Don’t Spin Out: 5 Lessons for Every Business Owner From the Peloton Copyright Lawsuit.

Those of you who follow me on Instagram know that I am the #Trilawyer (basically, a lawyer whose hobby is doing triathlons). The cycling leg just happens to be my favorite, I love going to spin class at the gym, and I am also a big fan of watching pro cycling on TV. Anyone else excited for the Giro 2019? So obviously when I saw the news featuring BOTH the law and indoor cycling training, I had to write about it. A group of music publishers are suing Peloton, the company behind those heavily advertised stationary bikes and on-demand spin classes, for allegedly using popular music in their on-demand videos without the proper licenses.

The Peloton situation actually provides some valuable lessons for every business owner, regardless of industry. But first, some background on what happened with Peloton, at least according to the plaintiffs’ one-sided view in the Complaint. For those who have not seen their advertising barrage, Peloton is a privately-held company (estimated to be worth close to $4 billion for its impending IPO) that sells high-end stationary bikes and treadmills. How high end? A spin bike will set you back a couple thousand dollars, but luckily you can finance it with low low monthly payments over 36 months (just like your TV, couch, cell phone, pure-bred poodle, and anything else these days). The treadmills are even more expensive at something like $5k, but the lawsuit is about the spin bikes.

Why would someone pay $2000+ for a stationary bike when you can buy a great one for $300-400 on Amazon? I have no idea. But one of Peloton’s central marketing points is a subscription service (for a separate monthly fee) that will give you access to streaming fitness videos, spin instruction, competitions, and other content that simulates an in-studio workout from your mid-town high-rise apartment or summer chalet or weekend home in the Hamptons. At least according to the commercials.

If you have ever been to a spin class at the gym, you know that the instructor’s playlist is a big part of the experience. The instructor plays a list of songs for the workout session that are generally synchronized to the tempo of the current workout intervals. For example, if the instructor wants the class to sprint at 110 RPMs on a flat road (meaning easy resistance), then she may play something fast and upbeat to get the class going. If the session calls for hills at 60-70 RPMs and heavy resistance, then she may play something slower and heavier to match the workout. Peloton offers a library of pre-recorded workout sessions that it streams to subscribers and like the in-gym spin classes, the recordings feature an instructor with a playlist taking the participants through a particular class. The problem – according to the lawsuit – is that Peloton does not have permission to use the musical content in its workout videos. In the world of copyright law, a company must have the proper license for commercial use before it can use music as part of its business. In the case of videos synchronized to music, the law requires what is called a “sync” license that permits that particular song to be used with a specific video. Apparently Peloton failed to secure those “sync” licenses for at least some of the videos that it broadcasts. Copyright law also provides for punitive damages for willful violation of copyright, and Peloton may be facing a steep price tag if the court determines that Peloton’s failure to secure licenses was a deliberate decision. Which it very well may have been, as it is surprising to think that a company that size missed a rather obvious music licensing issue.

Whatever the merits of the litigation, and whatever the outcome, there are some important takeaways for all business owners from this lawsuit. Even if you have never been inside a spin studio, even if you do not use music at your business, there are still valuable lessons to be keep in mind:

  1. Trying to save a few bucks at the beginning may cost you big bucks later on. The most common reaction online to the Peloton lawsuit is that “how could a $4 billion company not have seen this coming?” Peloton grew quickly, and it may be possible that the company deliberately skipped paying licensing fees at the beginning to save money, but this attempt to scrimp at the outset may end up costing millions down the road. This is why no matter your size, it is important to properly budget and anticipate all expenses. For example, talk to an insurance agent you can trust and get the right amount of insurance coverage for your business. Buy workers’ compensation insurance. Comply with MIOSHA regulations. Hire a lawyer to draft a proper business agreement between you and your partner to reflect your respective rights and obligations to the company. Do not co-mingle personal and business bank accounts. You get the picture – a cheap shortcut now can come back and cost you much more money in the future. It could even potentially sink your entire business.
  2. What may seem like common sense to you may be illegal. You may be thinking – but if I buy a CD at the store or a song from iTunes, don’t I own the music? Can’t I play it for whoever and whereever I want? It may be common sense that you own something that you buy, but it is not always true, especially in the modern age of digital media. With respect to music for example, you are often buying a license for personal, in-home use. Say you have a bar or a restaurant, and you decide to play your own iPod playlist over the speakers for atmosphere. Without a separate license, you just violated the music studio’s copyright and can be sued. Or, if you decide to start your own weekend DJ business using your old LPs. Same thing – the CD you buy at the store to listen to in your car does not give you the right to play that same CD at a wedding for money. Sound confusing and counter-intuitive? It may be, but it also protects the rights of the music publisher and keeps the cost of CDs and iTunes singles accessible to the general public. The bottom line is that you need to consult with a professional about all aspects of your business to make sure you are doing it the right way, and to ensure compliance with all applicable laws. And the right professional will identify all the relevant issues, not just the obvious ones.
  3. You are never too big (or too small) to be sued. You might also be thinking, oh who cares, I run a mom-and-pop gas station/grocery store/bar and no one is going to sue me for playing my CD collections over the speakers. Or you might think, my business partner is my friend, he will never sue me. My employees are all like family, right? Wrong. Just one example is a string of lawsuits filed against nightclubs for playing songs without the proper commercial license in 2016. From my own experience as a business litigator, there are far too many cases where business partners break up and decide to sue each other because they never had a written agreement. Actually, one of the major reasons to create a separate legal entity for your business – like an LLC – is to anticipate lawsuits and to protect your personal home, car, and bank account in case of unanticipated trouble. Luckily, creating the right corporate entity and maintaining corporate formalities to ensure protection are not particularly complex or expensive endeavors, and should be done by all business owners.
  4. Anticipate and budget for lawsuits as the cost of doing business. You can take all of the precautions in the world, hire the best attorneys, and run a flawless business. You are still going to get sued. That’s the reality of doing business. There may be a disagreement with a supplier over the quality of the product supplied. One of your workers may get injured on the job. Or, a vengeful ex-partner or employee may decide to use entirely frivolous litigation to harass and extort you. Thus, it is critical to budget for such eventualities just like you budget for utilities, rent, or salaries. I have counseled numerous businesses who think that they can handle a legal proceeding in-house, and end up creating more trouble for themselves that then costs MORE money to untangle down the road. It is a great idea to treat litigation as just a cost of doing business, set aside some funds each month, and have a lawyer on retainer, so that when you do get sued, your attorney can jump on the case right away and minimize any damage.
  5. Hire the right lawyers to review all aspects of your company. Of course, you have to have the right people for the job. Contact a knowledgeable and well-rounded business attorney like me to provide a consultation for your business. That way you can make sure that you have all the right documents, that you have secured the necessary licenses, and that you are fully prepared in case something goes sideways. And remember, there is always someone willing to do it cheaper. Choose your professional wisely!

Dan Artaev is an experienced commercial litigator and business attorney who can help your growing business ensure things are done the right way to mitigate risk. Contact me today at 248-380-0000 or dartaev@fb-firm.com to set up a meeting and discuss your needs. Don’t be like Peloton and get caught when you are poised for a $4 billion IPO – do things the right way from the start!

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