`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF FLORIDA
`FORT MYERS DIVISION
`
`
`
`PRO MUSIC RIGHTS, LLC and SOSA
`ENTERTAINMENT LLC,
`
`
`
`
`
`Civil Action No. 2:19-cv-00843
`
`
`
`
`
`
`::::::::::::::
`
`
`
`PLAINTIFFS’ COMPLAINT WITH INJUNCTIVE RELIEF SOUGHT
`AND DEMAND FOR JURY TRIAL
`
`Plaintiffs Pro Music Rights, LLC (“PMR”), which is a public performance rights
`
`organization representing over 2,000,000 works of artists, publishers, composers and
`
`songwriters, and Sosa Entertainment LLC (“Sosa”), which has not been paid for
`
`550,000,000+ streams of music on the Spotify platform, file this Complaint seeking millions
`
`of dollars of damages against Defendants Spotify AB, Spotify USA, Inc., Spotify Limited,
`
`and Spotify Technology S.A. (collectively, “Spotify” or “Defendants”), alleging as follows:
`
`NATURE OF ACTION
`
`1.
`
`Plaintiffs bring this action to redress substantial injuries Spotify caused by
`
`failing to fulfill its duties and obligations as a music streaming service, willfully removing
`
`content for anti-competitive reasons, engaging in unfair and deceptive business practices,
`
`Plaintiffs,
`
`v.
`
`
`SPOTIFY AB, a Swedish Corporation; SPOTIFY
`USA, INC., a Delaware Corporation; SPOTIFY
`LIMITED, a United Kingdom Corporation; and
`SPOTIFY TECHNOLOGY S.A., a Luxembourg
`Corporation,
`
`Defendants.
`
`
`
`
`
`
`
`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 2 of 46 PageID 2
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`obliterating Plaintiffs’ third-party contracts and expectations, refusing to pay owed royalties
`
`and publicly performing songs without license.
`
`2.
`
`In addition to live performances and social media engagement, Plaintiffs rely
`
`heavily on the streaming services of digital music service providers, such as and including
`
`Spotify, to organically build and maintain their businesses. “Streaming” refers to a method of
`
`delivering music without requiring the listener to download files onto the listener’s device.
`
`3.
`
`Starting in or about May 2017, Spotify removed all of Plaintiffs’ songs from
`
`its digital music streaming platform –– commonly known as “Spotify” – without advance
`
`notice, without ever telling Plaintiffs why their songs were removed, without ever giving
`
`Plaintiffs an opportunity to address the issue, without ever providing Plaintiffs with an
`
`opportunity to cure whatever the reason for removal, and without adhering to the rules,
`
`procedures, policies and obligations to which Spotify holds itself out to the public.
`
`4.
`
`By doing that, Spotify acted deceptively and unfairly by not making any effort
`
`whatsoever to identify the origin(s) of the approximately 550,000,000 streams of Plaintiffs’
`
`songs before removing them –– despite telling the Plaintiffs and the market that’s what
`
`Spotify would do before removing streams from its platform. Nor did, worse yet, Spotify
`
`parse out which streams were played too much and which streams were not played enough.
`
`5.
`
`Plaintiffs’ songs had to have genuine streams since Spotify added at least one
`
`of Plaintiffs’ tracks onto a very popular, if not the most popular, Spotify-sponsored playlist in
`
`or about March 2017: “New Music Friday” which, at that time, had approximately 3,016,144
`
`followers.
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`2
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`6.
`
`As it knows and claims to do, Spotify is required to remit royalty payments to
`
`Plaintiffs for the streams of their songs and to obtain public performance licenses for the
`
`public performance of songs on its platform. To date, however, Spotify has not paid full
`
`royalties for the 550,000,000+ streams of Plaintiffs’ songs on Spotify’s service.
`
`7.
