via the Harry Fox Agency.
“While [Eight Mile] received royalty payments and observed billions of streams, it never once questioned Spotify’s authority to make music embodying those compositions available on Spotify’s service,” Spotify’s complaint stated.
“Eight Mile instead suggests that it was somehow ‘duped’ by Spotify into thinking the compositions were properly licensed to explain away why it knowingly accepted and deposited royalty payments while remaining silent for years… Eight Mile’s story defies logic.”
For its part, Kobalt dismissed Spotify’s allegations as “baseless.”
“Spotify mischaracterizes the substance both of the services Kobalt provides to Eight Mile Style and Martin Affiliated in the United States, as well as the content of Spotify’s direct US licensing agreement with Kobalt,” Kobalt told MBW at the time.
2020: Eight Mile alleges ‘conspiracy’
Eight Mile quickly responded to Spotify’s defense, filing an amended complaint that added the Harry Fox Agency as a defendant.
The complaint, which can be read here, cited “HFA’s material contributions to and enablement of Spotify’s infringement through a joint conspiracy with Spotify to distribute fraudulent documents and misrepresentations designed to conceal and enable Spotify’s infringement of the Eight Mile compositions.”
Crucially, Eight Mile asserted that “Kobalt is not authorized to enter into such licenses for the Eight Mile compositions for the United States and Canada.”
“Defendants’ scheme to engage in copyright infringement was a massive success,” Eight Mile alleged. “Kobalt, serving as the entity authorized to collect royalties from licenses validly made for the Eight Mile compositions, was tricked into believing that Spotify had compulsory licenses and into accepting ‘royalty statements’ distributed by HFA on behalf of Spotify. Kobalt was further tricked into believing that Eight Mile was being accounted to properly.”
In the years since that complaint, the case went through a great deal of back-and-forth, including a dispute over whether Spotify CEO Daniel Ek would be deposed in the case (the court ruled that, yes, he would) and eventually coming to a point where all the parties requested the court to issue a summary judgment, that is, they asked the court to rule without having the case go to a full trial.
The judge agreed, and on August 15 of this year, Judge Aleta A. Trauger issued her summary judgment. But far from finding a “conspiracy” between Spotify and HFA to defraud Eight Mile, Trauger concluded that it was Eight Mile that engaged in scheming – in an effort to extract as much money as possible from Spotify in a copyright infringement suit.
2024: What the court found
First, Judge Trauter declined to rule on the constitutionality of the Music Modernization Act, leaving that “for a future case involving an appropriate plaintiff.”
And why was Eight Mile not an “appropriate” plaintiff? Because, the judge concluded, Eight Mile had tried to exploit the law – and the complicated ownership and administration structure of Eminem’s musical works – to enrich itself, among other things by obscuring the ownership of the compositions.
“The law has long disfavored plaintiffs who strategically exploit regimes of civil liability to maximize their own recoveries at the expense of the public good and in contravention of basic principles of fairness,” Judge Trauter wrote.
“The evidence in this case shows that Eight Mile Style was not a hapless victim, but, rather, a sophisticated steward of its copyrights that was aware that the licensing status of the [Eight Mile] compositions had fallen into confusion and simply allowed its rights to be violated in a way that would be entirely inexplicable other than as a strategic choice to manufacture infringement damages.”
“While Spotify’s handling of composer copyrights appears to have been seriously flawed, any right to recover damages based on those flaws belongs to those innocent rights holders who were genuinely harmed – not ones who, like Eight Mile Style, had every opportunity to set things right and simply chose not to do so for no apparent reason, other than that being the victim of infringement pays better than being an ordinary licensor.”
The judge applied the principle of equitable estoppel – the principle that a court can rule against a party if that party is acting in bad faith and trying to take advantage of the law.
“Eight Mile Style… had every opportunity to set things right and simply chose not to do so for no apparent reason, other than that being the victim of infringement pays better than being an ordinary licensor.”
Judge Aleta Trauger, US District Court for the Middle District of Tennessee
The court found that Spotify had been streaming the Eminem tracks in question since 2011, when the service first launched in the US, and “for the entirety of that period, Spotify has paid royalties associated with that streaming to Eight Mile Style’s collection agent, Kobalt, as if a license had been in place… and Kobalt provided Eight Mile Style with a quarterly document summarizing the royalties being paid.
“A 2012 prospectus confirms that Eight Mile Style was aware that the songs were being streamed on Spotify and that Eight Mile Style was being paid royalties for those streams.”
The problem is, while Kobalt was Eight Mile’s collection agent, it wasn’t authorized to license use of Eight Mile’s music in the US and Canada – those rights had been transferred in 2009 from Kobalt to Bridgeport, a company closely linked to Eight Mile. But pretty much everything else involved in the administration of Eight Mile’s catalog remained in the hands of Kobalt.
What’s more, Eight Mile didn’t make much of an effort to let anyone know that licensing rights had been transferred out of Kobalt. Typically, when these types of rights change hands, the new administrator sends out a “letter of direction,” or LOD, to notify people in the business.
