Hiding in Plain Sight: Is Spotify in the ‘Business of Issuing or Granting Licenses’?

Spotify, the Swedish audio streaming service recently launched in India. The service, offering both ad-supported as well as paid premium subscriptions has already acquired one million users in the first week of its launch and by the looks of it will continue to gain users.  Besides the seemingly overnight popularity the service has also been in the news for its ongoing legal battle with Warner Music Group. However, that will not be the focus of this post. In this post we will look at Spotify’s content licensing business in the light of Section 33 of the Copyright Act 1957 (as amended).

Spotify’s Content Licensing Business

How does one get their music on Spotify? Spotify, in its “Frequently Asked Questions” in its “Spotify for Artists” section states that an artist can get their music on the service either through the label they are signed to or through an artist or label distributor. The section then goes on to suggest certain Spotify ‘preferred’ and ‘recommended’ artist and label distributors. These distributors essentially enter into distribution agreements with artists/ labels to distribute their content on different platforms, including digital steaming services such as Spotify. They also have collaborations with platforms or similar entities in various countries, allowing local artists to globally distribute their music. For example, Ok Listen, the India based digital platform has a partnership with the Orchard (a Spotify preferred distributor) through which music of Indian artists is distributed to major digital platforms including but not limited to iTunes, Spotify etc.
To avail theses services the artist/label grants a license to the distributor and its licensees to exercise a host of rights including the right to distribute their content. For instance, some relevant terms of Member Agreement of CD Baby, another Spotify preferred distributor are as follows:
You hereby appoint us as your authorized representative for the sale and other distribution of “Your Content” (as defined below). Accordingly, you hereby grant to us and our “Licensees” (as defined below) the non-exclusive right, during the “Term” (as defined below) and throughout the “Authorized Territory” (as defined below), to:
(b) Publicly perform, publicly display, communicate to the public, and otherwise make available Your Content, and Clips, by means of digital audio transmissions (on an interactive or noninteractive basis) through the Website, a Licensee website, or via a CD Baby Widget you or any person authorized by you may place on any website, to identify the availability of Your Content for license, sale or distribution and to promote Your Content, on a through-to-the-listener basis, without the payment of any fees or royalties to (i) the songwriters, composers, or music publishers owning any rights in and to Your Content; (ii) any performing artist(s) (including non-featured vocalists and musicians) on Your Content; (iii) any other person involved in the creation of or owning any portion of Your Content, including, but not limited to a record label, and (iv) any agents for any of the foregoing, including, without limitation, performing rights organizations (“PROs”) and unions or guilds, whether U.S.-based (such as ASCAP, BMI, SESAC, SoundExchange, AFTRA and AFM) or foreign (e.g., PRS for Music, PPL, CMRRA, CSI, GEMA, etc.);
(c) Distribute Your Content in accordance with any applicable Addendum;
(h) Authorize our Licensees to perform any one or more of the activities specified above or in an applicable Addendum.

  1. Certain Definitions:

The following capitalized terms shall have the following meanings for purposes of this Agreement:
(i) “Licensee” means any third party licensee that we may authorize to carry out the marketing, distribution, licensing, and sale or other use of Your Content pursuant to the terms of this Agreement, including, by way of example and not limitation, Apple iTunes, MediaNet, Rhapsody, online streaming services (e.g., webcasters), and others that CD Baby may chose in its sole and absolute discretion.
(e) “Digital Download and Distribution Service” means the online services operated by CD Baby for the sale, distribution or licensing of Your Content and other content through the Website or through websites and services operated by or on behalf of Licensees.
(n) “Your Content” means sound recordings, video content (i.e., audiovisual works), and the musical works embodied in such sound recordings and video content, and any album related artwork, photos, liner notes, metadata and other material related to your sound recordings and video content that you have provided to CD Baby, either by digital upload to the Website or by delivery of Physical Product, either directly or via a third party acting on your behalf. Any such sound recordings and video content (and the musical works embodied therein), artwork, photos, liner notes, metadata, or other material provided by you to CD Baby, must be owned or controlled by you and/or have been cleared by you for all purposes and rights granted and authorized under this Agreement. For the avoidance of doubt, Your Content encompasses each sound recording and the musical work (i.e., the notes and lyrics) embodied in each sound recording.

