IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TENNESSEE
`WESTERN DIVISION
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` Case No. 3:17-cv-01051-JPM
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`ORDER DENYING MOTION TO DISMISS FOR LACK OF STANDING AND
`FAILURE TO STATE A CLAIM
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`BLUEWATER MUSIC SERVICES
`CORPORATION,
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`Plaintiff,
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`v.
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`SPOTIFY USA INC,
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`Defendant.
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`Before the Court is Defendant Spotify USA Inc. (“Spotify”)’s Motion to Dismiss under
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`Rules 12(b)(1) and 12(b)(6) for lack of standing and failure to state a claim filed on January 15,
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`2018. (ECF No. 55.) The Motion is DENIED. Plaintiff Bluewater Music Services Corp.
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`(“Bluewater”) has standing for all asserted works based on ownership or an exclusive license
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`of the works.
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`I.
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`BACKGROUND
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`Factual background
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`This is an action for willful copyright infringement pursuant to the Copyright Act and
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`the Copyright Revision Act of 1976 (17 U.S.C. § 101 et seq.) (ECF No. 41 at ¶¶ 1, 12.) Plaintiff
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`Bluewater asserts that Defendant Spotify does not have a license to display, reproduce, and/or
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`distribute 2,142 music compositions published by Bluewater. (ECF No. 41 at ¶¶ 5, 22-25.)
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`Bluewater asserts that Spotify either never licensed Bluewater’s compositions or else continued
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`to use them after the licenses was terminated which would be copyright infringement. (Id. at ¶
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`75.) Plaintiff seeks the maximum $150,000 statutory damage award for each infringed work.
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`(Id. at ¶ 7.)
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`Bluewater is an independent music publisher and copyright administration company that
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`claims to own or administer the 2,142 allegedly infringed works that are the subject matter of
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`this case. (Id. at ¶¶ 22-24.) Spotify is an interactive music streaming service that Bluewater
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`asserts must obtain either a direct or compulsory license allowing the reproduction or
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`distribution of each musical composition on its streaming service. (Id. at ¶ 26.) To obtain a
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`compulsory license under the Copyright Act, a licensee is required to send a notice of intent to
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`use a musical composition to each copyright owner before distributing the work. 17 U.S.C.A. §
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`115. Bluewater asserts that Spotify makes recordings for streaming without knowing the
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`identity of songwriters and publishers who should be getting royalties or knowing if the
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`compositions have been licensed in all cases. (ECF No. 41 at ¶ 46.) Plaintiff further asserts that
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`Spotify contracts with a third-party company called the Harry Fox Agency (“HFA”) for
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`information about licensing for compositions, but only has a portion of Spotify’s songs in their
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`database. (Id. at ¶¶ 47-48.)
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`Bluewater says they made sure to notify HFA about which compositions Bluewater
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`controlled and represented as early as 2011. (Id. at ¶ 57.) After Bluewater discovered that
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`Spotify was not accurately paying royalties on many compositions they assert they demanded
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`proof of any licensing from Spotify, as required under 37 C.F.R. § 201.18, and gave notice to
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`terminate any rights Spotify may have claimed to have. (Id. at ¶ 62.) Once Bluewater thought
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`Spotify had breached copyright laws, they notified Spotify of the breach. (Id. at ¶ 63-66.)
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`Procedural Background
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`Bluewater’s initial Complaint (ECF No. 1) was filed on July 18, 2017. Plaintiff filled
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`the Amended Complaint (ECF No. 41) on November 1, 2017. Spotify filed their answer to the
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`Amended Complaint (ECF No. 48) on December 13, 2017. That same day Spotify filed this
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`present Motion to Dismiss (ECF No. 46.) Bluewater’s response in opposition (ECF No. 55)
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`was filed on January 15, 2018. Spotify filed a Reply (ECF No. 57) on January 29, 2018.
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`On May 4, 2018 this Court ordered Plaintiffs to supplement the record with the
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`administration agreements for all copyrighted works they asserted to be non-owner
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`administrators of. (ECF No. 63.) Bluewater filed their administration agreements on May 18,
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`2018 (ECF No. 77.) Spotify then submitted a supplemental brief to the newly produced
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`administration agreements (ECF No. 80) on May 29, 2018. Bluewater’s response (ECF No.