`
`Furthermore, Spotify did not remove just the songs that it may have guessed
`
`were played too much; rather, Spotify manually blanket-banned all of Plaintiffs’ tracks
`
`without regard to any track-by-track analysis and then deliberately and maliciously
`
`blacklisted from its platform the Plaintiffs and their founder, Jake Noch, along with each and
`
`every single artist, composer, and writer associated with the Plaintiffs and Noch. All of the
`
`artists under Plaintiffs’ umbrellas were deemed by Spotify guilty by association – in violation
`
`of the rules, procedures, policies and obligations to which Spotify holds itself out to the
`
`public.
`
`8.
`
`Spotify’s motive for this aggressive action was directly tied to its equity deal
`
`with Music and Entertainment Rights Licensing Independent Network, B.V. d/b/a Merlin
`
`(“Merlin”), a global digital rights agency for the world’s leading independent music
`
`companies.
`
`9.
`
`Sosa was a member of Merlin and, just prior to Spotify’s removing all of
`
`Plaintiffs’ content from Spotify’s platform, Sosa had renewed its contract with Merlin, under
`
`which Spotify issued a material percentage of its equity to Merlin. By virtue of Sosa’s
`
`membership with Merlin, Sosa was entitled under its contract with Merlin to receive equity
`
`in Spotify.
`
`3
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`10.
`
`The deal between Merlin and Spotify was announced by Spotify’s Chief
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`Executive Officer to the public via Twitter on April 20, 2017:
`
`
`
`11.
`
`Spotify’s take-down of Plaintiffs’ content was a bad faith tactic to exert
`
`pressure on Merlin to exclude Sosa from the equity participation, and Spotify was motivated
`
`by its maliciousness to cause Merlin to terminate its contract with Sosa. And it worked.
`
`12.
`
`Spotify’s reasoning was that high stream counts from largely unknown,
`
`independent acts do not generate close to the same revenue for Spotify from advertisements
`
`as compared to mainstream acts and, as such, do not offset the royalties owed by Spotify for
`
`such streams.
`
`13. Moreover, Spotify told Merlin that 99% of the users responsible for the
`
`550,000,000 streams of Sosa’s songs were users of Spotify’s ad-supported service (and not
`
`Spotify’s subscription service which is Spotify’s primary source of revenue and profit). As a
`
`result, hosting Plaintiffs’ music for streaming by users of Spotify’s free service had at the
`
`time, and would continue to have, dire financial consequences for Spotify.
`
`14.
`
`Spotify had every reason to tighten its financial belt. In its past four financial
`
`years (2015 – 2018), Spotify’s cumulative annual net losses exceeded $2 billion dollars.
`
`4
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`15.
`
`In 2017, Spotify’s IPO was on its horizon. Since Spotify’s financials and
`
`forecasts would come under global scrutiny in its impending IPO, Spotify knew, or had
`
`reason to know, the tremendous growth of a non-mainstream label, such as Sosa, would
`
`further depress Spotify’s financials and forecast in its IPO. Indeed, Spotify knew, or had
`
`reason to know, it would have to make, and would have to continue making, royalty
`
`payments to Sosa in the millions of dollars as Sosa’s success continued to grow. Spotify’s
`
`management, including its Chief Executive Officer, decided to be nimble and crafty to shore
`
`up its financials leading up to the IPO, and they did that by blanket-removing Plaintiffs and
`
`their repertoire of songs.
`
`16.
`
`So, Spotify invented a pretext to swiftly stem the bleeding caused by the users
`
`of Spotify’s free service from playing Sosa’s catchy songs.
`
`17.
`
`As a result of Spotify’s discrimination and unlawful conduct against less
`
`established artists, Plaintiffs suffered massive losses. Merlin sold its Spotify shares shortly
`
`after Spotify went public on the New York Stock Exchange on April 3, 2018. Merlin
`
`allocated those proceeds, pro-rata, to its members, based on the value of Spotify royalties
`
`each member received during the period of Merlin’s agreement with Spotify.
`
`18.
