If the music publishers for Drake, Rihanna, Lady Gaga, Justin Timberlake and many other popular artists have their way, fitness company Peloton will be paying out $150 million for copyright infringement on more than 1,000 songs used with Peloton classes, stationary bikes and treadmills.
At the core of the federal lawsuit, Downtown Music Publishers LLC v Peloton Interactive, Inc filed in the Southern District of New York, is the appropriateness of class action status and whether synchronization licenses existed for the musical works in question.
Plaintiffs include Downtown Music Publishing, Ole Media Management, Big Deal Music, Cypmp, Peer International Corp., Peertunes, Reservoir Media Management.
“The plaintiffs are trying to define the boundaries for the usage of their material so that there’s greater opportunity for the talent, the artist, to receive royalties and other payments for their works,” said Joseph A. D’Avanzo, managing partner for the New York office of Pashman Stein Walder Hayden, whose practice focuses on complex litigation, class action and mass tort claims.
Customers of Peloton, founded in 2012, pay a $39 monthly subscription fee to access any one of more than 13,000 Peloton workout videos in the comfort of their homes. Out of an abundance of caution, Peloton has decided to remove classes that feature songs that were identified by these publishers, according to a letter founder and CEO Scott Foley sent to Peloton members last week.
“Peloton respects the rights of all creators, including performing artists and songwriters,” Mr. Foley wrote in the letter obtained by PacerMonitor. “The filing of the lawsuit is unfortunate and disappointing as it occurred after what appeared to be fruitful discussions with most of the publishers named.”
A class action would mean the potential liability and damage exposure is much greater because it involves a group of plaintiffs, not just one single litigant.
“Class actions are not quickly and easily settled without judicial scrutiny and notice going out to all potential class members who have been potentially injured or damaged by an infringement,” Mr. D’Avanzo told PacerMonitor.
However, a U.S. Supreme Court opinion involving Bristol-Myers Squibb from 2017 severely limits the practice of nonresident plaintiffs bringing suit in a jurisdiction that is not the corporate defendant’s headquarters, state of incorporation or where there is no concrete connection to the claims. In this case, music publishers bringing suit are domiciled in places like Los Angeles, New York and even Canada, while Peloton is a Delaware corporation.
“Peloton may be the test case needed to confirm that the nationwide class action is still alive and well,” said Stefanie Colella-Walsh, a partner and class action specialist with the Stark & Stark law firm in Lawrenceville, N.J. “The worst-case scenario is that the class against Peloton would only be representative of people in New York or a separate class action against Peloton would need to be filed in California, where the class would fall under California law.”
If the complaint is certified as a class action, the 1,000-plus allegedly infringing works would be considered in one action rather than in thousands of separate actions to the tune of $750 per song for minimum damages, $30,000 per song without determination of willfulness or the statutory maximum of $150,000 per work if the court finds there was prior knowledge of the need for sync licensing on the part of Peloton for the songs in question.
“One factor that might count as having prior knowledge, which is a factor in determining willfulness, is whether Peloton secured sync licenses for some works and not others,” said Amy B. Goldsmith, an attorney and co-chair of the intellectual property group for Tarter Krinsky & Drogin law firm in Manhattan. “If so, the court then has a basis to enhance the damages to the statutory maximum.”
Mr. Foley, however, claims Peloton has agreements in place with all of what are known as the major publishers, record labels and performing rights organizations as well as many independent publishers and labels.
“These agreements provide licenses to a broad catalog of music that our instructors can choose from to program great classes for you,” stated Mr. Foley to members in his letter.
Unless an extension is granted by Judge Denise L. Cote, Peloton has until April 11 to respond to the lawsuit, which was filed on March 19, but according to the plaintiff’s pleading, Peloton deliberately decided to use the musical works without any regard for the rights of songwriters and creators whose music helped fuel the explosive growth of Peloton from a startup to a reported value in excess of $4 billion.
“Plaintiffs therefore bring this action to enjoin Peloton’s ongoing infringement of copyrighted musical works owned or administered by Plaintiffs, and to recover the maximum statutory damages resulting from Peloton’s callous and flagrant prior and ongoing infringement,” wrote attorney Jay Cohen of the Paul Weiss Rifkind Wharton & Garrison law firm in Manhattan.
The lawsuit indicates the business community needs to be ever-mindful of the need to ensure that a release obtained from an artist or talent is broad enough in scope to cover all intended usages, according to Mr. D’Avanzo. “You have to think about the Internet and the various ways in which data, digital music and digital imaging can be used,” he said. “Sometimes you can’t predict how a licensed song may be used but it would seem to me that Peloton knew how they were going to utilize this music and probably should have had that covered in the original license before they married the music to another format.”
According to media reports, Peloton may go public later this year, and Ms. Goldsmith believes IPO investors will likely want Peloton founders to account for the additional cost of sync licensing going forward.
“This is a lawsuit that Peloton may try to settle very quickly so that it doesn’t impact their valuation,” said Ms. Goldsmith. “They may have to work payment into their business model for these sync licenses and increase prices to cover the cost in the future.”
Overall, IPO investors may view this alleged licensing oversight as a growing pain and part of the process of cleaning house before becoming a public company. “The facts are not disputed,” Ms. Goldsmith told PacerMonitor. “It’s clear the songs were used. The question remains whether Peloton had a license or not, and once discovery is finished, that answer should be known. This will make the case ripe for summary judgment—or a fast settlement.”