Introduction

While Eminem’s music, including iconic tracks like “Lose Yourself” and “Without Me,” is widely known and celebrated globally, few are aware of the complex legal battle surrounding the royalties from these songs. This legal conflict involved streaming giant Spotify and Eight Mile Style (“EMS”), Eminem’s co-publisher and copyright holder of 242 of his compositions.

After five years of litigation, the case concluded on 15 August 2024, with Spotify successfully defending itself against claims of copyright infringement. Nonetheless, this case highlights the intricate and often confusing nature of music rights management in the age of digital streaming, where multiple agreements between parties can make the administration of those rights increasingly complex.

The Background of the Dispute

The dispute began in 2019 when EMS accused Spotify of streaming Eminem’s compositions without proper licensing. EMS argued that Spotify had not obtained the necessary mechanical licences to stream Eminem’s music and therefore was in violation of copyright law. In defence, Spotify pointed to its existing blanket mechanical licensing agreement (“BMLA”) with Kobalt Music Publishing (“KMP”), an independent music publisher. Signed in 2016, the BMLA was designed to manage licensing and royalty payments for the music in question, with Kobalt acting as the intermediary between Spotify and the rights holders, including EMS.

Spotify’s Blanket Mechanical Licensing Agreement with Kobalt

The BMLA between Spotify and Kobalt enabled the platform to pay royalties to Kobalt as if valid mechanical licences had been secured for the compositions. In turn, Kobalt was responsible for distributing those royalties to the appropriate rights holders, such as EMS. This agreement also contained indemnification clauses, which meant that if any breach occurred, each party could seek protection or compensation for legal expenses. However, EMS contested that Kobalt had no authority to issue the mechanical licences for the disputed compositions, which led to the prolonged legal conflict.

EMS and Kobalt’s Administrative Relationship

EMS and Kobalt’s relationship dates back to 2004 when they entered into an Administration Agreement, under which Kobalt was granted the authority to register, licence, and collect royalties for the EMS compositions. However, EMS later transferred its licensing rights to another entity, Bridgeport Music, without notifying Spotify or Kobalt. Despite this transfer of authority, Kobalt continued to act as the administrator for these compositions, which only added complexity to the dispute and confusion around the proper licensing of Eminem’s music on Spotify.

Key Legal Issues in the Case

As the case unfolded, three major issues emerged:

1. Spotify’s Licence to Stream: Did Spotify have the proper mechanical licences to stream Eminem’s compositions legally?
2. Equitable Estoppel: If Spotify lacked a valid licence, could it still defend against EMS’s claims based on equitable estoppel?
3. Indemnification: Could Spotify seek indemnification from Kobalt for legal fees based on the terms of their BMLA?

The Court’s Ruling

Equitable Estoppel and Spotify’s Licence to Stream

The court ultimately found that Spotify did not have valid mechanical licences to stream the disputed compositions, which technically amounted to copyright infringement. However, the court also ruled that EMS’s claims for traditional copyright damages were barred due to the doctrine of equitable estoppel. EMS had been aware of the confusion surrounding the licensing status but chose not to notify Spotify. As the court stated on page 5 of its memorandum of judgment, EMS strategically allowing its rights to be violated in a way that would be “entirely inexplicable other than as a strategic choice to manufacture infringement damages”. The court ruled that EMS’s deliberate inaction prevented them from seeking damages, giving Spotify a victory on this front.

Kobalt’s Obligation to Indemnify Spotify

While Spotify was found liable for copyright infringement, the court ruled that Kobalt had an obligation to indemnify Spotify for legal expenses under the terms of the BMLA. The court determined that Kobalt had misrepresented its ability to licence the EMS compositions, thereby breaching its contractual obligations to Spotify. This breach entitled Spotify to seek indemnification, and the court granted summary judgment in favour of Spotify, concluding that Kobalt failed to uphold its licensing responsibilities.

Implications for Australian Copyright Law

The Spotify-EMS case has significant implications for music licensing and copyright law, not only in the United States but also in Australia, where similar challenges could arise as digital streaming continues to reshape the music industry. Australia’s Copyright Act 1968 (Cth) governs music licensing, but the growing complexity of digital platforms presents new hurdles in the administration of music rights.

How Music Licensing Works in Australia

In Australia, music licensing is primarily handled by two key collecting societies: APRA AMCOS andPPCA. APRA AMCOS administers public performance and mechanical rights for songwriters and composers, while PPCA manages rights related to recorded music for public broadcasts and performances. Streaming platforms like Spotify must secure licences from both organisations to legally distribute music in Australia. APRA AMCOS collects royalties for the use of compositions, while PPCA ensures that recording artists and record labels are compensated for the use of their sound recordings.

While this system is generally effective for traditional music distribution, the rise of digital streaming has introduced additional complexities, as demonstrated by the Spotify-EMS dispute.

Impact of the Spotify-EMS Case on Australian Law

1. Equitable Estoppel and Copyright Defences: The court’s use of equitable estoppel in favour of Spotify could influence future Australian cases. Under Australian law, equitable estoppel is also a recognised defence, and rights holders who fail to act in good faith by allowing unauthorised use of their works could find themselves barred from seeking damages in a similar fashion.
2. Licensing Complexities: The dispute also underscores the challenges that arise from unclear or overlapping licensing agreements. In Australia, multiple parties may claim the rights to administer a composition, which can lead to legal disputes. Transparent agreements and clear delineation of responsibilities are crucial to avoid confusion in licensing, especially in the fast-paced digital music environment.
3. Need for Legislative Reform: Australia has yet to enact a counterpart to the Music Modernisation Act, which streamlined the licensing of digital music in the United States. by creating a centralised system for securing mechanical licences. Without similar reform, Australian music publishers and streaming platforms may encounter similar challenges in effectively managing rights and royalties for digital content.

Gaps in Australian Law

The Spotify-EMS case reveals potential gaps in Australia’s copyright framework, particularly in relation to streaming royalties and mechanical licences. While APRA AMCOS and PPCA play key roles in managing royalties, the intricate flow of digital revenue increases the likelihood of disputes. Moreover, there is an ongoing debate in Australia over whether artists and publishers are receiving fair compensation from streaming, which often yields lower payouts compared to traditional methods of distribution.

Conclusion

The Spotify-EMS case offers valuable lessons for Australian copyright law, particularly in the context of music streaming and digital rights. While Australia has a strong framework for music licensing, the complexity of modern streaming practices and the gaps in legislation could pose challenges for rights holders and platforms alike. As the digital music landscape continues to evolve, there is a growing need for clearer, more efficient licensing systems that protect both creators and distributors, potentially mirroring reforms seen in the United States.