`
`Spotify had beaten the Plaintiffs: (i) Spotify fabricated a reason to remove
`
`Sosa’s songs from its platform, (ii) Spotify removed those songs to avoid having to pay
`
`royalties for reasons having nothing to do with Sosa, (iii) Spotify communicated false
`
`statements to Merlin about Sosa, its songs, its artists, its members and its business, and (iv)
`
`Merlin, as a result of Spotify’s false statements, wrongfully terminated its relationship with
`
`5
`
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 6 of 46 PageID 6
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`Sosa. At the end of all this, Plaintiffs received nothing, but they should have received tens of
`
`millions of dollars through, among other things, Sosa’s membership in Merlin.
`
`19.
`
`Spotify also engaged in a widespread smear campaign against Plaintiffs to
`
`prevent any of their music from being uploaded onto Spotify, or any other streaming
`
`platform, ever again.
`
`20.
`
`To add insult to injury, Spotify continues to unilaterally profit from Plaintiffs’
`
`music; despite purporting to remove Plaintiffs’ content, some of Plaintiffs’ music continues
`
`to stream without license via Spotify-generated playlist(s), and without any compensation
`
`made to copyright holders, in blatant disregard of the Copyright Act. Spotify is legally
`
`obligated to pay royalties for streamed music.
`
`21.
`
`Given Spotify’s unfair and deceptive practices, including being a notorious
`
`thief of copyrighted works without license, Spotify is liable to Plaintiffs for substantial
`
`damages.
`
`THE PARTIES
`
`22.
`
`Sosa is a limited liability company organized and existing under the laws of
`
`Florida with its principal place of business at 3811Airport Pulling, STE 203, Naples, Collier
`
`County, Florida 34105. Sosa is a successful hip-hop record label, distributor, promotor and
`
`music publishing company, and it intended, as early as January 20, 2017, to expand into a
`
`digital distribution service (competitive to Spotify) and a marketing service. Sosa’s artists
`
`and rightsholders have (i) collaborated with major artists on both mainstream and
`
`nonmainstream songs, (ii) had robust presence on social media platforms (including over 5
`
`million combined followers), (iii) had a substantial number of streams on other platforms,
`
`6
`
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 7 of 46 PageID 7
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`and (iv) had the songs to which they contributed content sell thousands of times. Sosa had
`
`songs in both mainstream and nonmainstream genres and sub-genres, such as pop, electronic,
`
`dance, including, without limitation, gangster rap, electronic dance hip-hop, drill music,
`
`EDM and dubstep. Sosa’s sole member is a citizen and resident of the State of Florida.
`
`23.
`
`PMR is a limited liability company organized and existing under the laws of
`
`Florida with its principal place of business at 3811Airport Pulling, STE 203, Naples, Collier
`
`County, Florida 34105. PMR is a for-profit performing rights organization that collects
`
`license fees on behalf of the artists, songwriters, composers, music publishers and other
`
`rightsholders with whom it is affiliated and then distributes the license fees as royalties to
`
`those affiliates whose works have been publicly performed. It is the fifth ever formed public
`
`performance rights organization in the United States (behind BMI, ASCAP, SESAC and
`
`GMR) with an estimated 7.4% market share based on the approximately 2,000,000 works in
`
`its repertory. PMR’s sole member is a citizen and resident of the State of Florida.
`
`24.
`
`PMR has a number of reputable artists in its cache including, OG Maco, best
`
`known for his 2014 debut single “U Guessed It,” which went viral and peaked at number 90
`
`on the U.S. Billboard Hot 100. OG Maco, among others, have an exclusive relationship with
`
`PMR.
`
`25.
