Remastering Copyright

It’s not often that a copyright owner denies owning a copyright in order to press a case for copyright infringement. But that’s essentially the position ABS Entertainment found itself in its legal fight with CBS Radio over the broadcaster’s on-air use of sound recordings made prior to 1972, when recordings came under federal copyright protection. And now a federal judge in California has ruled that ABS is stuck with the consequences of the copyright it never claimed (h/t THR, Esq.)

His_Master's_VoiceThe ruling, if it stands up on the expected appeal, is fairly dripping with implications for music and broadcasting industries (both over-the-air and digital), but also for the film and video industry that makes use of sound recordings in audiovisual works.

Pre-1972 sound recordings have been the focus of considerable controversy in recent years. Prior to 1972, sound recordings were not protected by federal copyright law; only the musical compositions embodied in those recordings were protected. But in 1971 congress updated the law to extend federal copyright protection to sound recordings made after February 15, 1972.

The law continued to exempt over-the-air broadcasters from having to pay public performance royalties to the owners of sound recordings, however (publishers and songwriters get paid), to the dismay of the record labels, on the ostensible grounds that airplay helped promote the sale of records and therefore record companies didn’t need performance royalties. (The real reasons had more to do with the power that broadcasters once wielded in Washington, DC, and in some measure still do.) Read More »

YouTube Court: Viacom Dios

The lesson for content owners from yesterday’s smackdown of Viacom by U.S. District Court Judge Louis Stanton in its lawsuit against YouTube/Google should be clear (which, of course, is no guarantee it will be): stop bringing DMCA  safe-harbor suits against online service providers. It’s not working, and it’s past time to get on with plan B.

The Viacom case can now be added to a string of cases –beginning with Perfect 10 v. CCBill in 2007 and including Io Group v. Veoh (2008), and UMG v. Veoh (2009) — in which courts have refused to impose liability or additional procedural requirements on service providers beyond the strict language of the § 512 (c) safe-harbor provisions. Though The Media Wonk is not a lawyer, it sure seems like there’s a pattern developing here, and it’s not a favorable one for the content industries.

Unlike Grokster and LimeWire, which, as Judge Stanton noted in yesterday’s opinion, involved peer-to-peer file-sharing networks that are nowhere addressed in the DMCA, Veoh and YouTube are precisely the sort of web hosting services Congress envisioned and intended to protect from liability in drafting the DMCA, as Stanton also noted. He went to great length, in fact,  to emphasize the point, giving over whole pages in his opinion to long excerpts from the 1998 House and Senate committee reports on the law detailing exactly how Congress intended the language in § 512 of the statute to be construed by courts. The only real question was whether the standard industry practices YouTube followed regarding notice-and-takedown and the handling of repeat infringers meet the procedural requirements spelled out in the statute to qualify for safe-harbor protection. Like the Veoh courts before him, Stanton said they do.

Not surprisingly, Viacom didn’t see it that way. In a statement issued after the decision was handed down it seemed to suggest that it has YouTube just where it wants ’em:

We believe that this ruling by the lower court is fundamentally flawed and contrary to the language of the Digital Millennium Copyright Act, the intent of Congress, and the views of the Supreme Court as expressed in its most recent decisions.   We intend to seek to have these issues before the U.S. Court of Appeals for the Second Circuit as soon as possible.  After years of delay, this decision gives us the opportunity to have the Appellate Court address these critical issues on an accelerated basis. We look forward to the next stage of the process.

The best case scenario for Viacom would obviously be a win in the Second Circuit, which carries a lot of weight in judicial circles on copyright matters. That might create enough of a split with the Ninth Circuit, which handed down the Perfect 10 case and where both Veoh courts are located, to tempt the Supreme Court to take up the issue at some point and give content owners a favorable ruling.

I can’t speak definitively to the legal likelihood of that scenario actually playing out. But again, to a layperson it seems like a long shot. Four courts have now pointedly refused to impose liability or new procedural requirements on service providers beyond the strict language in the statute, and zero courts have agreed to.

