In July 2011 a new on demand music-streaming service, Spotify, launched in the United States. However, within two weeks of its U.S. launch it was hit with a lawsuit. The complaint was not filed, as many had expected, by a record label company, but instead by the below-the-radar mobile media company PacketVideo for patent infringement.
Spotify allows users unlimited access to create playlists and stream music from almost all major record artists for a small monthly fee. There is also a free service that plays at a slightly lower bitrate and contains an occasional advertisement, though far less often than rival Pandora Radio. The application is available for Macs, PC’s, and smartphones, allowing users access to a wide range of music at any time and any where. The service had been widely used in Europe since its debut in 2008 but legal issues with securing licensing rights and complying with the Digital Millenium Copyright Act slowed down its entrance into the U.S. market. The company sees itself as an alternative to music piracy and will not make an artist’s music available unless it has secured the rights via a signed release from the copyright owner, most often the record label. Since Spotify had insulated itself from lawsuits from the record industry, the PacketVideo lawsuit came as a surprise to outside spectators.
PacketVideo, a company that produces software for wireless multimedia devices, approached Spotify in May about the infringement of two different intellectual property patents regarding music streaming that are required to support Spotify’s cloud-based system. The patent is vague enough that if the suit is upheld, many other music streaming services could be forced to pay for the rights to continue operating. After the failure to negotiate an out-of-court settlement PacketVideo sued for an injunction and reparation of damages.
Spotify released an official statement that it will fight the claim: “In just under three years, Spotify has become more popular than any other music service of its kind. This success is, in large part, due to our own highly innovative, proprietary hybrid technology that incorporates peer-to-peer technology. The result is what we humbly believe to be a better music experience-lightning fast, dead simple and really social. PacketVideo is claiming that by distributing music over the Internet, Spotify (and by inference, any other similar digital music service) has infringed one of the patents that has previously been acquired by PacketVideo. Spotify is strongly contesting PacketVideo’s claim.” It is unclear why the company chose to sue Spotify since Pandora and Grooveshark, two more established music streaming sites with more cash available, are also infringing on the patent.
The PacketVideo lawsuit demonstrates an ongoing issue in patent law surrounding the ease with which companies can acquire patents. The U.S. patent office, which is backlogged with patent applications, often awards patents without much scrutiny, which can result in overly broad protection of an invention. This has been exacerbated in the world of software and internet-based inventions. In the ongoing fight for U.S. patent reform big tech companies like Google, Research in Motion, and Intel, are fighting for new laws that would reduce the amount of patent litigation. These companies claim that the risk of facing expensive patent litigation can stifle innovation. Because it is so unclear what certain patents cover, mergers and acquisitions to form blocs are becoming more popular to get a bigger hold of the patent markets and as a way for smaller companies to protect their ideas. PacketVideo did not originally own the patent but acquired the patent when it bought Basel, a small Swiss-based tech company, back in 2007. It is unclear what the patent protects and having to litigate over the scope of the patent will likely be an expensive fight with broad implications. Spotify, Pandora, Grooveshark, and any other music streaming service will be forced to pay for the license. While, at this point, those companies may be able to afford this fee, start up streaming companies will have more difficulty financing their initial endeavors. The PacketVideo lawsuit demonstrates the rising importance of having the funds to defend and acquire patents in the tech industry. Unless patent law can be modified, smaller technology companies and inventors may not be able to afford to keep inventing.