`
`PMR has been granted the right to license the public performance rights in
`
`approximately two million (2,000,000) copyrighted musical works (“Sosa’s Repertoire”),
`
`including those which are alleged herein to have been wrongfully taken down from Spotify’s
`
`service and otherwise infringed by Spotify. Some of those works feature notable artists such
`
`as A$AP Rocky, Wiz Khalifa, Pharrell, Young Jeezy, Juelz Santana, Lil Yachty,
`
`7
`
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 8 of 46 PageID 8
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`MoneyBaggYo, Larry June, Trae Pound, Sause Walka, Trae Tha Truth, Sosamann, Soulja
`
`Boy, Lex Luger, Lud Foe, SlowBucks, Gunplay, OG Maco, Rich The Kid, Fat Trel, Young
`
`Scooter, Nipsey Hussle, Famous Dex, Boosie Badazz, Shy Glizzy, 2 Chainz, Migos, Gucci
`
`Mane, Rich The Kid, Young Dolph, Trinidad James and Fall Out Boy.
`
`26.
`
`Plaintiffs own the copyrights and/or have sufficient exclusive rights with
`
`respect to the works in Sosa’s Repertoire.
`
`27.
`
`Jake Noch (“Noch”), a musical prodigy, is the founder, Chief Executive
`
`Officer and sole owner of Sosa and PMR. Noch founded Sosa at the age of sixteen and PMR
`
`when he was twenty years old.
`
`28.
`
`Spotify considers the individual, Noch, and the entities, Sosa and PMR, to be
`
`one in the same, such that it applied a blanket ban on its service to all three and advised
`
`others to blacklist them by spreading false statements of fact.
`
`29.
`
`Upon information and belief, Defendant Spotify Technology S.A. is a
`
`business entity incorporated in Luxembourg, having its principal place of business at Avenue
`
`Marie-Therese 22, 2132 Luxembourg, Luxembourg.
`
`30.
`
`Upon information and belief, Defendant Spotify Limited is a Private Limited
`
`Company organized under the laws of the United Kingdom, having its principal place of
`
`business at Golden House, 30 Great Pulteney Street, London W1F 9NN, United Kingdom.
`
`Upon information and belief, Spotify Limited is a wholly owned subsidiary of Spotify
`
`Technology SA.
`
`31.
`
`Upon information and belief, Defendant Spotify AB, is a Swedish corporation
`
`with its principal place of business at Birger Jarlsgatan 61, 4tr 113 56 Stockholm, Sweden.
`
`8
`
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 9 of 46 PageID 9
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`Upon information and belief, Spotify AB is a wholly owned subsidiary of Spotify Limited.
`
`32.
`
`Upon information and belief, Defendant Spotify USA, Inc., is, inter alia, a
`
`Delaware corporation engaged in online music distribution with a place of business at 1221
`
`Brickell Ave, Miami, Florida. Upon information and belief, Spotify USA, Inc., is a wholly
`
`owned subsidiary of Spotify Limited.
`
`33.
`
`At all relevant times, each of Defendant Spotify Technology S.A., Spotify
`
`USA, Inc., Spotify AB and Spotify Limited, and their respective representatives, conspired
`
`with, and acted as agents on behalf of and for, the other defendants with respect to the actions
`
`and inactions alleged in this Complaint.
`
`34.
`
`Spotify touts itself as the largest global music streaming subscription service.
`
`With a presence in 61 countries and territories and growing, its platform includes 159 million
`
`monthly active users and 71 million premium subscribers, as of December 31, 2017, which
`
`Spotify believes is nearly double the scale of its closest competitor, Apple Music. According
`
`to Spotify, its “users are highly engaged.”
`
`35.
`
`Upon information and belief, at all times material hereto, Defendants operated
`
`through the acts of their employees, agents, representatives, servants, and the like, acting
`
`within the course of their employment and scope of duties.
`
`JURISDICTION AND VENUE
`
`36.
`
`This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1338,
`
`17 U.S.C. § 501, 15 U.S.C. § 1121, and under 28 U.S.C. § 1332 because the amount in
`
`controversy exceeds $75,000 and the parties are citizens of different states.
`
`37.
`
`Venue is proper in this judicial district pursuant to 28 U.S.C. § 1400.
`
`9
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 10 of 46 PageID 10
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`38.
`
`Venue is also proper in this judicial district under 28 U.S.C. § 1391(b)(2)
`
`because a substantial part of the events or omissions giving rise to Plaintiffs’ claims occurred
`
`in this district.
