law, music, and the internet william fisher ilaw 3 july 2, 2002
TRANSCRIPT
Law, Music, and the Internet
William Fisher
iLaw 3 July 2, 2002
Senate Judiciary Committee“E-Commerce and Intellectual Property Agenda for the 107th
Congress” – 2/16, 2001“Building on the Digital Millennium Copyright Act, the Digital Performance
Right in Sound Recordings Act, and other landmark legislation developed in the committee to promote the availability of popular entertainment in digital form, the committee will examine the roles, rights, and responsibilities of the artists, the audience, and the entities, which serve to bring them together. As new technical issues and business models develop, basic questions need to be asked anew about the relationships between the artists and the media companies that market and distribute their product; about the rights of consumers and fans to use works in new ways; about the ability of technology companies and other mediators to deploy new products and services to facilitate those uses; and about the accessibility of works to scholars, teachers, students, or others for legitimate purposes.”
"Besides, what's Plan B?”-- Alan McGlade, Chief Executive of MusicNet, July 1, 2002
OutlineI. Potential Benefits of Internet DistributionII. Background: Copyright in Music circa 1990III. Cycles of Innovation and Resistance
DAT Recorders / AHRA Encryption circumvention / DMCA §1201 Music Lockers / MP3.com litigation Webcasting / DPRA-DMCA §114; CARP ruling Centralized File Sharing / Napster-Scour litigation P2P / P2P litigation; limited authorized services CD Burning / CD copy protection
IV. Defects of the Resultant SystemV. Where Do We Go from Here?
A. Private PropertyB. Regulated IndustryC. An Alternative Compensation System
TechnologiesDownloading: Transmission over the Internet of a
digital copy of a recorded musical performance, followed by storage of that file on the recipient’s computer, enabling the music to be replayed repeatedly on demand
Interactive Streaming: At the request of the recipient, transmission over the Internet of a digital copy of a recorded musical performance, which is then “played” but not stored
Noninteractive Streaming: Same process not at the request of the recipient
Internet Distribution of Unsecured Digital Files
Benefits(1) Cost Savings(2) Eliminate
Overproduction and underproduction
(3) Convenience & precision
(4) Increase number & variety of musicians
(5) Semiotic Democracy
Dangers:
(1) Threaten Revenues of Musicians
--fairness
--incentives
(2) Threaten Revenues of Music Industry
--production
--promotion
Internet Distribution
Retailer
RecordCompany
Manufacturer
Composer & Recording Artist
Distributor
Internet Distribution
Retailer
RecordCompany
Manufacturer
InternetProvider
Composer & Recording Artist
Results: increased revenues for writers and artists, decreased prices for consumers, or both
Copyright in Music
Objects of ProtectionMusical WorksSound Recordings
EntitlementsReproductionDerivative WorksFirst Distribution
Public Performance
Managed in USABy ASCAP, BMI, SESAC
Exceptions and LimitationsFair Use (§107)Cover License (§115)
Fair Use Doctrine1) Purpose and Character of the Use
commercial use disfavored transformative uses preferred parody strongly preferred propriety of defendant’s conduct relevant
2) Nature of the Copyrighted Work fictional works/factual works unpublished/published
3) Amount and importance of the portion used4) Impact on Potential Market
rival definitions of “potential market” only substitution effects are cognizable
Compensation System for Network Broadcasts of Copyrighted Programs
Networks
StudiosAdvertisers
Public
Sony
price of ads
higher pricesfor products
broadcastlicenses
license fees
free programming(with embedded ads)
cost of VCRs
VCRsVCRs
$?
Holdings of Sony
Manufacturer of a device that can be used to violate the copyright laws is liable for contributory copyright infringement if and only if the device is not capable of significant noninfringing uses
Timeshifting copyrighted programs is a fair use
Compulsory (Mechanical) Licenses (§115)After phonorecords of a musical work have
been distributed to the public: Any person may make additional phonorecords
for distribution to the public Provided she pays a compulsory royalty And doesn’t alter the melody or character
Applies to reproduction and distribution rights of the musical work
Audio Home Recording Act (1992)
Serial Copyright Management SystemTax and Royalty SystemSafe Harbor for Noncommercial Coping
AHRA 1008
“No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.”
