November 9, 2015

The Honorable Eric T. Schneiderman

Attorney General of New York

120 Broadway

New York , New York 10271-0332

Re: Unclaimed Property/Unpaid Royalties at Spotify and YouTube

Dear Attorney General Schneiderman:

I wish to call your attention to reporting by the Wall Street Journal that digital music service Spotify routinely fails to pay songwriter royalties for songwriters who Spotify has failed to locate—but whose songs they use anyway.  (“Songwriters Lose Out on Royalties”, October 14, 2015 available at http://www.wsj.com/articles/songwriters-lose-out-on-royalties-1444864895).   Precedents established by your office over 10 years ago could go a long way to solving this problem if you enforce them against “new boss” companies failing to disclose they are holding royalties.

According to the Wall Street Journal, Spotify’s practice is to “escrow” royalties for songwriters whom Spotify has not located, and it is our understanding that YouTube also follows this practice, as may other services.  Some estimate that the total sums being held in this manner by Spotify, YouTube and Google are in the tens of millions of dollars.  I personally have estimated that Spotify is using over 150 song I wrote or co-wrote for my bands Cracker and Camper van Beethoven and am demanding an explanation from Spotify.  (“Spotify Has Apparently Failed to License, Account and Pay on More than 150 Cracker and Camper Van Beethoven Songs” available at https://thetrichordist.com/2015/10/20/spotify-has-apparently-failed-to-license-account-and-pay-on-more-than-150-cracker-and-camper-van-beethoven-songs/ )

However, because no digital service does something as simple as publishing lists of songwriters for whom it holds royalties, it not only is impossible for anyone other than the individual services to determine how much is owed, it is also impossible for the songwriters concerned to know there is money being held—ostensibly on behalf of the songwriters–by these services.  If the monies are never disclosed or paid, then how are these services not unjustly enriched?  This seems like a prime case for the imposition of a constructive trust—that “has been famously described as a remedy applicable to ‘whatever knavery human ingenuity can invent’” (In re Alpert, 9 Misc 3d at *7 [Sur Ct, New York County 2005]

Recall that a similar situation arose in 2004 when the New York Attorney General took swift action to protect creators.  According to a press release from your office (http://www.ag.ny.gov/press-release/50-million-royalties-returns-artists):

State Attorney General Spitzer today announced a deal with the nations top recording companies that returns nearly $50 million in unclaimed royalties to thousands of performers.

The agreement comes after a two-year investigation by Spitzer’s office found that many artists and writers were not being paid royalties because record companies had failed to maintain contact with the performers and had stopped making required payments. This problem affected both star entertainers with numerous hit recordings and obscure musicians who may have had only one recording.

“As a result of this agreement, new procedures will be adopted to ensure that the artists and their descendants will receive the compensation to which they are entitled,” Spitzer said.

Under the deal, the recording companies have agreed to do the following:

• List the names of artists and writers who are owed royalty payments on company websites;

• Post advertisements in leading music industry publications explaining procedures for unclaimed royalties;
• Work with music industry groups and unions to locate artists who are owed royalty payments; and
• Share artists contact information with other record companies.

In addition, each company has agreed to have the heads of the royalty, accounting and legal departments meet regularly to review the status of royalty accounts and take steps to improve royalty payment procedures.

The companies have also agreed to comply with New York State’s Abandoned Property Law, which requires that if an artist or his or her family cannot be found, unclaimed royalties be “escheated” or turned over to the state. The state then holds these monies until a claim is made.

I see no difference between the 2004 situation regarding record companies and the 2015 situation involving digital services.  I think that highly sophisticated and well-funded high-tech digital services like Spotify and Google should be held to at least the same standard as the record companies regarding unpaid royalties if not a higher standard—if licensees don’t know who to pay, then why are they using the music in the first place?

If what Spotify told the Wall Street Journal is true, then Spotify knows which songs they are “escrowing” royalties for, and Google likely has the same information. They should know the song title and the name of the artist who performed the song.  Even if Spotify doesn’t know the name of the songwriters concerned, they could at least publish the song title and artist name so that there could be a hope of the songwriter tracking down what was owed to them.  I suspect the same is true at YouTube and all the other digital services.

While the Wall Street Journal refers to the monies being held in “escrow,” I don’t know of any legal basis for a secret “escrow” with an unknown songwriter accrued at a royalty rate the songwriter did not agree to because they were not asked and for which there is no license.

This situation seems ideally suited to the kind of investigation that your office undertook in 2004.

I look forward to your reply.

Sincerely,

David Lowery