  1. Additional Grant:

In addition to the rights granted in the CD Baby Artist Agreement, You hereby grant to us the exclusive right (as explained below), and to our Licensees the non-exclusive right, during the Term and throughout the Authorized Territory, to:

  1. a) Reproduce, promote, sell, distribute, and deliver Your Content and Art Tracks as Digital Masters to purchasers and resellers who may use such Digital Masters in accordance with usage rules approved by us and pursuant to any limitations imposed by your distribution preferences (e.g., only Digital Master Sales);

(b) Use and authorize others to license the use and sale of Your Content and Art Tracks in connection with all manner of phone services, such as, but not limited to, sales or licenses of Your Content as downloads (including, without limitation, downloads to cell phones) and for use as ringtones (including mastertones) and ringback tones;
(e) “Stream” and authorize others to “stream” Your Content on-demand as part of an Internet radio service, on a multi-channel video programming distribution service, or via any other interactive distribution platform or technology, whether now known or hereafter developed, or as part of a non-interactive service; and
Similar License terms can be seen in another Spotify recommended distributor EmuBand’s terms of use.
3.2 The Client grants EmuBands the non-exclusive licence to grant Digital Service Providers permission to copy, issue copies, publish, rent, lend, distribute, perform, show, play, communicate, broadcast, adapt, alter, modify, sell and licence their intellectual property in line with delivering the Service.
3.3 The Client also grants EmuBands and the relevant Digital Service Providers the right to include the Client’s Intellectual Property within endorsed playlists and in branded on-demand services.
Although the exact terms of agreements Spotify has with these distributors are not available on the website, the foregoing terms make it safe to assume that the terms will not be far from what is already stated. Spotify is licensed the content and the ownership in the content remains with the artist/label.
Beside the foregoing licensing model, Spotify is also developing a feature, where artists that are not signed to any label or distributor may directly upload their music to Spotify. The feature is still in the test phase as stated on the website and is limited to the US.
The content licensed/sublicensed by Spotify as stated in the previous paras, is then made available to the Spotify users under a license that is “limited, non-exclusive, revocable permission to access the Spotify Service for personal, non-commercial purposes.” The accessibility to the content and the features available to a user depend on whether one has taken the free service or the paid subscription. Irrespective of that, the integral aspect of Spotify’s business remains the issuing of licenses to users allowing them to consume content on the platform which may include, sound recordings, images, musical compositions etc.

Business of Licensing Under Section 33

Section 33 of the Copyright Act, 1957 (as amended) prohibits parties to commence or carry on the business of issuing or granting licenses in any work or right under the Copyright Act, unless such party is a copyright owner or a registered copyright society. The term ‘business of issuing or granting licenses’ although not amply propounded by the courts, has definitely been a contentious term usually used to question the legitimacy of entities involved in the licensing business that are not the copyright owner or a copyright society.  It is also regularly used by copyright societies such as IPRS to exercise their exclusivity with respect to licensing of literary and musical works.
Spotify licenses/sublicenses works from artists, labels and distributors and sublicenses the same to its users, which in the light of the foregoing prohibition doesn’t quite settle well. Considering there is no detailed explanation of what constitutes or doesn’t constitute as “business of issuing or granting licenses” it may seem like entities such as Spotify are conducting such business, as neither copyright owners nor copyright societies, in contravention of the provision.  One argument could be that Spotify is merely providing enabling technology or services such as an intermediary. However, in that case it should be pertinent to examine if Spotify is actively involved in the business of licensing and has full knowledge and control over the activities of the platform.
The business of entities such as Spotify, in the light of Section 33 raises several questions. Are such entities in contravention of the Section 33? What constitutes as business of issuing or granting licenses? If Spotify doesn’t carry on business of issuing or granting licenses under Section 33, on what grounds? And if it does, how is it allowed to operate? Can entities like Spotify be treated as intermediaries under the law? Although a lot has been written about Section 33, its interplay with other sections of the Copyright Act examined, there is definitely something to be desired in this regard.



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