It’s possible, of course, that things could go differently in the Second Circuit, and the court (or the Supreme Court) will create a new legal standard in which a general awareness that unfettered copyright infringement is occurring on a platform is sufficient to disqualify a service provider from the § 512 safe harbor.

My question is: how much would that actually help Viacom? What sort of remedy, apart from monetary damages, would the court impose? It’s not going to erase the safe harbor language from the statute, so the principle of limited liability for service providers would remain. The best case for Viacom would be if the court were to create some new procedural requirements for service providers to qualify for the safe harbor, such as mandatory filtering. That would give Viacom and other content owners far more leverage in negotiating with service providers over the use of their content.

Since filtering is nowhere mentioned in the statute, however, that seems like a heavy lift for the court. If content owners really want mandatory filtering, I think they’re going to have to go to Congress.

That would mean reopening the DMCA, however, which means opening a gigantic can of worms from which all sorts of unpredictable outcomes could crawl. In the meantime, deals with YouTube and other online service providers that could profit Viacom, however imperfectly, are not getting cut.

It’s possible that, some day, Viacom will get a better deal out of the courts, if not from the YouTube case than from some other. But hoping for a three-way bank-shot is not much of a business plan.

Seeing Red over copyright

Having failed to put forth a competitive consumer proposition to counter Redbox’s dollar-a-night DVD rentals, the studios are on the verge of accomplishing what, from the point of view of their own economic interests, is the next best thing: they have brought the rental kiosk operator to heel and effectively forced it to accept a 28-day window after street date before it begins loading their DVD releases into its ever-expanding red maw.

On Tuesday, Redbox and Warner Bros. announced an agreement to settle the litigation the kiosk company had brought against the studio last year. As part of the deal, Redbox agreed to a 28-day “vending” window and to limit sales of used Warner discs. In return, Warner will allow Redbox to acquire its releases at a lower cost and promised to “cooperate” with Redbox on possible future digital delivery ventures.

While Tuesday’s settlement applies only to Warner, it’s widely expected that similar deals are in the works with Twentieth Century-Fox and NBC Universal, which are involved in similar litigation with the Redbox. Assuming that happens, new releases will essentially disappear from Redbox kiosks.

Make no mistake. Redbox rentals were hurting DVD sales and undercutting the studios’ other revenue streams. Its dollar-a-night rentals accounted for roughly one of every five dollars consumers spent on DVDs last year, and it returned a far smaller share of that dollar to the studios than Wal-Mart sends them when it sells a DVD. And from the studios’ perspective, the trend lines were getting worse. Something had to be done. Read More »

RealNetworks' real mistake

One week  after Judge Marilyn Hall Patel decisively threw out its antitrust claims against the studios and DVD CCA in the RealDVD case, RealNetworks appears to be imploding. On Wednesday COO John Giamatteo abruptly left the company, and on Thursday founder Rob Glaser stepped down as CEO (he’ll remain chairman). Although Glaser’s move had apparently been planned for some time, it came sooner than he expected and appears not to have been voluntary.

While it’s possible the timing of the events is just a coincidence I wouldn’t bet on it. Investors cheered the news of the Glaser move, sending the stock soaring 17 percent in its wake (ouch!), presumably in anticipation of a new strategic direction for the company–one not quite as provocative and confrontational with respect to the content owners.

The whole RealDVD saga, in fact, has been a disaster for Real. Not only has it been unable to distribute the product, thanks to a restraining order and temporary injunction by the court, but the litigation with the studios over the DVD copying software has produced an unending series of legal setbacks for Real, of which last week’s ruling is merely the latest. Read More »

Authors Guild doesn't like the sunrise, blames the rooster

The Authors Guild is not impressed with Amazon’s opposition to the Google Books settlement.

In a 49-page brief (pdf) filed with Judge Denny Chin on Tuesday, the Kindle-maker warned of the potentially anti-competitive effects both of the blanket license in the agreement for Google to scan and sell orphan works and of the price-fixing power of the proposed Book Rights Registry, which Amazon described as a “cartel of authors and publishers” operating with “virtually no restrictions on its actions.”

