Intellectual Property

Spotty Financials: Streaming Services And Copyright Damages

Content-streaming services are raking in cash, but it is not yet entirely clear what happens when some of that cash is ill-gotten, say as a result of copyright infringement.

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As more and more content consumers eschew the sticky environs of their local movie theaters and concert halls to engage with their content from the cozy confines of their couches, the entertainment industry is similarly transitioning from traditional content delivery to content-streaming services like Netflix and Spotify.

And those content-streaming services are now raking in cash (if not profits). Given how fast things are moving, and the law’s tendency toward the laggardly, it is not yet entirely clear what happens when some of that cash is ill-gotten, say as a result of copyright infringement.

The question of whether the streaming of content online without consent constitutes infringement has now been answered, at least. It is settled that the “live retransmissions of [] copyrighted programming over the Internet,” as the Second Circuit put it in WPIX, Inc. v. ivi, Inc., is an infringement, and one that would “substantially diminish the value of the programming.” Such a transmission is an infringement because the Transmit Clause of the Copyright Act, at 17 U.S.C. § 106(4), imbues a copyright holder with the exclusive right “to perform the copyrighted work publicly.” And 17 U.S.C. § 101 defines a public performance to include a transmission to the public “by means of any device or process” so long as “the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.” So streaming somebody else’s work without their consent is infringement.

While a number of tech companies whose businesses were infringement-based argued in court that streaming or online transmission of copyrighted material was not subject to the Transmit Clause because the internet is different, those arguments have now been rejected. And tech companies are being held liable for streaming copyrighted material without consent. But, as you litigators know, that is but half the battle and the other half — damages — is just as crucial.

We have recently been given a view into how damages will play out in streaming cases. In Blue Water Music Services Corp. v. Spotify USA, Inc., the plaintiffs, who are musicians or copyright holders, allege that Spotify is making unauthorized use of their musical compositions “in blatant disregard of the exclusive rights that are vested in copyright owners.” Spotify, for its part, denies any wrongdoing and has been fighting tooth-and-nail to keep concealed the inner workings of the company and particularly its financial information. The case to date has already amassed a massive 301 docket entries, many of which relate to the parties’ discovery disputes.

Spotify unsuccessfully fought to prevent the plaintiffs from having access to its head honcho, Daniel Ek, in deposition. They offered up a guy who no longer works for the company in his stead, but the court was not having any of that. It ruled that Ek will have to testify at deposition. And, in even more bad news for Spotify, the court has ruled, and properly so, that Spotify must produce financial records relating to Spotify’s subscription revenues, advertising revenues, the percentage of streams of plaintiffs’ musical compositions out of all streamed musical compositions, Spotify’s total revenue, and Spotify’s growth. This will be a real peek into the inner workings of the notoriously opaque tech company and streaming services in general.

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And it will provide the plaintiffs with the information they need to satisfy the damages provision of the Copyright Act, which you can find at 17 U.S.C. 504. Per the statute, the “copyright owner is entitled to recover the actual damages suffered by him or her” plus “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.” Applying this statute to entertainment and music disputes in the past was fairly straightforward — you would look at how may movie tickets or CDs were sold and tally up the profits from those sales to arrive at the number a copyright plaintiff would seek to recover. This comported with the spirit of the Copyright Act, which sought to ensure that no one profited from the exploitation without consent of an artist’s work.

In the streaming landscape, though, all is much more complex. The Blue Water plaintiffs seem to be adopting the very model that Spotify uses to pay musicians. In broad terms, this model compares how many streams a musicians’ songs have had with how many streams Spotify has had in total. It then pays the musician that percentage of the total funds that Spotify has received (after it takes its vig off the top). The plaintiffs argue that they should be paid per this calculation, at the very least. But, they do not (and should not) stop there, as the Spotify app itself now has an eight-figure value and that value is entirely dependent on music, including the plaintiffs’. And ancillary revenues such as brand partnerships and licensing deals should also be part of the damages equation. The Blue Water case continues to plod along and will soon see summary judgment practice and (hopefully) trial, at which we will learn much more about how the streamers are keeping their books and what that means to the artists whose rights they infringe.

Scott Alan Burroughs, Esq. practices with Doniger / Burroughs, an art law firm based in Venice, California. He represents artists and content creators of all stripes and writes and speaks regularly on copyright issues. He can be reached at scott@copyrightLA.com, and you can follow his law firm on Instagram: @veniceartlaw.

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