`
`39.
`
`Additionally, venue is proper in this judicial district under 28 U.S.C. §§
`
`1391(b)(1) and (c) because Defendants’ contacts would be, and are, sufficient to subject them
`
`to personal jurisdiction in this district.
`
`40.
`
`Spotify provides its interactive streaming service and platform to individuals
`
`located in Florida and Florida residents, and it has targeted business efforts into this judicial
`
`district and has entered into multiple agreements for its interactive streaming services with
`
`residents and citizens of this judicial district.
`
`41.
`
`On information and belief, Spotify AB is the owner of the www.spotify.com
`
`website and the Spotify mobile application available for download on the Apple store and the
`
`Google Play store, in both instances, from which individuals in this district can sign up for,
`
`download and use Spotify’s interactive streaming service.
`
`42.
`
`Upon information and belief, Spotify has thousands of registered subscription-
`
`based users and free-based users in Florida.
`
`43.
`
`The musical works involved in this action have been streamed throughout
`
`Florida.
`
`44.
`
`In addition to employing Florida residents in its Miami corporate office,
`
`Spotify advertises, solicits clients, and conducts substantial amounts of business in the state
`
`of Florida and within this district.
`
`45.
`
`Plaintiffs have the right to bring the within action pursuant to 17 U.S.C. §
`
`10
`
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 11 of 46 PageID 11
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`501(b).
`
`46.
`
`The copyright in every musical work at issue was registered in the United
`
`States Copyright Office and otherwise satisfies the Copyright Act. 17 U.S.C. §§ 409-412.
`
`FACTS
`
`A.
`
`SPOTIFY HAS AN ANTI-COMPETITIVE INCENTIVE TO DAMAGE SOSA AND PMR
`BECAUSE NON-MAINSTREAM ARTISTS ARE NOT FINANCIALLY ACCRETIVE TO
`SPOTIFY
`
`47.
`
`Spotify generates revenues through both a free advertisement-supported tier
`
`(“Advertising Tier”) and a paid subscription premium tier. The former allows users, at no
`
`cost, to play music from Spotify’s catalog on-demand with ad interruptions. Advertisers pay
`
`money to Spotify for exposure, which, in turn, funds the royalties Spotify is required to pay
`
`out to artists. The latter provides for ad-free music listening for a fee.
`
`48.
`
`As of December 31, 2016, Spotify had approximately 123,000,000 monthly
`
`active users, of which approximately 77,000,000 users access the platform through the
`
`Advertising Tier. As of December 31, 2017, Spotify had approximately 159,000,000 monthly
`
`active users, of which approximately 92,000,000 users access the platform through the
`
`Advertising Tier.
`
`49.
`
`As of December 31, 2016, Spotify’s users consumed audio and video content
`
`aggregating 26,700,000,000 hours. As of December 31, 2017, Spotify’s users consumed
`
`audio and video content aggregating 40,300,000,000 hours.
`
`50.
`
`As of December 31, 2016, Spotify generated approximately ten percent (10%)
`
`––€295,000,000 of its €2,952,000,000 of gross revenue –– from advertisement revenue on its
`
`Advertising Tier. It cost Spotify €330,000,000 to generate €295,000,000 of advertising
`
`11
`
`
`
`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 12 of 46 PageID 12
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`revenue on its Advertising Tier.
`
`51.
`
`As of December 31, 2017, Spotify generated ten percent (10%) ––
`
` approximately €416,000,000 of its €4,090,000,000 of gross revenue –– from advertisement
`
`revenue on its Advertising Tier. It cost Spotify €373,000,000 to generate €416,000,000 of
`
`advertising revenue on its Advertising Tier. For the year ended December 31, 2017 as
`
`compared to 2016, Advertising Tier gross loss changed by €78 million to a gross profit of
`
`€43 million.
`
`52.
`
`From 2016-2017, revenue from Advertising Tier represented approximately
`
`10% of Spotify’s total revenue.