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`85) was filed on June 1, 2018. The Court has considered the above filings to rule on Defendant’s
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`motion.
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`II.
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`LEGAL STANDARD
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`A. Motions to Dismiss
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`Fed. R. Civ. P. 12(b)(6) allows dismissal of a complaint that “fail[s] to state a claim
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`upon which relief can be granted.” As such, a Rule 12(b)(6) motion permits the “defendant to
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`test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything
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`alleged in the complaint is true.” Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993) (citing
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`Nishiyama v. Dickson Cnty., 814 F.2d 277, 279 (6th Cir. 1987)). A motion to dismiss only
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`tests whether the plaintiff has pleaded a cognizable claim and allows the court to dismiss
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`meritless cases which would waste judicial resources and result in unnecessary discovery.
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`Brown v. City of Memphis, 440 F.Supp.2d 868, 872 (W.D. Tenn. 2006).
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`When evaluating a motion to dismiss for failure to state a claim, the Court must
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`determine whether the complaint alleges “sufficient factual matter, accepted as true, to ‘state a
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`claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
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`(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). If a court decides in light of
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`its judicial experience and common sense, that the claim is not plausible, the case may be
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`dismissed at the pleading stage. Iqbal, 556 U.S. at 679. “[A] formulaic recitation of the
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`elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The “[f]actual
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`allegations must be enough to raise a right to relief above [a] speculative level.” Ass'n of
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`Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548 (6th Cir. 2007) (quoting
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`Twombly, 550 U.S. at 555). A claim is plausible on its face if “the plaintiff pleads factual
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`content that allows the court to draw the reasonable inference that the defendant is liable for
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`the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). A
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`complaint need not contain detailed factual allegations. However, a plaintiff without facts
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`who is “armed with nothing more than conclusions” cannot “unlock the doors of discovery.”
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`Iqbal, 556 U.S. at 678-79; Green v. Mut. of Omaha Ins. Co., No. 10-2487, 2011 WL 112735,
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`at *3 (W.D. Tenn. Jan. 13, 2011), aff’d 481 F. App’x 252 (6th Cir. 2012).
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`B. Standing under the Copyright Act
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`“[S]tanding is a threshold question in every federal case,” Freeman v. Sullivan, 954 F.
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`Supp. 2d 730, 746 (W.D. Tenn. 2013), aff’d (Dec. 27, 2013) (citation omitted), and standing
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`is an issue on which plaintiff bears the burden of proof. Feist Publ’ns, Inc. v. Rural Tel. Serv.
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`Co., 499 U.S. 340, 361 (1991). Where a plaintiff cannot show the requirements for standing,
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`the Court must dismiss the claim. Patel v. Hughes, No. 3:13- 0701, 2014 WL 4655285, at *4
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`(M.D. Tenn. Sept. 16, 2014). “It is the responsibility of the complainant clearly to allege facts
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`demonstrating that he is a proper party to invoke judicial resolution of the dispute and the
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`exercise of the court’s remedial powers.” Warth v. Seldin, 422 U.S. 490, 518 (1975).
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`Section 501(b) of the Copyright Act establishes that the “legal or beneficial” owner of an
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`exclusive right is entitled to “institute an action for any infringement of that particular right
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`committed while he or she is the owner of it.” 17 U.S.C. § 501(b). “To have standing to bring
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`suit, a party must have some ownership rights over at least part of the exclusive right for
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`which he wishes to sue.” Warner/Chappell Music, Inc. v. Blue Moon Ventures, No. 3:10-
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`1160, 2011 WL 662691, at *3 (M.D. Tenn. Feb. 14, 2011). “To find that a licensee of an
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`exclusive license lacks copyright standing because the copyright owner also granted the
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`exclusive license to one or more other licensees would, indeed, fly in the face of case law
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`affirming the Copyright Act's recognition of joint ownership of exclusive rights.” Nafal v.
