August 18, 2011

Legal News: Grooveshark

What's Happening:

Grooveshark is an online music streaming service where users can upload songs for anyone to play on demand, but it is also what Bob Lefsetz once referred to as "our favorite questionably legal music service" (it's mine anyway).  This is because Grooveshark doesn't pay a licensing fee for most of the music users stream through it, but rather relies on what is known as the Digital Millennium Copyright Act's (DMCA for short) safe harbor provision.  This section of copyright law basically says that an online service provider (OSP) cannot be held liable for copyright infringement committed by its users as long as it follows certain guidelines.  The most important of these guidelines is that the OSP must remove the infringing content in a timely manner if it has actual knowledge that the infringing content is stored on its servers or if the copyright owner asks the OSP to take it down.

Grooveshark says that it follows these guidelines and therefore should qualify for the safe harbor.  It claims that not only has it removed millions of tracks at the request of copyright holders, banned thousands of users, and paid performing rights organizations for streaming rights, but it has also been working to make licensing deals with labels.

Despite Grooveshark's insistence that it is completely legal, it has been named as a defendant in two pending copyright infringement lawsuits.  The first was filed by Universal Music Group in New York in early 2010, and the second was filed in Tennessee last month by a group of songwriters and music publishers.  A previous suit brought by EMI was dropped in 2009 when they agreed to a licensing deal.

The lawsuits against Grooveshark are just two of the latest in a string of suits meant to test the strength of the DMCA's safe harbor provision.  Grooveshark's business model works against it because it is quite clearly profiting from its users uploading songs they do not own the copyrights to (mostly) without a license for the users to do so.  Between the ads and a subscription option, Grooveshark will have a difficult time arguing that it did not intend to profit from copyright infringement committed by its users.

But there could be a glimmer of hope for Grooveshark in Viacom v. Google, where Viacom sued Google's YouTube for allowing its users to upload Viacom's copyrighted content without permission.  Although the case has been appealed, Google and YouTube won the first round.  The judge found that YouTube was protected by the safe harbor because "actual knowledge" within the meaning of the DMCA did not mean general knowledge that copyrighted material was being illegally uploaded via its service, but actual knowledge that specific copyrighted works had been uploaded.  Since YouTube took down content once it was notified by copyright holders, it was shielded from liability for the content it was not notified about by the safe harbor.  If Google continues to prevail based on this interpretation of the DMCA, there is a good chance that Grooveshark will as well.

Why It Matters:

The safe harbor provision of the DMCA has been very important when it comes to encouraging new technology and online services, including those like Grooveshark that revolve around music.  How this provision is interpreted by the courts will determine what steps online music services that rely on users to upload content will have to take to comply with copyright laws, including whether they must actively police what users are uploading or negotiate licenses with rights holders, which affects the number of new services and the ease with which they can launch (to get an idea of how this could change the equation, think the almost 3 years it took Spotify to negotiate licenses in the US).

These suits could also set a lawsuit-as-a-negotiation-tactic precedent.  Like EMI, Warner could intend to use its lawsuit against Grooveshark as leverage in future licensing negotiations (although insiders have suggested that this is not the case).  Whether the Grooveshark lawsuits end up in negotiations or a court room, the outcome will help determine who has the upper hand in dealings between music companies and technology companies.

- Lauren
lauren@internlikearockstar.com | Twitter: @Musicn3rd
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