Digital music provider Grooveshark is broken up in a major win for the music recording industry | Proskauer Rose LLP
On April 30, 2015, digital music provider Grooveshark, owned by Escape Media Group, Inc. (“Escape”), agreed to permanently shut down its controversial music streaming website after several years of litigation with major music houses. records and companies, including Universal Music. Group, Sony Music Entertainment and Warner Bros. Records.
Grooveshark’s decision, announced on the eve of a lawsuit in which Escape faced potential liability of up to $736 million in damages, is part of a settlement that also requires the company to pay plaintiffs the record industry 50 million, including fees and costs. .
On November 18, 2011, nine music labels and record labels (“Record Companies”) sued Escape in the Southern District of New York for willful copyright infringement. Launched in 2006, Escape’s ad-based streaming service Grooveshark allowed users, who numbered 35 million at the site’s peak, to download and stream digital audio files for free.
At summary judgment, the record companies argued that Grooveshark, through its employees, unquestionably downloaded (and therefore copied) 4,907 separate sound recordings into Grooveshark’s database of available works without obtain (or even seek) the appropriate licenses or other permissions.
On September 29, 2014, Judge Thomas P. Griesa granted the record labels’ motion for summary judgment, finding Escape liable for direct and incidental copyright infringement. Significantly, the district court found that “by openly requiring its employees to upload as many files as possible to Grooveshark as a condition of their employment, Escape engaged in willful conduct with a clear intent to encourage copyright infringement via the Grooveshark service”. In other words, Escape’s actions constituted willful copyright infringement, which, as discussed below, brings the possibility of increased damages.
Escape faces $736 million in damages
With a jury trial on damages due to begin on April 27, 2015 (and later adjourned to May 4, 2015), the record labels have opted to pursue statutory rather than actual damages.
Under US copyright law, statutory damages can range from $350 to $30,000 (17 USC § 504(c)(1)). However, in the case of willful infringement, the range increases dramatically to a possible maximum of $150,000 per infringed work (17 USC § 504(c)(2)).
With a total of 4,907 infringing sound recordings at issue, Escape was liable for a potential $736 million in damages.
Rules and apologies
Rather than face trial and risk a nine-figure loss, Escape relented and agreed to settle the case on very favorable terms for record labels, including a $50 million payout. The May 1, 2015 Consent to Judgment and other publicly available information discloses the following regarding the terms of settlement:
- Escape should permanently close Grooveshark;
- Escape owes a lengthy apology to the music industry;
- Escape shall erase its repository of copyrighted recordings and “transfer” (presumably meaning forfeiture of) ownership of the Grooveshark website, mobile applications, and intellectual property;
- Escape must pay record labels $50 million; and
- Escape must pay $75 million for any violations of the settlement.
Grooveshark issued an apology late afternoon on April 30. After noting its good intentions for the website, the founders of Grooveshark admitted that the company “made some very serious mistakes. We failed to get rightsholder licenses for the large amount of music on the service. It was wrong. We apologize for that. Unreservedly.”
Additionally, the apology urged former users, as well as anyone who “likes[s] music and respect[s] artists, songwriters and anyone who makes great music possible” – to get subscriptions from legal music service providers like Spotify and Google Play.
The settlement represents a major victory for record labels and the music industry as a whole and, as stated by the Recording Industry Association of America, “ends a major source of infringing activity.”
 The following people have been named as plaintiffs in the lawsuit: UMG Recording, Inc.; Sony Music Entertainment; Warner Bros. Records Inc.; Zomba Recording LLC; Elektra Entertainment Group Inc.; Arista Records LLC; LeFace Records, LLC; Music Arista; and Atlantic Recording Corporation.
 Copyright law, 17 USC § 504(c)(1), allows a plaintiff to elect recovery of statutory damages “instead of actual damages and profits.”
 The full apology is available here (as of May 1, 2015).