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`Carter, 540 F.Supp.2d 1128 (C.D.Cal.2007).
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`III. ANALYSIS
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`Defendant argues that Plaintiff’s complaint should be dismissed for lack of standing or
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`failure to state a claim with respect to some of the musical compositions. (ECF No. 46 at
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`PagID 1046.) Each argument will be analyzed in turn.
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`A. Defendant’s Argument for Lack of Standing
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`Defendant argues that Plaintiffs “merely administer” 1,372 musical compositions at
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`issue with “no ownership interest” and no standing with respect to those works. (ECF No. 46
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`at PageID 1047.) Spotify also argues that Plaintiff Bluewater Music Services Corporation
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`must be dismissed because they allege no ownership interest in any works. (Id. at PageID
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`1048.) Spotify argues that Plaintiffs did not “allege the transfer of ownership of any of the
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`exclusive rights provided for in § 106 of the Copyright Act (i.e. the right to reproduce,
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`distribute, create, perform, display, or prepare derivative works.)” (Id. at PageID 1077.)
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`Defendant encourages the Court to closely analyze contractual language to determine what
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`rights are transferred in agreements. (Id. at PageID 1078.)
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`Spotify has framed the question for the Court to answer as whether the administrative
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`agreements assign rights to Plaintiffs that would make standing exist. (Id. at PageID 1081.)
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`Spotify’s main argument for finding standing does not exist is that Plaintiffs’ allegations about
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`their administrator agreements do not confer exclusive licenses or the rights under section 106
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`of the Copyright Act to provide standing. (Id. at 1083.)
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`B. Bluewater’s Argument That There is Standing
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`Plaintiffs rely on the contents of their agreements to argue that they did get exclusive
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`rights from the copyright owners that establish standing. (ECF No. 55 at PageID 1142.)
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`Bluewater argues that the administration agreements grant them the sole and exclusive right to
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`use and license the use of the musical compositions at issue. (Id. at PageID 1143.) Plaintiffs
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`specifically assert in their Amended Complaint that “the respective administration agreements
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`with the owners of the musical compositions at issue grant Blue water exclusive rights under
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`Section 106 of the United States Copyright Act as well as the right to grant nonexclusive
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`licenses to other parties.” (ECF No. 41 at ¶ 82.) As copyright administrator, Bluewater has
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`asserted that they are responsible for negotiating and issuing mechanical licenses. (Id. at ¶
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`24.) They reference language of their administrator agreements that says they have “sole and
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`exclusive right” to “use and license the use of the Compositions, to execute in its own name or
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`in Company’s name any and all licenses and agreements whatsoever affecting or respecting
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`the Composition(s), including but not limited to licenses for mechanical reproduction.” (ECF
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`No. 55-1.)
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`Plaintiffs agree that an administrative interest alone is not necessarily sufficient to
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`provide standing. (ECF No. 55 at PageID 1148.) They focus on the exclusive licensees and
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`owners of exclusive rights under 17 U.S.C. § 106, both of which have standing to bring suit.
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`Bluewater argues that being an administrator and an exclusive licensee are not mutually
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`exclusive (Id. at PageID 1149) which is supported by this district’s case law.
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`The language giving Plaintiff the right to administer and exploit the copyrights, as well
`as the ability to further grant non-exclusive licenses, gives them power of an exclusive
`licensee over at least two of the six rights in section 106, namely: the right to reproduce
`the copyrighted work (§ 106(1)) and the right to distribute copies of the work to the
`public by sale or other transfer of ownership (§ 106(2)). Further, the fact that Plaintiff is
`able to itself grant nonexclusive licenses weighs in favor of the fact that they are
`beneficial owners of the copyrights in question. The Plaintiffs that are party to the
`“Exclusive Administration Agreement” were transferred an exclusive interest from the
`copyright owners such that they have standing to bring suit on behalf of the copyright
`as the exclusive licensee.
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`Warner/Chappell Music, Inc. v. Blue Moon Ventures, No. 3:10-1160, 2011 WL
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`662691, at *5 (M.D. Tenn. Feb. 14, 2011.)
