IP Law Daily, COPYRIGHT—M.D. Tenn.: Lose yourself: Eminem’s music publishing company estopped from suing Spotify, (Aug 16, 2024)

By Matthew Hersh, J.D.

The publishing company knew of the digital service’s infringement for years, but strategically timed its lawsuit for maximum benefit.

Eminem’s music publishing company waited too long to sue Spotify over its alleged infringement of the hip hop star’s catalog of music, the federal court for Nashville has held. The court, in a matchup of two behemoths in the music industry, found that the publishing company was estopped from pursuing its lawsuit because it knew of the unlicensed use for years but strategically waited until it would reap the largest benefits from the lawsuit—benefits that might have included, among other things, being the first to bring a constitutional challenge to a controversial provision of the Music Modernization Act (Eight Mile Style, LLC v. Spotify USA Inc., No. 3:19-cv-0736 (M.D. Tenn. Aug. 15, 2024)).

At the core of the lawsuit is the relationship between three music publishing companies: Eight Mile Style, Bridgeport Music, and Kobalt Music Publishing. Eight Mile Style owns the copyrights to 243 musical compositions made popular, for the most part, by Eminem. Between 2009 and 2011 Eight Mile Style authorized Kobalt to license out its musical compositions and collect royalties on its behalf. In 2011, it pulled that authorization from Kobalt and gave it instead to Bridgeport, a company that it controlled. But none of the three music publishing companies took formal steps to notify potential licensors of the change. As a result, for many years thereafter companies that wanted to use Eminem’s musical compositions continued to go to Kobalt for ostensible licensing authority and continued to pay royalties to Kobalt (which Kobalt, in turned, passed through to Eight Mile Style).

The ambiguity between the three music publishing companies eventually ensnared Spotify, the digital music behemoth. Under the law as it existed until 2021, a digital service like Spotify could obtain a license for musical compositions at a fixed statutory rate by sending a formal notice, called a Notice of Intent, to the owner or authorized licensor of each work it wanted in its catalog. But Spotify’s licensing agent, the Harry Fox Agency, still had Kobalt in its database as the authorized licensor. So its Notices of Intent for Eminem works went to Kobalt rather than to the proper recipient, Bridgeport. Eventually, in 2016, Kobalt licensed its entire catalog to Spotify in one fell swoop—but as Kobalt was not the authorized licensor of Eminem’s works, that still did not give Spotify lawful rights to use those works.

Eight Mile Style sued Spotify for copyright infringement in 2019 for a single count of direct copyright infringement—a count that, the court noted, encompassed billions of discrete instances of infringement. Spotify responded by filing a third-party complaint on Kobalt, claiming that it was obligated to indemnify Spotify for any damages it suffered in the lawsuit. Eight Mile Style, in turn, modified its complaint to assert vicarious and contributory infringement against Harry Fox Agency as well (the court eventually dismissed the vicarious infringement claims, but let the contributory infringement claims stay in the case).

Each party in the case filed a summary judgment motion, leading to this opinion.

Actual or apparent authority. The court found that Spotify could not pin the blame on Kobalt for its licensing error. Spotify argued that when Kobalt licensed its catalog to Spotify in 2016, it had either the actual or apparent authority to include the Eminem works in that license—meaning that Spotify in fact did receive the rights to those works. The court rejected both arguments.

The argument of actual authority was easily dispatched. Spotify argued that Eight Mile Style’s dealings with Kobalt resulted in actual authority because even though Bridgeport held the forma licensing rights, Kobalt remained the party that actually did most of the work associated with those licenses. Thus, Spotify argued, Kobalt possessed nearly every role and responsibility that mechanical licensing administrator would ordinarily have except the formal authorization. But that argument “fails on its face,” the court found. “The key word in ‘actual authority, in this instance, is ‘actual.’” If Kobalt had everything short of actual authority, the court noted “then that is just another way of saying that, precisely as Eight Mile Style contends, it did not have actual authority.”

Nor did Kobalt have apparent authority to license out the work. The existence of apparent authority, the court noted, “depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal.” Crucially, the court emphasized, a third party with whom the agent deals may rely on an appearance of authority “only to the extent that such reliance is reasonable.” That principle was fatal to Spotify’s argument for apparent authority, the court noted, because there was “no evidence in the record” that Spotify believed, in 2016, that Kobalt was specifically licensing it the Eminem catalog. To the contrary, the court found, “the available evidence suggests that Spotify obtained a blanket license from Kobalt, not because it specifically wanted the rights to any particular songs, but because it was executing a strategy of trying to obtain as many sets of rights as possible—possibly a wise approach for a streaming service, but difficult to square with any showing of reliance with regard to any particular composition.”