The Authors Guild fired back the next day in a statement on the group’s web site:

Amazon’s hypocrisy is breathtaking.  It dominates online bookselling and the fledgling e-book industry.  At this moment it’s trying to cement its control of the e-book industry by routinely selling e-books at a loss.  It won’t do that forever, of course.  Eventually, when enough readers are locked in to its Kindle, everyone in the industry expects Amazon to squeeze publishers and authors.  The results could be devastating for the economics of authorship.  

Amazon apparently fears that Google could upend its plans.  Amazon needn’t worry, really:  this agreement is about out-of-print books.  Its lock on the online distribution of in-print books, unfortunately, seems secure.

Well now.

While authors and publishers have ample reason to be wary of Amazon’s market power, as I’ve argued in previous posts, the Guild is drawing an apples and bananas comparison in this case. It’s not as if Amazon came by its market power through nefarious, or even non-transparent means. Read More »

Orphans in the storm

Pity Judge Denny Chin, the federal district court jurist in New York presiding over the Google Book Search case (The Authors Guild, et. al. v. Google, Inc.). Having steered the long, complex class action to within sight of the finish line he suddenly finds himself the object of an intense last-minute lobbying campaign from interests that were not party to the case and at the center of budding international incident.

google-books-imagen1In my previous post, I discussed the commercial interests that began lining up last week in support or opposition to the proposed settlement between Google and the class-action plaintiffs, including Amazon, Microsoft, Yahoo and Sony. Now, foreign nations, and perhaps whole continents, are throwing down markers.

On Tuesday, lawyers for the government of Germany filed a strongly worded brief (pdf) with the court declaring that the settlement, if approved, would “run afoul of the applicable German nationallaws,” “irrevocably alter the landscape of internationalal copyright law” and potentially violate U.S. treaty obligations.

Some European Union officials, meanwhile, have come out in favor of the settlement’s terms (if not its legal implications) and have suggested importing it to Europe. A meeting on the issue is scheduled for Sept. 14 in Brussels.

How did it come to this? Read More »

Choosing up sides over e-books

Quite an interesting battle is taking shape in the suddenly hot world of e-books.

For many, of course, “e-books” are synonymous with Amazon and its Kindle device. But over the past few months, several would-be challengers to Amazon’s Kindle kingdom have emerged to do battle. In July, No. 1 brick-and-mortar bookseller Barnes & Noble unveiled a revamped online e-bookstore and announced a partnership with e-book reading device maker Plastic Logic, which plans to introduce a thinner, touch-screen version of an e-reader early next year.

kindle-newsweekA few weeks ago, Sony entered the fray with a pair of new e-book readers and its own revamped e-bookstore. (Technically speaking, Sony has been in the e-book business longer than Amazon has, but for reason known only to Sony it seemed to be trying to keep its involvement a secret until this month.) Last week, Sony announced a third e-reader, this one with wireless connectivity to allow Kindle-like direct-to-device downloads (no need to stop at the PC first for transfer to the handheld device).

The big news in Sony’s announcement, however, was its embrace of EPUB, a series of open technical standards for the file structure, packaging and publishing of e-books over digital networks developed by the International Digital Publishing Forum, an industry group, and supported by a number of major publishers. Last week, Sony’s embrace of EPUB was seconded by Google, which announced it would use the standards to distribute (at no cost) the nearly 1 million public domain works it has compiled in digital form as part of its Library of the Future project (many of the works were originally digitized by the non-profit Project Gutenberg).

As an open platform, EPUB poses a significant challenge to Amazon, which has followed an iTunes-like strategy of enclosing the Kindle and Kindle e-books within the walled-garden of a proprietary format and DRM–the better to set prices and control margins. Should the rest of the industry adopt EPUB–which Amazon has so-far shunned–Amazon’s current status as the 800-pound gorilla of the e-book market would be threatened. (Shameless plug: For more on Amazon’s strategy and the implications of the EPUB initiative, see my report, The Evolution of the E-book Marketat GigaOm Pro [subscription required].) Read More »

Redbox, RealDVD and Hollywood’s long struggle with consumer demand, Part II

In my last post, I discussed the Hollywood studios’ long history of being willing to frustrate consumer demand in order to maximize their own profit, or at least to do what they believed would maximize their profit. For decades, in fact, it defined their basic business model: starve demand in one window or market to boost it in another.

