# When a Bundle Beats the Blanket: The MLC's Section 115 Royalty Fight With Spotify

> Inside Mechanical Licensing Collective v. Spotify, the S.D.N.Y. dispute over whether adding audiobooks turns Premium into a royalty-discounted 'bundle' under the Section 115 compulsory mechanical license.

Topic: Copyright  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/mlc-v-spotify-mechanical-royalties/


In *Mechanical Licensing Collective v. Spotify USA Inc.*, No. 1:24-cv-03809 (S.D.N.Y.), the entity Congress and the Copyright Office entrusted with administering the blanket compulsory mechanical license is litigating a deceptively narrow question with industry-wide stakes: when Spotify folded audiobook listening into its flagship Premium tier, did it lawfully convert that subscription into a "Bundled Subscription Offering" entitled to a discounted statutory royalty rate? On January 29, 2025, U.S. District Judge Analisa Torres answered yes, dismissing the MLC's core claim with prejudice (Dkt. No. 61). More than a year of procedural maneuvering has followed: an amended complaint, a renewed motion to dismiss, and a November 2025 bid for interlocutory appeal. As of July 2026, one of the most consequential statutory-licensing fights of the streaming era remains unresolved.

## At a glance

- **Matter:** *Mechanical Licensing Collective v. Spotify USA Inc.*, No. 1:24-cv-03809
- **Forum:** U.S. District Court for the Southern District of New York (Judge Analisa Torres)
- **Filed:** May 2024
- **Key ruling:** Motion to dismiss granted; Section 115 claim dismissed with prejudice (Jan. 29, 2025, Dkt. No. 61)
- **Subject matter:** The Section 115 statutory/compulsory mechanical license and the 37 C.F.R. Part 385 "Bundled Subscription Offering" rate
- **Posture (as of July 2026):** Amended complaint filed Oct. 1, 2025; Spotify renewed its motion to dismiss Oct. 24, 2025; MLC sought § 1292(b) certification for interlocutory appeal (pre-motion letter Nov. 17, 2025), which Spotify opposed Jan. 9, 2026. No ruling on either motion has been reported
- **Stakes:** Industry estimates put the royalty reduction to songwriters and publishers in the range of $150 million annually

## The statutory architecture at issue

Section 115 of the Copyright Act creates a compulsory license: anyone may reproduce and distribute a previously released musical work (a composition, as distinct from the sound recording) without the songwriter's individual consent, provided they pay the rate set through the Copyright Royalty Board's Phonorecords proceedings. The Music Modernization Act of 2018 modernized that regime for the streaming era, creating a single blanket license for interactive streaming and downloads and designating the Mechanical Licensing Collective to administer it: collecting, matching, and distributing the mechanical royalties owed to publishers and songwriters.

The dispute turns on the rate regulations in 37 C.F.R. Part 385, the product of the *Phonorecords IV* settlement. Those rules calculate streaming mechanical royalties through a multi-prong formula keyed largely to a service's revenue, and they treat a "Bundled Subscription Offering" (a music subscription sold together with one or more other products or services for a single price) differently from a standalone music subscription. For a bundle, the regulations permit the service to allocate revenue across the bundle's components, shrinking the revenue base attributable to music and, with it, the royalty pool. The MLC contends that the practical effect of recharacterizing Premium as a bundle is to cut mechanical payments to songwriters by as much as half.

## Spotify's maneuver and the court's reading

In March 2024, Spotify reclassified its Premium tiers as bundles on the theory that they now include up to fifteen hours of audiobook access per month. The MLC sued, arguing that the repackaging was engineered to exploit the bundle discount rather than a bona fide product change, and that Spotify's assertion that Premium is now a Bundled Subscription Offering is "directly at odds with the Section 115 regulations that the MLC has primary responsibility for interpreting and applying." (The frequently repeated description of the move as "cynical" came from the National Music Publishers' Association, which called it a "cynical and potentially unlawful move," not from the MLC's complaint.)

Judge Torres rejected the challenge at the pleading stage. The decisive move was interpretive: she found that Section 115 and its implementing regulations are unambiguous and that "the only plausible application of the law supports Spotify's position." Audiobook streaming, she held, "is a product or service that is distinct from music streaming and has more than token value," and so "Premium is, therefore, properly categorized as a Bundle." The MLC's contrary framing, that the launch of audiobook access "resulted in no change at all in Premium," was the collective's own allegation, and the court rejected it: nothing in the regulations requires a bundle's components to be preexisting, standalone products, and Torres found "no basis to read words into the law that are not there." Where the regulatory text is unambiguous and the offering fits the definition, the MLC's allegations of pretext could not unmake the bundle.

That holding is a textualist's verdict on a settlement-derived rate scheme: the parties to *Phonorecords IV* wrote the bundle definition, and a service that satisfies that definition gets its benefit regardless of why it restructured. The MLC's policy framing (that Congress meant the blanket license to guarantee songwriters fair compensation) could not override regulatory language the court found clear.

## The aftermath: amendment and appeal

The dismissal was not the end. On September 25, 2025, Judge Torres ruled that the MLC "should be given at least one opportunity to amend the complaint with the benefit of the Court's reasoning in the Dismissal Order," and the collective filed an amended complaint on October 1, 2025. The amended pleading shifts ground from the clean legal question of bundle classification toward fact-intensive theories the court's first ruling did not foreclose: that Spotify artificially inflated the standalone price ascribed to audiobook access (the $9.99 Audiobooks Access tier, which the MLC says Spotify launched with a single 150-word press release and initially left off its homepage) so that the price does not reflect real market value, and that Audiobooks Access is itself a Bundled Subscription Offering, because it comes with Spotify Free music access, so royalties on it should be computed at bundle rates rather than the lower free-service rate Spotify applies. The first theory attacks the inputs to the bundle formula rather than the formula's applicability; the second attacks the classification of a different offering entirely.

