In March, news broke that stationary bike maker Peloton Interactive had been slapped with a copyright infringement lawsuit seeking more than $150 million in damages (Downtown Music Publishing LLC, et al. v. Peloton Interactive, Inc., Case No. 1:19-cv-02426 (S.D.N.Y.). The lawsuit, filed by ten music publishers, claimed that “more than 1,000 musical works” were used in Peloton’s [cycling videos] without appropriate synchronization licenses. The publishers’ original complaint painted Peloton as a $4 billion tech giant raking in money on the backs of copyright holders all while willfully ignoring its obligations to those copyright holders.
On Tuesday, Peloton slapped back, filing Counterclaims against both the music publisher plaintiffs and the National Music Publisher’s Association (“NMPA”) for anti-trust violations of the Sherman Act and tortious interference. Contrary to the claims of the Complaint, Peloton argues in its Counterclaims that it did attempt to negotiate appropriate licensing, and that it has entered into licenses with publishers and the performing rights organizations for the use of the songs, but that its efforts were stymied by the anticompetitive behavior of the NMPA and the named music publishers.
The problem, Peloton claims, is that the publishers’ synchronization license structure (traditionally done on a song-by-song basis) is ill-suited to Peloton’s situation where a catalog-wide license would be more appropriate. In the copyright world, synchronization licenses allow a licensee to synchronize music with visual media of some kind. Peloton alleges that it invested tens of millions of dollars building systems and an infrastructure to enable licensing mechanisms appropriate for its business. It attempted to negotiate with NMPA for these sync licenses even while the NMPA would not identify the specific publishes on whose behalf it was negotiating, and even while the NMPA insisted on payment for song licenses from every publisher regardless of whether Peloton had any desire to actually use that publisher’s songs. When license negotiations ultimately broke down in early 2019, Peloton attempted to pursue licenses directly with the music publishers whose works Peloton desired to use on its service. However, these negotiations suddenly ceased “in a near-simultaneous and identical fashion”, which Peloton believes was the result of pressure from NMPA and its leadership.
The lawsuit, and Peloton’s counterclaims, highlight issues that have long existed in the copyright world, including the concentration of publishing rights in a relatively small number of entities, a great imbalance of negotiating power for businesses both small and large looking to license copyrighted works, and even a lack of transparency as to who owns rights to various musical works. While the Music Modernization Act of 2018 sought to address some of these issues, some of its key components (like a centralized ownership database) have yet to be established. Time will tell whether this lawsuit will bring further changes to the copyright industry or whether Peloton will be forced to bend its practices to match the current licensing structure.
