Spotify has beaten a lawsuit brought by the Mechanical Licensing Collective (MLC) over the streaming service’s decision to reclassify its Premium subscriptions as “bundles”.
On Wednesday (January 29), Judge Analisa Torres of the US District Court for the Southern District of New York granted Spotify’s motion to dismiss the lawsuit “with prejudice”.
The conflict between the MLC and Spotify began in March 2024 when Spotify reclassified its Premium subscription tiers as “bundles,” as they now include 15 hours of audiobook access each month.
The move controversially resulted in Spotify paying a lower mechanical royalty rate to publishers and songwriters in the United States.
That’s because, under a 2022 legal settlement called Phonorecords IV, music publishers and music streaming services agreed that ‘bundle’ services in the United States are permitted to pay a lower mechanical royalty rate to publishers and songwriters than standalone music subscription services.
The MLC filed a lawsuit against the streaming service in May, alleging that Spotify had underpaid royalties to songwriters and publishers as a result of the bundling move.
The Mechanical Licensing Collective is the non-profit organization designated by the US Copyright Office to administer a blanket compulsory license and to ensure that music streaming services like Spotify pay the mechanical royalties they owe to songwriters and music publishers.
A Spotify spokesperson told MBW: “We are pleased with this outcome, which demonstrates that, after careful review by the court, Spotify’s Premium service is appropriately categorized as a bundle and offers valuable content alongside music.
“Bundle offerings play a critical role in expanding the interest in paying for music and growing the pie for the music industry. We know the regulations can be complex, but there’s plenty of room for collaboration — and our recent deal with UMPG shows how direct licenses can create flexibility and additional benefits.”
MBW has reached out to the MLC for comment and will update this report when we receive a statement.
“We are pleased with this outcome, which demonstrates that, after careful review by the court, Spotify’s Premium service is appropriately categorized as a bundle and offers valuable content alongside music.”
Spotify spokesperson
Judge Analisa Torres, in her decision on Wednesday, which you can read in full here, explained that the “MLC suggests that Spotify’s launch of Audiobooks Access was ‘a pretext for Spotify to claim that it could reduce its royalty payments’ under Section 115 of the US Copyright Act.
Added Torres: “But even if Spotify’s decision were pretextual, that would not change the fact that Audiobooks Access ‘resulted in no change at all in Premium,’ and therefore had no impact on whether Premium constituted a Bundle.
“That Spotify did not immediately report Premium as a Bundle to MLC in November 2023 although it could have, and thus likely paid more in royalties to MLC than it was otherwise required to pay, does not mean that Spotify’s later decision to reclassify Premium as a Bundle is invalid.
“MLC points to no provision of § 115 or its implementing regulations that suggests that a digital service provider like Spotify forfeits the opportunity to report an offering as a Bundle simply because it previously did not do so. Nor does MLC provide support for its argument that launching a similar or even identical Bundle to one that already existed means that one or both of the packages no longer qualify as a Bundle.”
The ‘Section 115’ rules cited in the case refer to the compulsory license in the US, also known as the 115 License (because it is stipulated under section 115 of the Copyright Act), which allows eligible digital services to use copyrighted music for a set fee without having to negotiate directly with rightsholders.
The blanket license covers the reproduction and distribution of “nondramatic compositions” – not sound recordings. Recorded music rightsholders – aka record labels – are able to negotiate directly with digital service providers.
(In May last year, the National Music Publishers Association called on Congress to update the copyright law in the United States to allow Publishers to negotiate in a “free market” just like record labels.)
Spotify asked the court to dismiss the MLC’s case in August, and in September, the MLC urged the court to reject Spotify’s motion, arguing that it originally brought the case because Spotify, “one of the largest music streaming services in the United States” — had “failed to comply with the Copyright Act and its implementing regulations (collectively, “Section 115”).”
“Under the facts as alleged, audiobook streaming is a product or service that is distinct from music streaming and has more than token value. Premium is, therefore, properly categorized as a Bundle, and the allegations of the complaint do not plausibly suggest otherwise.”
Judge Analisa Torres
In the decision published by the court today, Judge Analisa Torres writes that “the Court finds that [Section 115] and its implementing regulations are unambiguous, and that the only plausible application of the law supports Spotify’s position”.
The ruling adds: “Under the facts as alleged, audiobook streaming is a product or service that is distinct from music streaming and has more than token value. Premium is, therefore, properly categorized as a Bundle, and the allegations of the complaint do not plausibly suggest otherwise.”
The ruling continues: “Because Premium already included 15 hours of audiobook streaming when Spotify launched Audiobooks Access, MLC argues, Premium is not a Bundle that combines the benefits of the Premium and Audiobooks Access plans.
“The problem for MLC is that the regulations do not say ‘other preexisting, standalone products or services,’ and the Court finds no basis to read words into the law that are not there.”Music Business Worldwide
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