Music streaming company Spotify has confidentially filed to go public - moving forward with an unusual plan to list its shares directly on the New York Stock Exchange - even as it faces a new $US1.6 billion ($2 billion) lawsuit alleging copyright infringement.

Wixen Music Publishing is suing Spotify, alleging that the company violated its copyright on more than 10,000 songs.

A lawsuit of this nature could scare potential investors, upset existing investors and lower the company's market value.

Spotify confidentially filed paperwork for an initial public offering with the Securities and Exchange Commission, a person familiar with the matter said on Wednesday. Axios first reported news of the filing.

Instead of a traditional initial public offering, Spotify plans to list its shares directly on the New York Stock Exchange without raising capital or issuing new shares. That unusual move would enable Spotify to go public while saving money on the underwriting fees that companies typically pay to investment banks when they hold an IPO.

Founded in Sweden in 2008, Spotify is one of the world's largest music streaming services. It has a catalogue of more than 30 million songs, more than 60 million paying users and more than 140 million total users. It is available in 61 countries.

In 2017, in preparation for going public this year, the company reached multi-year licensing agreements with record labels including Sony, Universal, Warner and Merlin.

Licence dispute

But now it needs to deal with Wixen's lawsuit. At the heart of the suit, filed on Friday in US District Court in Los Angeles, is Wixen's allegation that Spotify did not obtain one of two licences required to distribute music.

Under the Copyright Act, there are two separate copyrights to every recorded song: one for the sound recording (this revenue typically goes to the record label) and one for the musical composition (this revenue typically goes to the publisher and songwriter). The lawsuit alleges that Spotify took a "shortcut" and did not obtain the musical composition copyright for 10,784 songs published by Wixen.

The lawsuit alleges that Spotify outsourced its copyright responsibility to a third party, Harry Fox Agency, which was "ill-equipped to obtain all the necessary mechanical licences".

It also alleges that Spotify knew the agency "did not possess the infrastructure to obtain the required mechanical licences", that it knew it didn't hold the licences required to stream certain songs, and that it continued anyway.

Spotify did not respond to a request for comment.

'Brazen disregard'

Music licensing is notoriously complex, with each song having multiple rights holders who can be difficult to identify and locate. Unlike performance rights for musical compositions, which are typically administered through a few performing rights organisations, mechanical rights are not centrally administered and could belong to one of thousands of independent music publishers.

Wixen handles titles by Stevie Nicks, Neil Young, Tom Petty, the Doors, and Weezer's Rivers Cuomo, among others. In its lawsuit, it said its songs had been downloaded or streamed billions of times through Spotify, and that it received no revenue for that.

"Spotify has built a billion-dollar business on the backs of songwriters and publishers whose music Spotify is using, in many cases without obtaining and paying for the necessary licences," the lawsuit says.

"Spotify brazenly disregards United States copyright law and has committed wilful, ongoing copyright infringement."

Wixen demands injunctive relief, as well as payment of $US150,000 per song whose copyright it says Spotify infringed, or at least $US1.6 billion.

In May, Spotify paid $US43.4 million to settle a class-action lawsuit filed by musicians Melissa Ferrick and David Lowery, who accused the digital music service of streaming their songs without a licence. The settlement has yet to be finalised; if it goes through, the $US43.4 million will go into a fund to compensate rights holders for past infringement.

In its own lawsuit, Wixen described the 2017 settlement as "grossly insufficient".

Los Angeles Times