Eight Mile Style, LLC et al. v. Spotify USA Inc.

In copyright infringement action brought by Eminem’s music publisher against Spotify, district court holds that Spotify did not obtain mechanical licenses for musical works prior to making them available for streaming, but that publisher’s infringement claims were barred by equitable estoppel and Spotify is entitled to indemnification from publisher’s administrator for its attorneys’ fees.

Music publisher Eight Mile Style LLC owns the copyrights to over 200 musical compositions (the EMS compositions) largely made popular by rapper Eminem. In 2009, Kobalt Music Publishing America Inc., acting as Eight Mile’s administrator, registered the EMS compositions with the Harry Fox Agency LLC (HFA) in its own name. The mechanical licensing rights to the EMS compositions were subsequently assigned to another party, Bridgeport Music Inc.; however, none of Bridgeport, Kobalt or Eight Mile took steps to correct the registrations with HFA. Since launching in the U.S. in 2011, Spotify has openly streamed recordings embodying at least some of the EMS compositions and has paid royalties stemming from those compositions to Kobalt. 

Prior to the enactment of the Music Modernization Act (MMA) in 2018, mechanical licenses could be obtained on a composition-by-composition basis through a compulsory licensing process (without the affirmative consent of the rights holder) if certain procedural requirements were met, including sending a notice to the rights owner of the intention to obtain a compulsory license. After the enactment of the MMA, a digital music provider could obtain a “blanket license” from the Mechanical Licensing Collective by submitting a notice of license, and (subject to an exception for certain works covered by negotiated licenses) such blanket licenses would cover all musical works available for compulsory licensing. The MMA also established a liability limitation potentially applicable to infringement claims against digital music providers, if the providers follow the statute’s requirements. If the limitation applies, the copyright owner’s sole and exclusive remedy is that the owner is “eligible to recover the royalty prescribed under” the ordinary compulsory licensing structure, i.e., the amount of money that the streaming provider would have owed if it had timely filed notice of intention to obtain a compulsory license. 

In March 2016, Spotify and the National Music Publishers Association (NMPA) entered into a settlement agreement that allowed publishers to claim royalties in connection for works for which Spotify “may have been unable to provide a proper accounting.” Publishers were able to opt into the agreement in connection with compositions for which the publisher had authority to grant the applicable release and/or covenant not to sue. Kobalt opted into the settlement with respect to all compositions for which it had the “legal and contractual authority to do so” and did not provide a list of such compositions to Spotify, but Kobalt later argued that this did not include the EMS compositions. In December 2016, Spotify and Kobalt entered into a blanket mechanical licensing agreement (the 2016 BMLA), which similarly did not list the contemplated compositions or carve out certain exceptions. 

On Aug. 21, 2019 (after the effective date for the MMA’s liability limitation), Eight Mile sued Spotify for infringement for streaming the EMS compositions without valid mechanical licenses. Eight Mile sought full traditional copyright damages, and argued that the MMA’s limitation of liability is unconstitutional and that Spotify did not comply with its requirements for the limitation in any event. Spotify sought indemnification from Kobalt pursuant to the 2016 BMLA, but Kobalt denied Spotify’s indemnification request. Thereafter, on May 29, 2020, Spotify filed a third-party complaint against Kobalt for breach of the 2016 BMLA and for indemnification, among other causes of action.

Eight Mile subsequently filed an amended complaint, adding HFA as a defendant and asserting claims for contributory and vicarious infringement. 

Each of Eight Mile, Spotify, HFA and Kobalt filed motions for summary judgment as to various issues. Although there were several claims at issue in the various summary judgment motions, the court focused primarily on (1) whether the EMS compositions were licensed to Spotify; (2) whether the equitable estoppel defense barred Eight Mile’s infringement claims; and (3) whether Spotify could seek indemnification from Kobalt. 

The court first addressed whether the EMS compositions were licensed to Spotify. Spotify contended that it had properly licensed the compositions through the 2016 BMLA with Kobalt. Kobalt and Eight Mile, however, argued that Kobalt had no authority to grant licenses for the EMS compositions, as those compositions were not “administered” or “controlled” by Kobalt within the meaning of the agreement. Spotify countered that Kobalt took on nearly every role and responsibility that a licensing administrator would have on behalf of Eight Mile and therefore had actual authority to license the EMS compositions. The court disagreed and held that Kobalt did not have actual authority to license the EMS compositions, because such authority was transferred exclusively to Bridgeport in 2011.

