Another digital music startup company has been forced to shut down. Following several years of litigation with major record labels, digital music provider Grooveshark agreed to permanently shut down its popular music streaming website on April 30, 2015. Grooveshark now joins the likes of Napster, LimeWire, and Groskster. Like those before it, Grooveshark came under attack from the recording industry for distributing digital media files without permission from the copyright holders. Groovesharkʼs story provides important lessons for startups seeking to utilize technology to create new digital media distribution platforms.
Grooveshark provided a free ad-based streaming music service that permitted users to upload and stream digital music files. Unlike Spotify, which provides a similar service but obtains licenses to stream its content from record companies and music publishers, Grooveshark only obtained licenses for some of its content. Grooveshark long argued that its service was legal because as a service that hosted third party files it was protected under the Digital Millennium Copyright Act since it complied with takedown notices from copyright holders. When Grooveshark removed files to comply with takedown notices, often the files would quickly reappear after being uploaded again by different users.
On November 18, 2011, a number of record labels and record companies filed suit against Groovesharkʼs owner, Escape Media Group, Inc. (“Escape”), asserting claims for copyright infringement. The plaintiffs argued that Groovesharkʼs employees, not its users, violated copyright law by uploading files to Groveshark without permission. On September 29, 2014, the Court granted the Plaintiffsʼ motion for summary judgment holding that “by overtly instructing its employees to upload as many files as possible to Grooveshark as a condition of their employment, Escape engaged in purposeful conduct with a manifest intent to foster copyright infringement via the Grooveshark service.”
As a result, Escape was liable for willful copyright infringement and thus was subject to potential enhanced damages. A trial on damages was set for April 27, 2015. Faced with liability for a potential $736 million in damages, based on the nearly 5,000 infringed songs, Escape settled. Escape agreed to permanently shut down Grooveshark, issue an apology to the music industry and pay $50 million to the record companies.
Groovesharkʼs story provides an important reminder for digital content providers of all shapes and sizes, from blogs to streaming video services, that liability for copyright infringement creates a risk of substantial damages.