Encryption Initiatives
DVDs: CSS SDMIRealMedia
copy-protection switch
Ebook reader
CircumventionDeCSS;
SmartripperFeltenStreamripperSklyarov
Anti-Circumvention: §1201Prohibitions:
Circumventing access-control technology – §1201(a) Manufacturing or “trafficking” in technology that circumvents
access controls – §1201(a) Manufacturing or “trafficking” in technology that circumvents
technological protections for rights of copyright owners – §1201(b)
Exceptions include: Reverse engineering in order to achieve interoperability §1201(f) Encryption research Ambiguous reference to the survival of fair use – §1201(c) Biennial rulemaking establishes limits to ban on acts of
circumvention – §1201(a)(1)(C)
Anti-Circumvention: §1201Civil Remedies:
Injunctions Impoundment and/or destruction of devices Damages (treble for repeat offenders) Attorneys’ fees, costs
Criminal penalties (for willful violations for commercial advantage or personal gain) -- §1204 First offense: up to $500,000 and 5 years in prison Second offense: up to $1M and 10 years in prison
Streambox (WD Wa 2000)
Streambox “VCR” mimics authentication procedure of RealMedia files and disables copy-protection switch
Held: violation of §§1201(a) & (b)Sony doctrine not applicable
Links to Illegal Material
Site #1
advertising
Webpage
Webpage
DecryptionProgram
2600 Magazine
advertising
Visitor
Webpage
Webpage
Plaintiff
?
Reimerdes (SDNY, August 2000)Providing a link to a website that, in turn,
enables visitors to download copies of encryption-breaking software = “trafficking” in violation of §1201(a)(2)
Claim that purpose was to create Linux DVD player not credible
§1201 trumps fair useReverse-engineering exemption does not
justify public sharing of the information
Reimerdes (CA2, 11/28/2001)Uphold issuance of the injunction§1201, as applied, does not violate 1st amend:
Content neutral Advances a “substantial governmental purpose”:
assisting copyright owners in preventing access to their “property”
Does not burden more speech than necessary for that purpose
Other constitutional challenges were not properly raised at trial:
§1201 exceeds Congress’ power under Commerce Clause and Art. 1, Sec. 8, Clause 8
§1201 unconstitutionally curtails “fair uses”
FeltenSept. 2000: SDMI issues challenge to break watermark prototypesFelten breaks codes, proposes to publish resultsRIAA sends Felten a letter, suggesting that publication “could
subject you and your research team to actions under the DMCA” June 2000: Felten brings declaratory judgment action against
RIAA, SDMI, and U.S. in NJDCtDefendants insist they have no intention to sueAugust 2001: Felten presents results at a conferenceNovember 2001: Suit dismissed because of absence of “case or
controversy”
SklyarovAdobe’s eBook Reader prevents copying of electronic
booksSklyarov developed for ElcomSoft a program that
enables the copying of eBook filesSklyarov (temporarily in U.S. for Def Con conference)
arrested and indicted in NDCal for violating §1201(b) – and “aiding and abetting” a violation; Elcomsoft charged with conspiracy
Dec. 2001: Charges against Sklyarov are droppedFeb. 2002: Prosecution argues DMCA applies globally
Lockers
MyMP3.com Beam-it Service Instant Listening Service
UMG Recordings v. MP3.com Nonpermissive copying violates §106 No fair-use defense:
1) Copying was for a commercial purpose; not transformative
2) Copied material is highly creative
3) Songs copied in their entirety
4) Undermines legitimate “potential market”
Settlements with 4 of the plaintiffs Finding of “willful infringement” of Universal 5/2001: Universal buys MP3.com for $372m
Copyright in Music
Objects of ProtectionMusical WorksSound Recordings
EntitlementsReproductionDerivative WorksFirst Distribution