`
`53.
`
`Spotify typically experiences a seasonal decline in advertising revenue due to
`
`reduced advertiser demand in the first quarter of calendar years. Revenues for the
`
`Advertising Tier increased in each fiscal quarter in 2016 and 2017, with the exception of a
`
`decrease in the quarter ending March 31, 2017.
`
`54.
`
`Spotify recorded a charge of €8,000,000 on its financials in the first quarter of
`
`2017 as a result of, upon information and belief, its dispute with Sosa.
`
`55.
`
`The Advertising Tier has no subscription fees and provides its users with
`
`limited on-demand online access to Spotify’s catalog on computers and tablets and shuffle-
`
`only access (i.e., without being able to specifically select a track) on compatible mobile
`
`devices. The Advertising Tier is a robust option for users wanting to enjoy access to a wide
`
`variety of music and other content.
`
`56.
`
`Spotify generates revenue for the Advertising Tier from the sale of display,
`
`audio, and video advertising delivered through advertising impressions. Spotify generally
`
`12
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 13 of 46 PageID 13
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`enters into arrangements with advertising agencies that purchase advertising on its platform
`
`on behalf of the agencies’ clients. These advertising arrangements typically specify the type
`
`of advertising product, pricing, insertion dates, and number of impressions in a stated period.
`
`Revenue for its Advertising Tier segment is comprised primarily of the number and hours of
`
`engagement of its and Spotify’s ability to provide innovative advertising products that are
`
`relevant to its users. Spotify’s advertising strategy centers on its belief that advertising
`
`products that are based in music and are relevant to its users can provide even greater returns
`
`for advertisers.
`
`57.
`
`Spotify focuses on analytics and measurement tools to evaluate, demonstrate,
`
`and improve the effectiveness of advertising campaigns on its platform, including the
`
`Advertisement Tier.
`
`58.
`
`Revenue from the Advertisement Tier is impacted by the demographic profile
`
`of Spotify’s users, its ability to enable advertisers to reach the target audience with relevant
`
`advertising and in relevant geographic markets.
`
`59.
`
`A large percentage of Spotify’s users of the Advertisement Tier are between
`
`18 and 34 years old. Spotify believes this is a highly sought-after demographic that has
`
`traditionally been difficult for advertisers to reach. By offering advertisers increased “self-
`
`serve options,” Spotify expects to improve the efficiency and scalability of its advertising
`
`platform.
`
`60.
`
`Additionally, Spotify believes that its largest markets, including Europe and
`
`North America, are among the top advertising markets globally.
`
`61.
`
`Spotify continues to invest in its advertising products on the Advertising Tier
`
`13
`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 14 of 46 PageID 14
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`in order to create more value for its advertisers and the users of the Advertising Tier. Spotify
`
`continues to enhance its ability to make advertising content more relevant for the users of the
`
`Advertising Tier.
`
`62.
`
`Offering advertisers additional ways
`
`to purchase advertising on a
`
`programmatic basis is one example of how Spotify continues to expand its portfolio of
`
`advertising products. Spotify is also focused on developing analytics and measurement tools
`
`to evaluate, demonstrate, and improve the effectiveness of advertising campaigns on its
`
`platform.
`
`63.
`
`Spotify has incurred, and continues to incur, significant costs to license
`
`content and pay royalties to music labels, publishers, and other copyright owners for such
`
`content. Spotify has refused to assure its investors, however, that it will generate sufficient
`
`revenue, including from its Advertising Tier, to offset the cost of licensing content and
`
`paying royalties. Spotify has warned potential investors that if it cannot successfully earn
`
`revenue at a rate that exceeds its operational costs, including royalty expenses, associated
`
`with its platform, Spotify will not be able to achieve or sustain profitability or generate
`
`positive cash flow on a sustained basis.
`
`64.