Implied license. Spotify also could not rely on the defense of implied license, the court found. Spotify argued that Eight Mile Style’s acceptance of royalty payments for Spotify streams, without protest or complaint, gave rise to an implied license to continue. But there was a considerable obstacle to the argument that Eight Mile Style intended to grant Spotify a mechanical license at the standard compulsory rate: “the fact that doing so would have been extraordinarily foolish from a business perspective.” By sending its notices to the wrong licensing entity, the court noted, Spotify had missed its window to obtain a compulsory license to the Eminem catalog at the statutorily-determined rate. So why would Eight Mile Style have given that away for free? “Eight Mile Style could not have plausibly intended to grant a free, implied license at the standard rate unless it was either very foolish or wanted, for some reason, to do Spotify a favor,” the court reasoned. The implied license argument would fail.

Estoppel. But while Spotify’s argument under agency and implied license principles failed, its argument on estoppel grounds had more success. Estoppel arises, the court noted, “when a rights holder goes out of its way not to consent to a use, but also not to stop it—choosing, instead, to patiently accumulate leverage pursuant to the Copyright Act’s generous damages provisions and to file suit when most advantageous.” That was exactly what happened here, the court found.

For one thing, the court found, the evidence showed that Eight Mile Style was aware of Spotify’s infringement for years before taking action. For nearly the entirety of Spotify’s time as an active service in the United States, the court noted, the mechanical licensing rights for the Eminem catalog were controlled by Bridgeport—“an entity over which Eight Mile Style had essentially complete day-to-day control.” Nor could Eight Mile Style rely on the fact that payments for the ostensible license came from the long-established and highly reputable Harry Fox Agency. A jury might reasonably believe that “an isolated individual composer or a small music publishing house” inadvertently allowed its compositions to be streamed unlawfully for eight years because it mistakenly assumed that payments from HFA meant that the compositions were duly licensed, the court noted. “Eminem songs, though, are big business.”

There was also ample evidence that Eight Mile Style deliberately timed its lawsuit to reap the biggest benefit. The company could not identify “any valid business reason for tolerating Spotify’s infringement” for so long without taking action, the court noted. “The parties’ evidence plainly establishes that the years in which the events giving rise to this litigation occurred saw streaming services like Spotify rise to a central place—probably the central place—in the business of selling music to individual consumers.”

The enactment of the Music Modernization Act also played a role in the publishing company’s decision, the court found. The MMA contained a controversial provision that limited an infringer’s liabilities, beginning in 2018, for failing to take out compulsory licenses. By waiting until after the effective date to file, the court noted, Eight Mile Style lost its chance to obtain full damages, “but it [] gained something else: status as what appears likely to be the most well-funded, well-positioned party to challenge the constitutionality of … the liability limitation.” A lawsuit that imperiled the MMA, the court noted, “could cost Spotify a great deal more than any one artist could ever claim—and could, potentially, justify a more generous settlement.” That was one more reason, the court noted, why the publishing company should be estopped from bringing its claim now.

Indemnification. The court also found that Spotify was entitled to indemnification from Kobalt for its litigation fees and expenses in the lawsuit. Kobalt’s 2016 agreement with Spotify obligated it to indemnify Spotify for any infringement claims involving works that it “controlled” or “administered.” Spotify argued that while Kobalt may not have had the legal authority to license out the Eminem catalog, it still effectively “administered” the catalog, as the term is used in the industry, in practice. The court agreed. “No reasonable interpretation would permit a finder of fact to reject the proposition that Kobalt administered the compositions in some sense,” the court found. “Kobalt granted licenses; it received license requests; it accepted NOIs; it collected royalties; and it was identified as the compositions’ administrator time and time again. It was, by a considerable margin, the third party most involved in managing the licenses of the EMS Compositions.” Kobalt would be contractually obligated to indemnify Spotify as a result.

The Case is No. 3:19-cv-0736.

Judge: Trauger, A.

Attorneys: Andrew Hunt Davis (King & Ballow) for Eight Mile Style, LLC. Alina Artunian (Mayer Brown LLP) for Spotify USA Inc.

Companies: Eight Mile Style, LLC; Martin Affiliated, LLC; Spotify USA Inc.; The Harry Fox Agency; Kobalt Music Publishing America, Inc.

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