Spotify files to go public as it faces a $1.6 billion copyright infringement suit

Music streaming company Spotify has confidentially filed to go public—moving forward with an unusual plan to list its shares directly on the New York Stock Exchange—even as it faces a new $1.6 billion lawsuit alleging copyright infringement. Wixen Music Publishing is suing Spotify, alleging that the company violated its copyright on more than 10,000 songs.

A lawsuit of this nature could scare potential investors, upset existing investors and lower the company’s market value.

Spotify confidentially filed paperwork for an initial public offering with the Securities and Exchange Commission, a person familiar with the matter said Wednesday. Axios first reported news of the filing.

Instead of a traditional initial public offering, Spotify plans to list its shares directly on the New York Stock Exchange without raising capital or issuing new shares. That unusual move would enable Spotify to go public while saving money on the underwriting fees that companies typically pay to investment banks when they hold an IPO. Founded in Sweden in 2008, Spotify is one of the world’s largest music streaming services. It has a catalog of more than 30 million songs, more than 60 million paying users and more than 140 million total users. It is available in 61 countries.

In 2017, in preparation for going public this year, the company reached multiyear licensing agreements with record labels including Sony, Universal, Warner and Merlin. But now it needs to deal with Wixen’s lawsuit. At the heart of the suit, filed Friday in U.S. District Court in Los Angeles, is Wixen’s allegation that Spotify did not obtain one of two licenses required to distribute music.

Under the Copyright Act, there are two separate copyrights to every recorded song: one for the sound recording (this revenue typically goes to the record label) and one for the musical composition (this revenue typically goes to the publisher and songwriter). The lawsuit alleges that Spotify took a “shortcut” and did not obtain the musical composition copyright for 10,784 songs published by Wixen.

The lawsuit alleges that Spotify outsourced its copyright responsibility to a third party, Harry Fox Agency, which was “ill-equipped to obtain all the necessary mechanical licenses.” It also alleges that Spotify knew the agency “did not possess the infrastructure to obtain the required mechanical licenses,” that it knew it didn’t hold the licenses required to stream certain songs, and that it continued anyway.

Spotify did not respond to a request for comment.

Wixen demands injunctive relief, as well as payment of $150,000 per song whose copyright it says Spotify infringed, or at least $1.6 billion.