Spotify responded on October 24, 2025 with a renewed motion to dismiss, contending the amended allegations fare no better and that Audiobooks Access cannot be a bundle because its music component is free rather than a subscription. Meanwhile, the MLC moved to preserve its appellate rights as to the original ruling. In a November 17, 2025 pre-motion letter, it asked Judge Torres to certify the January dismissal order for interlocutory appeal under 28 U.S.C. § 1292(b), which permits certification of a controlling question of law "as to which there is substantial ground for difference of opinion" where an immediate appeal "may materially advance the ultimate termination of the litigation." Spotify opposed on January 9, 2026, arguing that the MLC had not met that standard and that its roughly ten-month wait before seeking review undercut any claim of urgency.

## Open questions

- **Can pretext or pricing manipulation revive the claim?** The court deemed motive irrelevant to bundle classification, but the amended complaint reframes the issue as manipulation of the regulatory inputs (audiobook valuation, revenue allocation). Whether that distinction survives a second motion to dismiss is the live battleground.
- **Will the Second Circuit get the question early?** Section 1292(b) certification is discretionary and rarely granted. If denied, the controlling interpretive question may not reach appellate review until final judgment, potentially years away.
- **Is the fix judicial or regulatory?** If the regulations unambiguously permit the discount, the durable remedy may lie not in court but in the next CRB *Phonorecords* proceeding, where the bundle definition itself could be rewritten.
- **What is the matching-and-distribution exposure?** Even a favorable liability ruling leaves open how underpaid royalties would be recalculated and redistributed across the MLC's matching system.

## Implications

- **Statutory-license rate terms are read like contracts.** A textually clear settlement definition can be invoked by the very licensees who helped negotiate it, even when the result cuts against the songwriters the license exists to pay.
- **Product design is now royalty strategy.** Adding a genuine ancillary service (audiobooks, here) can reposition a flagship subscription into a lower-rate tier, inviting other digital service providers to engineer comparable bundles.
- **The MLC's interpretive authority has limits.** Its role administering the blanket license did not earn deference on the meaning of the rate regulations; the court decided the question de novo.
- **The reform pressure shifts to the CRB.** Expect bundle-definition and revenue-allocation rules to be a central fight in the next Phonorecords proceeding.
- **Watch the § 1292(b) ruling.** A grant would accelerate appellate clarity for the entire streaming industry; a denial entrenches uncertainty.

## Frequently asked questions

**What is a "mechanical" royalty, and why does Section 115 matter here?**
A mechanical royalty compensates the songwriter and publisher for reproducing and distributing a musical composition, distinct from the performance and sound-recording rights. Section 115 makes that license compulsory at a government-set rate, so the precise wording of the rate regulations, not private negotiation, controls what streamers must pay.

**Why does calling Premium a "bundle" reduce what songwriters earn?**
Under 37 C.F.R. Part 385, a Bundled Subscription Offering lets a service allocate its single subscription price across the bundle's components. Attributing some revenue to audiobooks shrinks the music-attributable revenue base used to compute the royalty pool, lowering the mechanical payout, by an estimated $150 million-plus per year industry-wide.

**Is the case over after the January 2025 dismissal?**
No. The original Section 115 claim was dismissed with prejudice, but the court later allowed the MLC one opportunity to amend, the MLC filed an amended complaint on different theories in October 2025, Spotify has moved to dismiss again, and the MLC is seeking interlocutory appellate review of the original ruling. As of July 2026, neither motion had been decided and no final judgment had been entered.

## Authorities and sources

- [17 U.S.C. § 115 (Cornell LII): compulsory license for making and distributing phonorecords, including the § 115(d) blanket license](https://www.law.cornell.edu/uscode/text/17/115)
- [37 C.F.R. § 385.2 (Cornell LII): definitions of "Bundled Subscription Offering" and "Service Provider Revenue," including the standalone-retail-price allocation formula](https://www.law.cornell.edu/cfr/text/37/385.2)
- [Mechanical Licensing Collective v. Spotify USA Inc., No. 1:24-cv-03809, Dkt. No. 61 (S.D.N.Y. Jan. 29, 2025): order on motion to dismiss](https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2024cv03809/621657/61/)
- [Music Business Worldwide: "MLC can file amended complaint in 'bundling' lawsuit against Spotify"](https://www.musicbusinessworldwide.com/mlc-can-file-amended-complaint-in-bundling-lawsuit-against-spotify-court-says/)
- [Music Business Worldwide: "MLC vs. Spotify bundle battle intensifies as streamer opposes immediate appeal"](https://www.musicbusinessworldwide.com/mlc-vs-spotify-bundle-battle-intensifies-as-streamer-opposes-immediate-appeal/)
- [Washington Journal of Law, Technology & Arts: "Spotify vs The Mechanical Licensing Collective"](https://wjlta.com/2025/02/16/spotify-vs-the-mechanical-licensing-collective-a-unambiguous-royalties-battle/)
- [Variety: "Spotify Sued by Mechanical Licensing Collective Over Bundled Music-Audiobooks Subscription Plans"](https://variety.com/2024/digital/news/spotify-sued-by-mechanical-licensing-collective-1236007093/)