In ordinary businesses, continuously frustrating consumer demand would not be a very effective business plan. But under the artificial conditions of the copyright monopoly it has generally worked for the studios over the years. When some innovator came along and found support in the Copyright Act for a model to meet consumer demand without giving primacy to studio profits, such as video rental stores, the studios’ first instinct has been to suppress it, often by litigation or seeking new legislation, or failing that through monopoly pricing.

It’s a deeply ingrained habit.

From the bunker of their copyright monopoly, however, the studios have often misidentified their own self-interest, at least at first. The video rental market, after all, went on to become hugely profitable for them, despite their unease with it. Yet the old habit is stubborn.

DVD, for instance, was the most successful format for distributing movies to the home ever devised. And it achieved that success largely by overcoming the studios’ historical ambivalence and meeting consumer demand head on. It didn’t eradicate the rental market but by meeting consumers’ reasonable expectations for purchasing a movie–in terms of price, convenience and quality–DVDs fundamentally changed consumer behavior to the benefit of the studios.

It wasn’t enough to change studio behavior, however. As later technological innovation caused consumer expectations and behavior to change again, the studios effectively did nothing to respond. DVD prices that once seemed reasonable, for instance, came to seem less reasonable over time as consumers’ expectations of value changed. Yet prices largely stayed where they were. Read More »

The studios just say 'no'

The studios and the DVD Copy Control Assn. (DVD-CCA) are on a legal roll. On successive days last week they won a preliminary injunction against RealDVD and a reversal on appeal in the Kaleidescape case (The Media Wonk has been on another assignment so I’m only just getting aroundto blogging this now). The two courts found, inter alia:

  • The CSS license and technical specifications “unambiguously rule out” (RealDVD) the making of permanent digital copies of DVDs and prohibit the playback of the DVD’s content without the original disc in the tray.
  • The technical specifications in the CSS license are indeed part of the CSS license agreement and it was the “unambiguous intent” of the parties that those specifications barred the creation of permanent digital copies  (Kaleidescape).
  • The anti-circuvention provisions of the DMCA clearly and plainly tipped the balance of copyright law in favor of copyright owners and trumped any fair use analysis (RealDVD).

The studios really couldn’t have asked for more.

Kaleidescape-collection-to-systemSo, now what? Now that the studios have won most of the key legal points and preserved the integrity of the CSS license  (at least for now), what will they do with them?

Alas, probably nothing very useful.

As long-time readers of The Media Wonk know, the DVD-CCA has been attempting to devise a comprehensive system for allowing “managed copying” of DVDs for the better part of four years–a process that has thus far produced little apart from the Kaleidescape and RealDVD litigation. Based on the most recent discussions, in fact, Media Wonk’s sources suggest, negotiators seem farther than ever from a comprehensive solution. Read More »

Owning more of the news

gridlock-economyIn thinking some more about Judge Richard Posner’s controversial suggestion the other day that Congress might need to expand copyright law to prohibit linking and paraphrasing news stories without permission in order to “save” newspapers from the ravages of bloggers and aggregators, I was reminded of a talk given last month at the World Copyright Summit by Columbia University law professor Michael Heller. Heller is the author of The Gridlock Economy, which describes a phenomenon he calls the tragedy of the anti-commons.

The coinage is a twist on the classic problem in economics known as the tragedy of the commons, in which resources held in common are notoriously over-used and under-developed economically because everyone has an incentive to use as much of the common resource as possible and no one has incentive to invest in its long-term preservation and development.

The solution, in classic economic theory, is property rights. Allow individuals to have private property rights in the resources — i.e. the right to exclude others from using it — they will have incentive to invest and develop the resource, ultimately making the fruits of that development available to others at a profit through the market. In theory, everyone wins.

