Spotify Wins Approval of $112.5 Million Deal to Settle Copyright Class Action

The Spotify banner hangs from the New York Stock Exchange - Getty-H 2018
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As U.S. Congress nears passage of the first significant music licensing reform in decades, Spotify is breathing easier after a federal judge on Tuesday granted final approval to a class action settlement on the copyright front.

About three years ago, Spotify was hit by a pair of class actions — one led by David Lowery and the other by Melissa Ferrick — that alleged Spotify hadn't adequately completed the steps including payment for compulsory licenses of their song compositions. After the cases were consolidated, Spotify and songwriters came to a proposed settlement worth more than $112.55 million, including an immediate cash payment of $43.55 million to class members and a commitment to pay ongoing royalties.

The settlement generated controversy, especially from Wixen Publishing Group, whose songwriters included Tom Petty, Weezer's Rivers Cuomo, Zach De La Rocha and Tom Morello of Rage Against the Machine, The Black Keys' Dan Auerbach and others.

"The Settlement Agreement is procedurally and substantively unfair to Settlement Class Members because it prevents meaningful participation by rights holders and offers them an unfair dollar amount in light of Spotify’s ongoing, willful copyright infringement of their works," stated the Wixen group in a filing.

Pointing to the possibility of statutory damages — up to $150,000 per work for willful infringement and $30,000 for nonwillful infringement— the objectors told the judge that the proposed deal afforded Spotify "a 98.7% discount for nonwillful infringement and a discount for willful infringement so close to 100% as to give Spotify a practical free pass on willful infringement."

As the dissenters fought against a judge's approval of the settlement, new copyright lawsuits against Spotify were filed. Bob Gaudio, a songwriter and founding member of the group Frankie Valli and The Four Seasons, brought one. Another came from Bluewater Music Services Corporation, an entity that administers the publishing rights of dozens of prominent country songwriters. Finally, around the time that Spotify made plans to go public official, Wixen filed its own headline-making lawsuit asserting as much as $1.6 billion in damages.

Spotify may not have to worry too much about further copyright lawsuits on the front for two reasons.

First, after conducting a fairness hearing, U.S. District Court Judge Alison Nathan has gone ahead to grant the class action settlement her blessing.

"The combination of the immediate and future monetary relief, along with the non-monetary benefits provided, constitutes a significant recovery," writes Nathan in an opinion. "Ultimately, the Court is persuaded that determining how many infringements occurred or defining the exact size of the class at this stage would undermine the benefit of the settlement in reducing litigation burden. As noted, if Plaintiffs proceeded with litigation, it is far from clear that they would have been able to establish liability or damages — or damages as significant as the recovery established in the settlement."

She also overrules objections by Wixen, concluding that anyone who opts out of a settlement no longer has standing to challenge the settlement.

Wixen did opt out, and according to the decision, after notice was mailed to 535,380 potential class members, about 1,200 requests for exclusion came. The total number of copyright registrations involved in the opt-out total about 35,000.

However, before any Spotify stockholders overreact to that number, there's the matter of the Music Modernization Act, which will make it easier for Spotify and other tech companies to gain licenses for mechanical reproduction. The bill has already unanimously passed the House of Representatives and appears to have momentum in the Senate. The bill would also limit copyright holders suing over mechanical reproduction, which was one of the reasons why Wixen president Randall Wixen gave to filing a lawsuit just a day before the end of last year.

As for Spotify's settlement, Nathan does limit an attorneys' fee award to $13 million as well as $718,236 in costs. The attorneys in the case had been seeking nearly $16 million for their work — about 4,000 hours working on the case. Full decision is below.