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`C. What Rights the Administration Agreements Give Plaintiffs
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`Based on how both parties have framed the issue of standing, they agree that standing
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`exists when rights under 17 U.S.C. § 106 are transferred. The disagreement is about what
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`rights Plaintiffs allege was conferred by the administrative agreements. The Court turns to
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`those agreements and relevant case law to determine if Plaintiff has standing to sue for
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`copyright infringement on the 1,342 music compositions at issue.
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` The language in the example administration agreement and the subsequently filed
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`agreements (ECF No. 77,) show that part of the section 106 rights are transferred to Plaintiffs
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`which gives them standing. The agreements state that Bluewater is “granted the sole and
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`exclusive right…to print, publish, sell, dramatize, use and license the use of the
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`Compositions…including but not limited to licenses for mechanical reproduction…” (ECF
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`No. 77 at PageID 1675.) Standing can be established under section 106 is if someone has the
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`exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by
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`sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C. § 106 (3). This
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`language matches the “sole and exclusive right” to license works for mechanical reproduction
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`in the administrator agreements. By itself that exclusive right conferred to Plaintiffs should
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`meet the standing requirements.
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`Defendant argues that the following sentence, which states that the Administrator
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`“may not execute any mechanical licenses with the exception of full statutory rate without
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`prior written consent of Company” prevents Plaintiffs from having an exclusive license.
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`(ECF No. 55 at PageID 1199.) Spotify argues that because Plaintiffs would need consent to
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`authorize mechanical reproductions at a rate below the statutory rate they do not have an
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`exclusive license. (Id.) Defendant does not direct this Court to any case law to support that
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`argument. Instead, Spotify claims that if people can get a compulsory license at the full
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`statutory rate under section 115 of the Copyright Act, Plaintiffs would not be able to have an
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`exclusive license. (ECF No. 80 at PageID 2094.)
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`Under the agreements, Plaintiffs would still be the only company that could provide
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`licenses at or above the statutory value. (ECF No. 77 at PageID 1675.) The copyright holders
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`have given up their right to provide such licenses by giving exclusive right to Plaintiffs to do
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`so. Without case support that has interpreted this type of right to license as non-exclusive, the
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`language in the agreement is closer to that of Warner. In Warner this court articulated that
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`“the fact that Plaintiff is able to itself grant nonexclusive licenses weighs in favor of the fact
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`that they are beneficial owners of the copyrights in question” to come to its conclusion that
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`the Plaintiff in the Warner case did have a portion of the rights under section 106 that
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`provided standing. Warner/Chappell Music, Inc. v. Blue Moon Ventures, No. 3:10-1160,
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`2011 WL 662691, at *5 (M.D. Tenn. Feb. 14, 2011.)
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`Here, Plaintiff has the right to grant nonexclusive mechanical licenses to as many
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`different people as they want. While there is a restriction on agreeing to license below a
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`certain monetary threshold, Plaintiff still has those rights. Given the law of this court and the
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`absence of cited law that suggests otherwise, the language of the agreements should be
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`understood to grant some of the exclusive rights under section 106 that allow standing. Thus,
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`Plaintiffs have standing in this case and that portion of the Motion to Dismiss is DENIED.
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`Defendant also argues that Bluewater Music Services Corporation owns and
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`administers nothing. (ECF No. 80 at PageID 2090.) Plaintiffs have explained that although
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`Bluewater Music Corporation and Bluewater Music Services Corporation are two entities,
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`they operate collectively as Bluewater Music and are both parties to the Administration
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`Agreements. (ECF No. 85 at PageID 2133.) With respect to Bluewater Music Services
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`Corporation Defendant’s Motion to Dismiss for lack of standing is also DENIED.
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`D. Failure to State a Claim for Non-registered Music Compositions
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`Defendant argues that Plaintiffs must have copyright registrations before filing suit.