The idea has formed the intellectual foundation for much of Western, and in particular American, economic policy, which has been heavily biased in favor of extending private property rights wherever possible as a mechanism for promoting the general welfare. In general, more property rights have been viewed as essential to increasing private investment and ultimately wealth creation.

Intellectual property policy has been no exception to the rule, as Congress’s repeated extension of term of copyright protection makes clear.

.Heller argues, however, that there is obverse to the classic problem, and it arises when too many individuals claim property rights in the same thing, or where rights are highly fragmented. If 100 individuals each has a property right in a resource, and any one can prevent its use by withholding consent (or demanding too high a payment) the resource does not get used and wealth is not created. This is the tragedy of the anti-commons.

rheinmapIn his book, Heller recounts the history of shipping along the Rhine River at the time of the Holy Roman Empire. During the Middle Ages, merchant ships could travel the 90-mile length of the Rhine from Bonn to Bingen safely by paying a single modest toll to the emperor for protection. By the 13th Century, however, as the empire weakened, freelancing barons — the original “robber barons” — began building their own castles along the river and imposing their own tolls on passing ships. Eventually, the tolls got so high and so burdensome that boatmen stopped using the Rhine to transport goods and commerce along the spine of the old empire collapsed.

A surfeit of property claims, Heller argues, can destroy markets and lead to a net decrease in wealth.

It can also act to prevent the development of new markets. Heller relates the story of a major pharmaceutical company that developed a compound its researchers were convinced would be highly effective against Alzheimer’s Disease. Before they could begin testing it in earnest, however, the company needed to secure the rights to dozens of separate biotech patents owned by dozens of individuals or entities. Unable to secure them all on reasonable terms the company eventually gave up and reallocated its research budget to developing spin-offs of existing drugs for which it already controlled the intellectual property rights. The Alzheimer’s drug was never brought to market.

Anyone who has ever tried to license music for novel or innovative uses will be familiar with such rights “gridlock,” as Heller terms it. With rights highly fragmented among composers, publishers, recording companies and artists, securing the necessary cooperation from each on reasonable terms has daunted even such formidable innovators as YouTube, which remains in litigation with music publishers over the use of recorded music in home-made videos uploaded to the Web site.

Heller’s analysis is not completely on point for Judge Posner’s plan for saving newspapers. Posner is not suggesting fragmenting rights, or creating a new class of rights holder but investing existing copyright owners with additional rights. But it serves as a useful cautionary tale about the potential unintended consequences of blindly (ideologically) ratcheting up property rights to spur wealth creation. Especially at a time when wealth creation is less dependent on the accumulation of market power and production efficiencies and more on innovation and the transformation of industries.

As I argue in my previous post on the subject, the fundamental problem facing newspapers today is not insufficient property rights, it is the structure of the industry and an (probably) irreversible shift in reader behavior.

Simply investing publishers with additional intellectual property rights –by itself– will do little to address the industry’s underlying problems, let alone advance any reasonable public policy goal. You could jail every blogger tomorrow and outlaw every search engine and newspaper publishers would be no better off than they are today.

Their problems are the loss of monopoly rents from advertising and the legacy cost structure those rents used to pay for. Those problems weren’t caused by linking (or paraphrasing), and they won’t be solved by turning the linked structure of the Internet into a an anti-commons.

Cablevision case puts kibosh on collection society claims

supreme-courtThe Supreme Court’s denial of cert. in the Cablevision remote-DVR case has launched countless column inches of commentary and analysis already, much of it focused on the problems it poses for the Hollywood studios and TV networks worried about its impact on ad-skipping (see here, here and here). But the studios and networks aren’t the only losers in the case.

By letting the Second Circuit’s opinion stand, at least for now, the court has dealt a serious set back to the designs of the performance rights societies like ASCAP and BMI to bring cloud recording and playback within the scope of public performances subject to performance royalties.

According to the plaintiffs in the Cablevision case, the playback of programs stored in MSO’s head-end servers constituted a performance of the work by Cablevision that was not authorized by its basic distribution agreements with program provided and thus needed to be separately licensed.