`
`In 2018, Brian Benedik, Global Head of Advertising at Spotify, admitted that
`
`Spotify is focused on driving revenues through advertising: “the self-serve tool Ad Studio
`
`that allows smaller businesses to activate the Spotify free audience is a big growth area for
`
`us, and is going to be a very big part of what we do in the years to come.” Spotify’s self-
`
`serve advertising tool was not available until 2018.
`
`65.
`
`Prior to the availability of Spotify’s self-serve advertising tool, Spotify
`
`14
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 15 of 46 PageID 15
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`required advertisers to commit to a $25,000 advertising budget, which required direct
`
`interface with Spotify’s advertising department. In other words, an advertiser could not create
`
`its own campaign without communicating directly with a Spotify employee. At various
`
`times, Plaintiffs ran advertising campaigns within Spotify.
`
`66.
`
`Targeting of mainstream artists commands higher advertising fees on the
`
`Advertising Tier.
`
`67.
`
`To achieve maximum exposure, companies with larger marketing budgets
`
`generally target the songs of mainstream artists like Ed Sheeran, Drake and Ariana Grande
`
`due to their large fan bases.
`
`68.
`
`Spotify recoups royalty payments resulting from the streams of established
`
`artists by generating advertisement revenue.
`
`69.
`
`Spotify’s circular flow of money business model fails when lesser known
`
`artists experience streams on the same level as those of well-known artists.
`
`70.
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`Spotify hopes that independent acts do not grow into established artists while
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`having had uploaded its initial songs to its platform.
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`71.
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`Spotify does not uniformly enforce its content removal rules, procedures,
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`policies and obligations to which Spotify holds itself out to the public. In fact, Spotify’s
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`rules, procedures, policies and obligations are not even internally consistent, meaning Spotify
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`disregards provisions thereof when it benefits Spotify.
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`72.
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`Upon information and belief, Spotify’s algorithm or system that detected
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`whatever it detected against Sosa was applied inconsistently, if at all, between and among
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`mainstream and nonmainstream artists.
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`15
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 16 of 46 PageID 16
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`73.
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`Indeed, Spotify’s Compliance Team admits in writing that its fraud detection
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`team takes down tracks of mainly non-mainstream artists and of those whose songs are being
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`played too much.
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`74.
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`Since advertisers were not paying Spotify to market the fans of Plaintiffs’
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`artists, Sosa’s Repertoire, with its high stream volumes, was simply costing Spotify too much
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`money.
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`75.
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`Something had to be done, particularly in light of the impending equity deal
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`Spotify was negotiating with Merlin, of which Sosa was a member.
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`76.
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`The quick and easy solution: ban Sosa’s Repertoire from Spotify’s platform,
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`which Spotify did –– and then lie about it.
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`77.
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`Notably, upon information and belief, Spotify never deactivated, removed or
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`banned the users who streamed Plaintiffs’ music and who, if what Spotify says is true, were
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`the actual violators of Spotify’s rules, procedures, policies and obligations to which Spotify
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`holds itself out to the public. That’s because Spotify derives value from touting the number
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`of users it has on its platform. Removing a substantial number of users from its Advertising
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`Tier in one fell swoop would have cataclysmic effects on Spotify’s financial statements,
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`financial forecasts and financial outlook for its then fast-approaching IPO. Indeed, Spotify’s
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`documents publicly-filed with the Securities and Exchange Commission heavily rely on and
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`focus on the growth of Spotify’s userbase, both of the Advertising Tier and the paid-
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`subscription tier.
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`78.
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`In sum, Spotify had an anti-competitive, economic motivation to eliminate
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`Plaintiffs’ music from its platform, including to prevent Sosa from deploying and otherwise
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 17 of 46 PageID 17
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`gaining traction on its digital distribution service.
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`B.
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`SPOTIFY TARGETED SOSA
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`79.
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`Prior to entering into an agreement with Merlin on February 13, 2017 (the
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`“Merlin Membership Agreement”), Sosa entered into an agreement with Independent IP B.V.
