MLC Fires Back Against Spotify Dismissal Push in Unpaid-Royalties Lawsuit, Doubles Down on Anti-Bundling Arguments

Photo Credit: The MLC

At August’s end, Spotify moved to dismiss the “nonsensical” unpaid-royalties lawsuit filed against it by the Mechanical Licensing Collective. Now, the MLC is urging the court to reject that motion and allow the case to proceed.The MLC just recently took aim at Spotify’s dismissal push, with roughly four months having passed since the initial complaint’s submission. As many know, said complaint centers on the streaming giant’s controversial bundling reclassifications in the U.S.

Stated concisely, while the current presence of an audiobook and music “bundle,” a standalone music tier, and an audiobook-only option might not seem like too big a deal to listeners, the subscription framework is having a massive impact on Spotify’s domestic mechanical royalty payments.

Once again in the interest of brevity, that’s because bundled subscription revenue is treated far differently than standalone subscription revenue under the Phonorecords IV determination (which runs through 2027) for on-demand streaming.

DMN Pro has performed multiple deep-dives into the involved calculations and also maintains a one-stop database of leading platforms’ per-stream mechanical rates in the U.S.

Long story short, nearly all the existing Spotify Individual subscriptions were simply reclassified in royalty statements as bundles. Per the MLC, the audio (and video) service looks to be saving somewhere in the ballpark of $150 million in domestic compositional royalties per year.

(In the MLC’s own words, that amounts to a “devastating financial impact on the music creators who are the lifeblood of Spotify’s multibillion-dollar business.”)

Predictably, the reality isn’t sitting right with publishers or, as demonstrated by the ongoing legal battle, the MLC. As laid out by the Copyright Office-designated organization, for reasons including audiobooks’ “token” value to subscribers, the packages at hand don’t constitute bundles under Section 115.

And among other things, that means Spotify allegedly owes millions in unpaid mechanicals. On the opposite side of the dispute, though, the Daniel Ek-led company believes audiobooks have more than token value, represent a distinct product tier, and are therefore eligible for bundling classification.

Taking its stance a step further in last month’s dismissal motion, Spotify drove home the view that the timing of audiobooks’ integration (November of 2023, well before the official bundling reclassifications in March of 2024), the accessibility of the audiobook-only tier (which the MLC says is difficult to locate and not distinct from the music package), and more are all irrelevant to the central bundling-eligibility debate.

Returning to the MLC’s opposition to Spotify’s dismissal motion, the over 30-page legal text doesn’t break much new ground in terms of the core unpaid-royalties arguments described above. However, the document does make clear the MLC’s belief that these arguments are valid and that dismissal would be inappropriate at this stage in any event.

“Spotify may ultimately try to persuade the Court to ignore its inconsistent reporting of the same Premium offering,” the filing indicates, “but a motion to dismiss is not the appropriate vehicle for it to do so.

“The only question at this preliminary stage,” reads another relevant section, “under this well-established Second Circuit law, is whether the Complaint states a claim for relief that is plausible, liberally construing and accepting all of its factual allegations as true, and drawing all reasonable inferences in the MLC’s favor. The Complaint plainly satisfies this test.”

It perhaps goes without saying, but it’ll be interesting to see whether the high-stakes lawsuit survives dismissal here. Closer to the present, we aren’t without other examples of the seemingly far-from-optimal professional relationship between Spotify and the MLC.

Accepting as fact Spotify’s representations and details from a recent streaming-fraud indictment, the company promptly identified and put a stop to an alleged fake-stream scheme – at least on its own service. The MLC, not Spotify competitors, seems to have only pinpointed the same alleged operation years down the line, after it had racked up millions in royalty payments from bot-powered plays on different platforms.