The Second Circuit disagreed, however, finding that as a legal matter the customer “performed” the work since the copy used for playback was accessible only to that customer.:

In sum, we find that the transmit clause directs us to identify the potential audience of a given transmission, i.e., the persons “capable of receiving” it, to determine whether that transmission is made “to the public.” Because each RS-DVR playback transmission is made to a single subscriber using a  single unique copy produced by that subscriber, we conclude that such transmissions are not performances “to the public,” and therefore do not infringe any exclusive right of public performance. We base this decision on the application of undisputed facts; thus, Cablevision is entitled to summary judgment on this point.

 In other words, according to the Second Circuit, there is indeed such a thing as a non-infringing private performance of a work transmitted over the Internet. Assuming the reasoning applies to musical works as well, the ruling is going to make it much harder for ASCAP and BMI to compel providers of online music lockers and other types of user-directed cloud storage facilities to take out licenses and pay royalties on transmissions.

(Although not directly on point, it probably doesn’t help ASCAP’s efforts to license mobile-phone ring tones, either). — TMW

Creation and the Internet

Last week saw two interesting developments in the ongoing debate over effects of file-sharing and what to do about it. On Thursday, a federal jury in Minneapolis ordered Jammie Thomas-Rasset to pay $1.92 million to Universal Music Group and other record labels after finding she had downloaded 24 songs illegally. That works out to a staggering $80,000 per song.

thomas-rassetEven Sony BMG’s lead lawyer in the case, Wade Leak, admitted to being “shocked” by the size of the verdict.

On Friday, two Harvard Business School economists, Felix Oberholzer-Gee and Koleman Strumpf, released a working-paper version of a new study (PDF), which found that, pace the media companies, the conclusion that rampant file-sharing and other types of digital piracy will reduce incentives to produce new music and movies ultimately harming the public, has no empirical foundation.

In fact, the data point in precisely the opposite direction. The researchers found that the number of new albums released each year soared from 35,500 in 2000, to nearly 80,000 in 2007 (including 25,000 digital-only albums), despite a decrease in gross revenue from CD sales over that same period. Similarly, the number of feature films produced worldwide each year rose from 3,807 in 2003 to 4,989 in 2007.

The increase in film production held true even in countries where film piracy is rampant, such as South Korea (80 to 124), India (877 to 1164) and China (140 to 402). Feature film production in the U.S. over the same period rose from 450 films in 2003 to 590 in 2007.

What does one development have to do with the other, apart from their coincidental timing? Read More »

Down on strikes

french-flagThe copyright industries had high hopes for France’s three-strikes law. At the World Copyright Summit in Washington last week, speakers had nothing but praise for the government of President Nicolas Sarkozy, who championed the law and railroaded it through the legislature. And they were crushed when, on the second day of the conference, the French Constitutional Council threw out the new law’s critical third-strike–government-ordered banishment from the Internet for those caught repeatedly downloading copyrighted content illegally–on grounds that the extra-judicial  procedure the law created was a violation of  free speech, the presumption of innocence and due process.

Oops.

Now, however, things have gotten even worse for the content companies. In a bit of a face-saving move, the French government on Friday stripped out the portion of the law invalidated by the Constitutional Council, sent the rest to Sarkozy for signature and published it in the official record, allowing it to take effect this week. Read More »

Court in Pirate Bay case not biased, court in Pirate Bay case says

The judge who convicted  The Pirate BayFour, Tomas Norstrom, was not biased, as defendants charged in their appeal, according to the Stockholm District Court on which he sits. In a filing with the Svea Court of Appeal, which is hearing the case, the chief judge of the district court argued that Norstrom’s membership in several organizations that take pro-copyright stands was merely for educational purposes, to help keep abreast of copyright legislation, and not an indication of bias.

The chief judge, Lena Berke, also rejected charges that Norstrom had been hand-picked for the case, rather than presiding as a result of random selection, as is the norm.

“This we strongly reject,” Justice Berke told reporters at the District Court. “The selection was made in adherence with the District Court’s rules of procedure.”