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`(ECF No. 47 at PageID 1084.) There are 23 music compositions listed as “Pending” for the
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`copyright registration number in the Amended Complaint. (ECF No. 41-1.) Bluewater has
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`clarified that those musical compositions are pending registration but have not been processed
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`and registered. (ECF No. 55 at PageID 1144.) Defendant cites Sony/ATV Music Pub. LLC
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`v. D.J. Miller Music Distributors, Inc., to show that this Court has required plaintiffs to obtain
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`copyright registrations before filing a lawsuit. No. 3:09-CV-01098, 2010 WL 3872802, at *4
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`(M.D. Tenn. Sept. 28, 2010). The Sony Court explained that “Section 411(a) plainly states
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`that ‘no civil action for infringement of the copyright in any United States work shall be
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`instituted until preregist[r]ation or registration of the copyright claim has been made in
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`accordance with this title.’” (Id.) (quoting 17 U.S.C. § 411.) The Supreme Court has also
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`made clear that copyright registration is ordinarily a prerequisite to filing a federal suit. Reed
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`Elsevier, Inc. v. Muchnick, 559 U.S. 154, 158 (2010).
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`Plaintiffs argue that dismissing 23 of the 2,142 musical compositions would be
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`judicially inefficient and that there is a Circuit split about whether copyright registration prior
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`to filing suit is required. (ECF No. 55 at PageIDs 1154-55.) A year after the Sony opinion
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`Spotify cited, the same Court clarified that
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`Of greater concern to the Court is Plaintiffs' explicit intention, should the Court
`grant the JSK Defendants' Motion, to file a new lawsuit regarding the six works at
`issue. As Plaintiffs have noted, pursuant to Federal Rule of Civil Procedure 61,
`the Court is to "disregard all errors and defects that do not affect any party's
`substantial rights." Here, the only "error" is that Plaintiffs failed to satisfy a
`procedural requirement—registering certain copyrights—prior to filing suit, an
`error they corrected only three months later (see Doc. Nos. 42-1 at 1 (indicating
`filing date of February 17, 2010), 42-2 at 1 (same), 42-3 (same)). The Court does
`not find that this error affects any party's substantial rights in this case because, in
`the event that the Court were to grant the JSK Defendants' Motion and Plaintiffs
`were to file a new lawsuit regarding the six works, such a lawsuit would easily be
`consolidated into this case due to the nature of the claims involved. See Fed. R.
`Civ. P. 42(a)(2) (providing for consolidation of actions when multiple actions
`"involve a common question of law or fact"). Therefore, in either circumstance,
`the JSK Defendants would be subject to claims regarding the six songs. Granting
`the JSK Defendants' Motion would prolong the inevitable and burden the parties,
`their attorneys, and the court system with extra work. The Court declines to bring
`about such a result.
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`Sony/ATV Music Publ’g LLC v. D.J. Miller Music Distribs., No. 3:09-cv-01098, 2011 U.S.
`Dist. LEXIS 110354, at *14-15 (M.D. Tenn. Sep. 26, 2011).
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`Plaintiffs also explained that on June 28, 2018 the United States Supreme Court
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`granted certiorari in the case of Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC
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`(No. 17-571). (ECF No. 90.) The Supreme Court will address whether under 17 U.S.C.
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`411(a) a copyright infringement action may be taken after the creative work has been filed
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`with the Copyright Office, but before registration is approved. (Id.)
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`This Court understands the concerns of judicial efficiency, especially considering the
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`relevant case in front of the Supreme Court this term. The trial date for this case was set for
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`April 21, 2020. (ECF No. 107.) The Supreme Court’s ruling for the 2018-2019 term would
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`still give parties enough time to be prepared for trial if a motion were filed after the Supreme
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`Court’s ruling. Given that the Supreme Court will answer the issue in dispute for Defendant’s
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`12(b)(6) motion, that part of the Motion to Dismiss is DENIED WITHOUT PREJUDICE and
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`permission to refile after the Supreme Court’s decision in Fourth Estate Pub. Benefit Corp. v.
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`Wall-Street.com, LLC.
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`IT IS SO ORDERED, this 28th day of September, 2018.
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`/s/ Jon P. McCalla
` JON P. McCALLA
` UNITED STATES DISTRICT JUDGE
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