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`and IIP-DDS B.V. (together, “Fuga”) under which Fuga would distribute and promote Sosa’s
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`works on and to digital music streaming services, including Spotify. Both the Merlin
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`Membership Agreement and the agreement with Fuga resulted in Sosa’s works being
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`uploaded to Spotify, along with other streaming platforms, in order to enable consumers to
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`listen to those recordings.
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`80.
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`Prior to the Merlin Membership Agreement, Sosa’s songs that were uploaded
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`to Spotify by Fuga had been experiencing solid growth. To expand the fan-following of its
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`artists, Sosa engaged (just like any music label would do) in a substantial marketing
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`campaign. It spent at least $5,000 on press releases covering its artists, songs and business. It
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`engaged in multi-hundred-dollar radio campaigns for various of its albums, EP and singles.
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`All in all, Sosa incurred at least $25,000 of marketing expenses in or about early 2017. Sosa
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`did that because, around the time of the Merlin Membership Agreement, it had increased the
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`number of albums it was releasing from a couple albums a month to approximately a hundred
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`or so albums in a two-month period.
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`81.
`
`The late 2016 through early 2017 time period was a critical growth period for
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`Sosa: it was signing more artists, releasing more songs, singles and albums, and improving
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`its numbers on a consistent monthly basis. There were no significant or sudden spikes in
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`Sosa’s streaming (up or down) that would have prompted Spotify to suddenly treat Sosa any
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`17
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`
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 18 of 46 PageID 18
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`differently once Sosa signed the Merlin Membership Agreement. Sosa’s streaming activity
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`was not abnormal to Sosa, and its growth was escalating at an optimistic rate leading up to
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`and after the Merlin Membership Agreement.
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`82.
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`Something changed once Sosa joined Merlin, which is a more substantial
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`market participant and source of music on Spotify, as compared to Fuga. But, while Sosa was
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`affiliated with Fuga, Spotify paid most, if not all, the royalties arising from streams of Sosa’s
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`at least 4,264 songs that Fuga uploaded to Spotify – and that remained on Spotify after the
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`Merline Membership Agreement. For example, on or about May 20, 2017, Spotify paid Sosa
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`approximately €26,641.67 of royalties for approximately 15,000,000 streams occurring in
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`March 2017. Spotify never communicated any issue with those streams, when Sosa was only
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`generating €26,641.67 worth of royalties. Nor did Spotify raise any issue with Sosa’s streams
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`when it paid Sosa €7,643.08 for streams occurring from November 2016 up through and
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`including February 4, 2017. By paying royalties on those streams, Spotify admitted they
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`were legitimate plays.
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`83.
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`All in all, Sosa’s songs were streamed on Spotify by both Advertising Tier
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`and paid-subscription tier users in various countries, such as, for example, Denmark, United
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`States, Canada, Paraguay, Brazil, Spain, France, United Kingdom, Ireland, Sweden, Finland,
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`Australia, Mexico, Austria, Malaysia, Netherlands, Chile, Italy, Hungary, and Belgium.
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`With such worldwide reach, Sosa’s was poised to become a major label.
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`84.
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`Plainly, Sosa experienced over 300% growth in royalty payments during that
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`period. Sosa continued to grow exponentially because of Sosa’s social media and traditional
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`marketing efforts and Sosa’s release of over 100 albums and tens of thousands of songs in
`
`18
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`Case 2:19-cv-00843-JES-NPM Document 1 Filed 11/25/19 Page 19 of 46 PageID 19
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`2017, in each instance, because Sosa engaged in a targeted media campaign recognizing that
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`most of its potential fans or listeners would not have sufficient monthly, disposable income
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`to listen to Sosa’s songs on anything but the Advertising Tier. Sosa’s niche-marketing
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`strategy paid off. Upon information and belief, Sosa was able to drive listeners of its songs to
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`Spotify’s platform through the Advertising Tier. And, one of Sosa’s now-former artists was
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`listed on the Billboard Top 100 catalog.
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`85. What was more promising for Sosa is that the music press was starting to
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`cover Sosa’s artists and growth: thousands of articles were being w