Grooveshark Cannot Escape Legal Woes “Without Paying a Dime”

By Sarah R. Riedl *

Grooveshark LogoWhy does Spotify limit free music streaming to ten hours per month and limits repeat playing of single songs to only five times per month, while Grooveshark users stream to their hearts’ content?  Unfortunately for Grooveshark, the unlimited streaming may cost the company a pretty penny.

Escape Media Inc. LogoOn Wednesday, January 4, 2012, EMI Music Publishing became the fourth major music label to file suit against Escape Media Inc., parent company for Grooveshark, for copyright infringement.  EMI’s suit came only one month after Universal Group, Sony Corp, and Warner Music Group filed a federal suit accusing Grooveshark of piracy in violation of copyright law.  Just three years prior to this most recent lawsuit, Grooveshark’s parent company Escape Media Group negotiated a licensing agreement with EMI, providing for payment of royalties.  EMI’s complaint alleges that Grooveshark has failed to pay any royalties since that agreement solidified.

Grooveshark operates a website that allows users to upload music files to Grooveshark’s servers, which can then be streamed by any of the site’s 35 million users.  Grooveshark claims its service does not constitute copyright infringement under the Digital Millennium Copyright Act.  The provisions of the Act provide limited exceptions to activity that would otherwise constitute copyright infringement.

Under the terms of the Act, infringement liability is limited for websites that store content at the direction of users provided three conditions are met: (1) the website does not have actual knowledge of the infringing activity; (2) the website must not earn a direct financial benefit over infringing activity it has the capacity to control; and (3) after receiving notice of infringing activity the website must quickly remove the material.

Grooveshark operates under the same exception to the Act as other user-based websites including YouTube.com.  The main thrust of the exception provides protection from copyright infringement suits provided the company complies quickly with any take-down notices received from copyright holders.

Vinyl records and DVDGrooveshark’s litigation future does not look rosy, especially in light of admissions from Grooveshark’s own staff.  Comments made by Grooveshark’s own personnel indicate the company had actual knowledge of the infringing activity, thereby failing the first prong necessary for limited liability.  For example, according to the complaint filed by another label late last year, the senior director admitted “that Escape ‘bet the company on the fact that it is easier to beg forgiveness than ask permission.’”  A Grooveshark employee blogged about how employees are encouraged to upload as much material as possible to the servers, and receive bonuses for going above and beyond company-set uploading quotas.

Additionally, the senior director further added that the strong growth of the company was bolstered “without paying a dime to any of the labels.”  The director seemingly throws a wrench into the second prong just as he did the first.  The second prong to escape infringement liability requires the company not gain a direct financial benefit as a result of the infringing activity.  However, the director illustrates that Grooveshark was created on the premise of getting something, or in this case a whole lot, for nothing.

Due to the comments made by Grooveshark’s own and the failure to pay any royalties to EMI despite contractually obligated to do so for the past three years, the most provident course of action for Grooveshark would be to settle.  Perhaps allocating some of the “meteoric growth” profits made “without paying a dime”  to an enticing settlement offer would be helpful.  Whether Grooveshark will choose litigation or a settlement negotiation is unclear, but the future of Grooveshark user’s unlimited indulgence in copyrighted material will certainly change.

Sarah R. Riedl is a second year law student at Wake Forest University School of Law.  She has a Bachelor of Arts in English from the University of Illinois.  Upon graduation in May 2013, Miss Riedl intends to practice business litigation and intellectual property law.