“Bridgeport, however, never sent the LOD to any party, never registered interests in any of the [Eight Mile] compositions in its name with any US mechanical rights organization, and, in fact, never ‘formally notified’ any third party that it was taking over the mechanical licensing of the [Eminem tracks] in the US,” Judge Trauter wrote.
“Music industry practice… makes it surprisingly plausible that Spotify might be genuinely confused, at times, regarding which rights it possessed and which it did not.”
Judge Aleta Trauger, US District Court for the Middle District of Tennessee
The judge even cited a 2013 incident where a data manager for the Harry Fox Agency reached out repeatedly to Eight Mile by email to clarify who was authorized to license Eight Mile’s catalog, and received no response.
Adding to the confusion was the fact that Spotify had signed a “blanket mechanical licensing agreement” (BMLA) with Kobalt, giving the streaming service a license to stream all the music that Kobalt administered. But the agreement didn’t list all the tracks, artists, or publishers that would include – a widespread practice in the industry.
At the time, Kobalt’s website listed Eight Mile as one of the publishers whose rights Kobalt administered – which was accurate, except it didn’t include licensing of Eight Mile’s catalog in the US and Canada.
“Music industry practice… makes it surprisingly plausible that Spotify might be genuinely confused, at times, regarding which rights it possessed and which it did not. By all accounts, it was in the practice of licensing catalogs without knowing, with any specificity, what was in them,” Judge Trauter wrote.
In other words: What a mess.
Kobalt is on the hook
One of the key issues, for Judge Trauter, was the issue of what “administration” means in the music industry. The judge found it includes such things as control over licensing, including synch licensing, and collecting royalties – but it doesn’t necessarily include any one of those activities.
And therein lies the problem: The contract between Spotify and Kobalt was vague on the meaning of “administration,” creating a situation where Spotify may not have realized that control of licensing of Eight Mile’s catalog was not in Kobalt’s hands, at least for the US and Canada.
Nonetheless, the judge concluded that the contract was clear on one point: It indemnified Spotify against copyright infringement claims on any works “administered” by Kobalt.
Judge Trauter rejected Kobalt’s argument that it should not be held liable, in this instance, because it didn’t control the licensing for Eight Mile’s catalog.
“This situation… would seem to be exactly the type of situation that the warranties were intended to guard against,” she wrote.
So Kobalt is on the hook, but because Spotify doesn’t have to pay out damages for copyright infringement to Eight Mile, Kobalt will only have to pay “reasonable attorney’s fees and expenses” – still, likely a tidy sum, given that this case ran on for five years.
A final thought…
Whatever its reasons for doing so, Eight Mile Style ultimately lost the case because of how long it waited to bring a copyright complaint against Spotify.
The US District Court’s ruling “reaffirms that rights holders should act swiftly to vindicate their rights, especially in cases of significant infringement,” wrote the entertainment industry lawyers at Mitchell Silberberg & Knupp LLP.
But that’s just one part of what this case highlights.
According to Garrett Levin, the former CEO of the Digital Media Association (DiMA), and a lawyer who served Sen. Patrick Leahy on the US Senate Judiciary Committee and worked for the US Patent and Trademark Office, the case offers “a compelling window into a number of vital issues”:
- “the utter mess that was mechanical licensing for streaming prior to the MMA”;
- “the ongoing complexity of digital licensing for music publishing, including the ever-changing relationships between rightsholders, administrators, and licensees”’
- “the ways in which ‘industry practice’ can cover up some of those complexities and allow things to work in the moment while leaving parties across the industry potentially exposed down the road”;
- “the critical need to continue efforts to address the inaccuracies and inefficiencies in ownership and licensing data.”
That last part may be the most crucial, in terms of preventing such incidents in the future. And on that front, we are seeing some progress – witness, for instance, CISAC’s ongoing efforts to improve global standards for identifying musical works.
And yet, much of what’s happening in the music industry today is pulling in the opposite direction. We are seeing an explosion of DIY artists distributing their music through an ever-expanding ecosystem of music distributors; many of them are apparently unaware of the need to not only register their work with the copyright office, but to sign up with performance rights organizations (PROs) and collection management organizations (CMOs) to receive the pay they’re owed.
Meanwhile, collecting royalties is itself becoming big business. The US-based performance rights org BMI shifted to a for-profit model a few years ago, then promptly sold itself to a private equity firm. And just last month, CISAC licensed the fourth PRO to operate in the US. AllTrack will now be competing with BMI, ASCAP and SESAC.
Will the proliferation of so many administrative organizations help or hinder the effort to keep track of music ownership? One could hope it will help, but historically, it’s rarely been the case that more administration has meant more efficiency.
The arrival of Big Data could help – assuming that data is shared with the industry, and not corralled into proprietary databases. And – dare we say it? – this is one area where artificial intelligence could be a big help to the music business.
Finally, it would behoove the music industry not to try to take advantage of the ins and outs of a legal system designed to protect owners’ rights. As Eight Mile has just shown, that could backfire badly.Music Business Worldwide
