Pandora Hits Back at MLC Lawsuit Over Streaming Royalties: ‘Legally Incoherent’

Pandora is firing back at a lawsuit filed by the Mechanical Licensing Collective (the MLC) that claims the company has failed to properly pay streaming royalties, calling the case a “gross overreach” based on a “legally incoherent position.”

The MLC — the group created by Congress in 2018 to collect streaming royalties — filed the lawsuit earlier this year, accusing Pandora (a unit of SiriusXM) of misclassifying the nature of its streaming service to avoid paying the kind of higher royalties owed by “interactive” platforms like Spotify.

But in its first response to the case filed on Tuesday (April 16), Pandora calls the MLC’s lawsuit a “wild overreach” that “distorts the Pandora experience” — and one filed by an entity that is not even legally empowered to bring such cases.

“The MLC … was intended to be a neutral intermediary charged with collecting and distributing royalties under the blanket license,” Pandora writes. “It is not authorized to play judge and jury over a streaming service’s legal compliance, nor was it created … to pursue legal frolics and detours such as this one.”

Pandora’s lawyers also say the lawsuit is based on a “a legally incoherent position” that has never been raised by the music companies for whom the MLC is collecting royalties: “The MLC seems to think it knows something the entire music industry does not.”

A rep for the MLC did not immediately return a request for comment.

At the heart of the lawsuit against Pandora is the distinction between “interactive” platforms like Spotify or Apple Music, which allow users to pick their songs on demand, and “noninteractive” platforms that provide an experience more like radio. It’s a key dividing line since interactive and noninteractive services pay very different royalties under different systems.

Though Pandora offers a premium tier with on-demand functionality, it has long treated Pandora Free — the core radio-like product that fueled the company’s rise in the late 2000s — as a noninteractive service, since it largely serves users a mix of songs based on their preferences.

But in a February lawsuit, the MLC argued that Pandora Free had crossed the line into “interactive” status by offering so-called “Sponsored Premium Access” sessions, which allow users to briefly play specific songs in return for watching ads. As a result, the MLC argued that Pandora owed the same kind of royalties for Pandora Free as services like YouTube or Spotify pay.

“Pandora provides even greater interactive access and functionality than these other ad-supported interactive streaming services,” the MLC wrote. “Despite the interactive functionality of Pandora Free, Pandora has failed to report in full Pandora Free usage to The MLC.”

In Tuesday’s response, Pandora’s lawyers argued that the MLC’s lawsuit “badly distorts reality” by making a “blatant mischaracterization of Pandora’s offerings.”

In their telling, the disputed “Sponsored Premium Access” sessions are merely brief previews of the company’s on-demand tier with “strict caps” on usage — not a wholesale feature that would “transform” Pandora Free “into an interactive service like Spotify or Apple Music.”

What’s more, Pandora says that feature was explicitly negotiated with music companies, who have never once objected to it or argued that it required Pandora to “fundamentally change its approach to licensing.”

“The MLC apparently thinks it knows better than the entire music publishing industry,” Pandora wrote. “Not only is the MLC operating far outside its administrative bounds, but it is also completely wrong on the law.”

Speaking with Billboard on Tuesday, George White, senior vp of music licensing at SiriusXM and Pandora, echoed the claims made by Pandora in the legal response.

“The lawsuit is really a gross overreach, especially when you consider that Pandora is such a well-known and well-established non-interactive music streaming service,” White said. “There are no checks and balances on the MLC. We believe that’s something, as part of the MLC redesignation, that the Copyright Office really needs to consider.”

White was alluding to the Copyright Office’s ongoing “redesignation process” of the MLC — a five-year check-up required by Music Modernization Act to ensure that the organization is functioning effectively. The first-ever redesignation started in January and is set to wrap up later this year.