The Mechanical Licensing Collective (MLC) has filed a lawsuit against Spotify over alleged royalty underpayments related to bundle reclassification. The dispute centers on Spotify's decision to reclassify its standard $10.99 monthly subscription plans as bundles.

Key Points of the Dispute:

• Spotify introduced a $9.99 audiobook-only plan, then reclassified its main subscription tiers as bundles
• Under Phonorecords IV, bundles pay 24.5% of "total content cost" versus 26.2% for music-only plans
• This reclassification could result in a $150 million annual decrease in mechanical royalties

The MLC's Main Arguments:

1. Premium is Not a Bundle

• The service remains unchanged from before audiobook integration
• No new elements were actually bundled with existing service

2. Bundle Definition Issues

• True bundles must include at least two distinct products/services
• The audiobook component lacks sufficient "token value" to qualify as a bundle
• The $9.99 audiobook plan still provides full music access on Android devices

Relief Sought by MLC:

1. Declaration that Spotify's bundle classification violates Section 115
2. Compensatory damages for unpaid royalties
3. Late fees and attorneys' fees
4. Preliminary injunction against continued mischaracterization

The case highlights growing tensions between music rights organizations and streaming platforms over royalty payments and service classification. Spotify has denied these claims and is actively defending its position.

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