The court similarly found that Kobalt did not have apparent authority because there was no evidence that Spotify believed, in 2016, that Kobalt was licensing the EMS compositions, and Spotify’s later-arising misunderstanding could not retroactively give rise to Kobalt’s apparent authority in 2016. 

The court likewise rejected Spotify’s arguments that it expressly licensed some or all of the EMS compositions in connection with the NMPA settlement agreement, through dealings with Sony/ATV or licenses with HFA, or through NOIs that HFA sent in connection with the EMS compositions because Sony and HFA similarly did not have mechanical licensing authority on behalf of Eight Mile. 

Spotify also argued that Eight Mile’s acceptance of royalty payments for Spotify streams, without protest or complaint, gave rise to an implied license. In determining whether an implied license exists, courts assess the “intentions” of the parties from the totality of the circumstances. Here, the court “ha[d] no basis for finding an implied license,” because there was no evidence suggesting that Eight Mile intended to grant a free, implied license at the standard rate to Spotify, especially where license royalties were much more generous than the statutory rates. 

Even though the court found that Eight Mile appeared to establish a strong prima facie case of copyright infringement, it still needed to determine whether the defense of equitable estoppel applied. The court explained that in the licensing context, estoppel arises when a rights holder goes out of its way not to consent to a use but also not to stop it—choosing instead, as the court explained, “to patiently accumulate leverage pursuant to the Copyright Act’s generous damages provisions and file suit when most advantageous.” To rely on an equitable estoppel defense, a defendant must show that (1) the plaintiff knew the facts of defendant’s infringing conduct; (2) the plaintiff intended that its conduct shall be acted upon or must so act such that the defendant has a right to believe that it is so intended; (3) the defendant must be ignorant of the true facts; and (4) the defendant must rely on plaintiff’s conduct to its injury. The court held that each of the requirements for estoppel were satisfied here. 

First, it was undisputed that Eight Mile was aware of Spotify’s streaming of the EMS compositions for several years before taking affirmative steps to assert its rights, especially where there was evidence that Eight Mile was fully aware that HFA’s database incorrectly listed Kobalt (not Bridgeport) as the administrator of most of the works, and that Eight Mile had monitored and promptly sued other infringers in the past. 

Second, as to Eight Mile’s intent, the court concluded that Eight Mile did not identify any valid business reason for tolerating Spotify’s infringement, and the court could not discern any, especially where, as here, Spotify became one of the preeminent platforms for selling music to individual consumers, and an artist of Eminem’s caliber would have significant leverage in licensing negotiations. The court surmised that if Eight Mile had sent Spotify a cease and desist letter, Spotify would have entered into license negotiations, but the subsequent payout under a license “would almost certainly have been lower than damages under the Copyright Act.” Moreover, in the court’s view, the fact that Eight Mile waited to sue until after the MMA liability limitation became available to Spotify further indicated that Eight Mile intentionally waited to bring suit: Even though Eight Mile could have received significantly more damages prior to the MMA’s liability limitation, the court concluded that Eight Mile was teeing up a “constitutional showdown” regarding the applicability of the limitation at large, to enhance its settlement leverage. 

Third, in the court’s view, Spotify was ignorant of the true facts because it had no direct knowledge of the breakdown of rights in the EMS compositions that occurred behind the scenes, including that Kobalt did not have mechanical licensing authority and therefore that the EMS compositions were unlicensed. 

Finally, the court determined that the injury to Spotify from Eight Mile’s conduct was “self-evident,” as the potential damages from the infringement case were strikingly high.

Taking these factors together, the court held that Eight Mile’s claims against both Spotify and HFA were barred by equitable estoppel. 

Finding that the equitable estoppel defense applied, the court then addressed whether Kobalt was required to indemnify Spotify for its attorneys’ fees under the 2016 BMLA. That question hinged on whether Kobalt “controlled” or “administered” the EMS compositions, as those terms were defined in that agreement. After reviewing the evidence, the court concluded that no reasonable interpretation would permit a fact-finder to reject the premise that Kobalt administered the compositions “in some sense.” For example, Kobalt granted licenses, received license requests, accepted NOIs, collected royalties and was identified as the compositions’ administrator. The court concluded that Kobalt was the third party most involved in managing the licenses of the EMS compositions. The court likewise emphasized that the 2016 BMLA itself purported to grant mechanical licensing rights to all compositions administered by Kobalt and explicitly warranted that Kobalt had the power to grant such license. Accordingly, the court granted Spotify summary judgment on its indemnification claim, in addition to its claim for breach of contract that was premised on the allegation that Kobalt failed to license the compositions that it purported to license through the 2016 BMLA. 

Summary prepared by Frank D’Angelo and Elena De Santis