Spotify to Pay $113M to Settle Copyright Class Action (1)

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By Anandashankar Mazumdar

A federal court finalized a $113 million class action settlement between music streamer Spotify USA Inc. and more than 500,000 owners of copyrights in musical compositions.

The May 22 ruling comes as Congress considers legislation to ease the music licensing and royalty system for streaming services. If it passes, the legislation could end a liability headache for Spotify as it begins its life as a public company. The legislative fix also would ease the way for competitors like Apple Music, Amazon Prime, and Google Play, together seen as the main source of income for music creators.

The U.S. District Court for the Southern District of New York gave preliminary approval a year ago to a deal between Spotify and the litigants representing the entire class of copyright holders.

About 1,200 potential class members objected to the deal and opted out, but the court concluded the settlement was fair, reasonable, and adequate, as required by class action law.

‘Cleaning Up an Old Mess’

The class action settlement “is simply cleaning up an old mess soon foreclosed” by the U.S. Senate’s music copyright legislation, Jim Griffin, a Virginia-based digital music business consultant, told Bloomberg Law.

The lawsuit accused Spotify of streaming music without properly securing licenses and paying royalties. Spotify settled a similar lawsuit by the National Music Publishers Association for $30 million in 2016.

“I think from a political standpoint, Spotify wanted this to be finished,” Los Angeles-based music industry lawyer Niall Fordyce told Bloomberg Law. “Class actions are huge, long and can be messy.” With a legislative fix pending, “I think Spotify wanted to see this done.”

Wixen Music Publishing Inc. filed a $1.6 billion lawsuit against Spotify at the end of 2017 and opted out of the settlement in this case. The company declined Bloomberg Law’s request for comment.

Status of Legislation

The Music Modernization Act would create an organization to give out blanket licenses and collect and distribute royalties, effectively ironing out the difficulties between copyright holders and streaming services.

The bill also would require streaming services to pay royalties to owners of rights in pre-1972 records, which are not covered by copyright law. Critics say that would protect some works for more than 140 years, nearly half a century longer than the usual copyright term.

The House approved its version ( H.R. 5477) by a 415-0 vote on April 25. The Senate Judiciary Committee took up an identical version ( S. 2334) last week.

Sen. Ronald L. Wyden (D-Ore.) proposed The Accessibility for Curators, Creators, Educators, Scholars, and Society to Recordings, or Access to Recordings Act, on May 23. The bill would give oldies records the same term of protection that the Copyright Act normally grants.

Judge Alison J. Nathan issued the court’s ruling on the settlement.

Gradstein & Marzano PC, Susman Godfrey LLP, and Carlton Fields Jorden Burt LLP represented the lead plaintiff Melissa Ferrick. Mayer Brown LLP represented Spotify.

The case is Ferrick v. Spotify USA Inc. , S.D.N.Y., No. 16-8412, 5/22/18 .

To contact the reporter on this story: Anandashankar Mazumdar in Washington at amazumdar@bloomberglaw.com

To contact the editor responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com

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