The Mechanical Licensing Collective (MLC) has filed a lawsuit against Spotify over alleged royalty underpayments related to the platform's recent bundling reclassification. Here's a comprehensive breakdown of the key arguments and implications:

The Core Issue: Spotify recently reclassified its standard $10.99 monthly subscription plans (Individual, Duo, and Family) as "bundles" after introducing a $9.99 audiobook-only plan. This reclassification reduces mechanical royalty rates from 26.2% to 24.5% of "total content cost," potentially resulting in a $150 million annual decrease in mechanical royalties.

The MLC's Main Arguments:

1. Not a True Bundle

• Premium service remains unchanged from before audiobook launch
• No new elements have been bundled with existing service
• The MLC only discovered the change through March monthly usage report

2. Technical Violations

• A bundle must include at least two distinct products/services
• Spotify failed to create a differentiated product
• The audiobook component lacks sufficient "token value" to qualify as a bundle under Section 115

3. Implementation Issues

• The $9.99 audiobook-only plan still provides unlimited music access on Android devices
• The minimal price difference ($1) between plans raises questions about the legitimacy of the bundling strategy

Relief Sought:

• Declaration that Spotify's bundle characterization violates Section 115
• Compensatory damages for underpaid royalties
• Late fees and attorneys' fees
• Preliminary injunction against the reclassification

This legal battle highlights growing tensions between streaming platforms and rights holders over royalty payments and service classification methods.

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