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.

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). Nearly a year of procedural maneuvering has followed — an amended complaint, a renewed motion to dismiss, and a November 2025 bid for interlocutory appeal — leaving one of the most consequential statutory-licensing fights of the streaming era 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 (late 2025): Amended complaint filed; Spotify renewed its motion to dismiss; MLC sought § 1292(b) certification for interlocutory appeal, which Spotify opposed
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 this was a “cynical” repackaging engineered to exploit the bundle discount rather than a bona fide product change, and that Spotify’s interpretation was “directly at odds” with the Section 115 regulations the MLC is statutorily charged with applying.

Judge Torres rejected the challenge at the pleading stage. The decisive move was interpretive: she held that Section 115 and its implementing regulations are “unambiguous,” and that “the only plausible application of the law supports Spotify’s position.” Because Premium now genuinely includes a separately marketed product — audiobook access carrying more than token value — it satisfies the regulatory definition of a bundle on its face. Critically, the court treated the MLC’s allegations of pretext as legally beside the point. Even assuming Spotify acted to reduce its royalty exposure, Torres reasoned that the addition of audiobooks “resulted in no change at all in Premium” as a music product, so motive could not alter whether the offering met the objective regulatory criteria. Where the regulatory text is unambiguous and the offering fits, intent does 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. Judge Torres permitted the MLC at least one opportunity to amend “with the benefit of the Court’s reasoning,” and the collective filed an amended complaint by the early-October 2025 deadline. 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 to manipulate the revenue allocation, and that Spotify improperly combined reporting across its audiobook and ad-supported free offerings to dodge the higher non-bundle rate. These are, in effect, attempts to attack the inputs to the bundle formula rather than the formula’s applicability.

Spotify responded in late October 2025 with a renewed motion to dismiss, contending the amended allegations fare no better. 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) or, alternatively, to enter partial final judgment — citing “substantial differences of opinion” on the controlling bundling question and the interest of judicial economy. Spotify opposed, arguing the MLC fell “well short” of the extraordinary circumstances § 1292(b) demands and that its ten-month delay in 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 MLC filed an amended complaint on different theories, Spotify has moved to dismiss again, and the MLC is seeking interlocutory appellate review of the original ruling. As of late 2025, no final judgment had been entered.