The MLC asks court to reconsider dismissal of Spotify ‘bundling’ lawsuit
FrankyNelly
The MLC has asked the court to reconsider the dismissal of the organization’s ‘bundling’ lawsuit against Spotify.
The original complaint, filed by the Mechanical Licensing Collective last May, alleged that Spotify significantly underpaid royalties after its decision to report its Premium subscription streaming offerings as bundles.
On 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”.
Yesterday (Wednesday, February 12), the MLC formally filed a Motion for Reconsideration, requesting that the court reconsider its decision to dismiss the original complaint against the streaming service.
The MLC said that its request is “provided for under the rules and raises significant issues regarding the interpretation of the Music Modernization Act that deserve careful judicial review.”
Commenting on the motion for reconsideration, the MLC’s CEO, Kris Ahrend, said: “Last year, The MLC brought an action challenging the unprecedented steps Spotify took that significantly reduced the royalties due to songwriters and publishers. We did not believe those steps were consistent with the law.”
“We believe that seeking clarity on these issues is an important part of our statutory responsibilities and serves the interests of our stakeholders.”
Kris Ahrend
Added Ahrend: “A few weeks ago, the district court issued a ruling dismissing our action. Yesterday, The MLC filed a motion asking the district court to reconsider that ruling in order to address several significant issues we believe the Court overlooked.
“We believe that seeking clarity on these issues is an important part of our statutory responsibilities and serves the interests of our stakeholders.”
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’s lawsuit accused Spotify of underpaying 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.
In the memorandum of law filed in support of its motion yesterday, the MLC argued that, “the injustice that would result from dismissal of the Complaint at this stage, and without giving the MLC the opportunity to move for leave to replead, would be manifest.”
You can read the legal document in full here.
“The injustice that would result from dismissal of the Complaint at this stage, and without giving the MLC the opportunity to move for leave to replead, would be manifest.”
The MLC
The memorandum continued: “At stake is an unprecedented interpretation of regulatory language that would have far-reaching and profound financial consequences on an entire creative industry, as well as for the federal statutory licensing scheme that underlies the collection and distribution of more than a billion dollars in mechanical royalties each year.”
In the decision published by the court last month, which you can read in full here, the Court found “that [Section 115] and its implementing regulations are unambiguous, and that the only plausible application of the law supports Spotify’s position”.
The ‘Section 115’ rules cited by the court 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.
Last month’s ruling added: “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 continued: “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.”
In a statement issued following the January ruling, a Spotify spokesperson said: “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.”
SPOT’s spokesperson was referring to the deal struck with Universal Music Group last month, which included a direct new agreement with Universal Music Publishing Group. This agreement is understood to include a new royalty agreement that overrode the prior mechanical royalties situation in the States.
Earlier this month (February), Warner Music Group and Spotify also signed a new multi-year licensing deal, which sources have confirmed supersedes the ‘bundling’ payment structure that last year saw Spotify dramatically cut the rate of mechanical royalties paid to publishers and songwriters in the US.
The MLC’s latest motion is centered on three key arguments:
1. “The complaint was dismissed without consideration of all claims that Spotify failed to pay royalties due To The MLC.”
The MLC argued that Federal Rules 59(e) and 60(b) “authorize a party to file a motion for reconsideration in the form of a motion to amend or alter a judgment ” or a “motion for relief from a judgment”
Citing previous case law, The MLC argued that “Reconsideration is warranted, for among other reasons, to correct a clear error or prevent manifest injustice.”
The MLC explained that, “in considering Spotify’s motion to dismiss, the Court properly accepted as true the Complaint’s factual allegations that Spotify provides Audiobooks Access subscribers with the same unlimited, on-demand, and ad-free music-streaming service that is included in the Premium plan,’ and that the ‘Audiobooks Access and Premium plans are, therefore, virtually identical”.
It argued, however, that the Court “appears to have overlooked the accompanying claim for relief”.
“The Court’s holding that Premium qualifies as a Bundle does not resolve, but rather confirms, the sufficiency of the MLC’s Audiobooks Access claim, rendering dismissal of the Complaint with prejudice clearly erroneous.”
The motion continued: “As set forth in paragraph 58 of the Complaint, the MLC alleged that, ‘to the extent Audiobooks Access provides subscribers with the same access to unlimited on-demand ad-free music as Premium, Spotify has failed to properly account for and pay royalties owed to the MLC for Audiobooks Access under Section 115.’
“If Premium and Audiobooks Access are ‘virtually identical,’ then Spotify must report Audiobooks Access to the MLC in the same way as Premium. As a result, Spotify ‘failed to properly account for and pay royalties owed to the MLC for Audiobooks Access under Section 115.’
“The Court’s holding that Premium qualifies as a Bundle does not resolve, but rather confirms, the sufficiency of the MLC’s Audiobooks Access claim, rendering dismissal of the Complaint with prejudice clearly erroneous.”
2. “The Court’s ruling that premium constitutes a bundle misapplied the standard required on a motion to dismiss and failed to consider controlling law.”
The MLC argued that the Court correctly noted that to withstand a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face’ and that the Court ‘must draw all reasonable inferences in the non-movant’s favor.’”
It added, however, that “in concluding, as a matter of law, that Premium meets the definition of a Bundle under Section 115, the Court failed to accept all alleged facts as true and draw all reasonable inferences in the MLC’s favor”.
The MLC argued that the court “also failed to consider controlling Section 115 regulations requiring Spotify to accurately report and pay royalties on Premium, which contradicts the Court’s determination that Spotify ‘could have’ paid more royalties than otherwise required”.
3. The MLC argues that, “In the alternative, the judgment should be vacated to provide the MLC an opportunity to seek leave to amend”.
According to the MLC, “in the event that the Court does not grant reconsideration, it should nonetheless vacate the judgment pursuant to Rules 59(e) and 60(b) so that the MLC has the opportunity to seek leave to amend its Complaint under Rule 15″.
The MLC added in the motion that “it is well established in the Second Circuit that “a party seeking to file an amended complaint post-judgment must first have the judgment vacated pursuant to Rules 59(e) and 60(b).”
The MLC argued that if given a chance, it “would also allege additional facts that support a claim for improper calculation and underpayment of royalties for Premium, even under the Bundle formula”.
The organization added in its motion: “Those allegations would make clear that, in using the subscription price of Audiobooks Access to report Service Provider Revenue, Spotify has necessarily failed to satisfy the Bundle reporting regulations and has underpaid royalties on Premium.”Music Business Worldwide