Public Performance
Managed in USABy ASCAP, BMI, SESAC
Exceptions and LimitationsFair Use (§107)Cover License (§115)AHRA (§1008)
digital audio transmission
DPRA Limitations (§114)
Types of Digital Audio Transmissions of Sound Recordings
Level 3: Copyright Owners may refuse to issue licenses – or may demand freely negotiated fees
Level 2: Copyright Owners must accept “compulsory licenses” set by an Arbitration Panel
Level 1: Exempt transmissions
Level 1: Exempt TransmissionsNon subscription broadcast
transmissions licensed by FCCLimited set of “retransmissions”“Feeds” incidental to exempt
transmissionsStorecastingTransmissions to business
establishments
11/12/2000:CopyrightOfficerules n.a.to webcastsof radiostations;8/2001:District Court in Philadelphiaaffirms
Level 2: Statutory LicensesSubscription transmissions:
Noninteractive Diverse programming No advance programming schedule Contains copyright management information
Level 2: Statutory Licenses“Eligible nonsubscription transmissions”:
Primary purpose is to provide audio entertainment Noninteractive Diverse programming No advance programming schedule Contains copyright management information Minimum duration rules Must use all available technologies to frustrate
copying
Level 3: Freely Negotiated Licenses“Interactive” services:Pay-per-listen systemsServices that transmit digital audio
programs “specially created for the recipient”
Copyright in Music
Objects of ProtectionMusical WorksSound Recordings
EntitlementsReproductionDerivative WorksFirst DistributionDPDPublic Performance
Managed in USABy ASCAP, BMI, SESAC
Exceptions and LimitationsFair Use (§107)Cover License (§115)AHRA (§1008)
digital audio transmission
DPRA Limitations (§114)
CARP Ruling, 2/20/2002Per Performance Fee
Ephemeral License
Webcasters: retransmission of radio 0.07¢ 9% of performance fee
Webcasters: all other webcasts 0.14¢ 9% of performance fee
Commercial Broadcasters: simulcasts
0.07¢ 9% of performance fee
Commercial Broadcasters: all other webcasts
0.14¢ 9% of performance fee
Noncommercial Broadcasters: simulcasts
0.02¢ 9% of performance fee
Noncommercial Broadcasters: all other webcasts
0.04¢ 9% of performance fee
Suppose HipHop.com distributes ad-free popular music to (on average) 10,000 listeners, 24 hours a day Aprx. 15 songs per hour 360 songs per day 131,400 songs per year 1,314,000,000 performances per year
Performance fee: $1,839,600 per yearEphemeral fee: $165,564 per yearTotal: $2,005,164 per year
CARP Ruling, 2/20/2002
Napster Website
UserUser1Library
Directory
UserUser2Library
Inde
x
UserUser6Library
UserUser7Library
UserUser8Library
UserUser4Library
UserUser3Library
UserUser5Library
UserUser9Library
A&M Records v. Napster, Inc. 7/26/00: Judge Patel rejects all of the defenses, grants
preliminary injunction against “facilitating … copying, uploading … plaintiffs’ … compositions and recordings”
7/27/00: CA9 stays the injunction 2/12/2001: CA9 modifies and remands 3/5/2001: Patel issues modified injunction 6/28/2001: New Napster software with file ID technology; old
software is disabled 7/2002: Napster goes offline 1/2002: Patel permits discovery on copyright-misuse issue;
settlement discussions intensify 2/2002: Settlement fails; case resumes 5/2002: Bertelsmann buys residue of Napster
Peer-to-Peer Copying SystemsParent technology:
GnutellaAimster/Madster Kazaa/Morpheus-
Music City/ Grokster/Altnet
80,000,000 downloads 3.6 billion downloads in
January 2002
Audiogalaxy 30,000,000 downloads
Japan MMO
MPAA/RIAA suit MPAA/RIAA suit
(Cal) Dutch court enjoins
software downloads; sale to Sharman Networks (Australia); investigation by APRA
RIAJ & JASRAC suit; April 2002 injunction
RIAA suit in NY; settlement
User 1
User 3
User 2
CentralServer
SuperNode
SuperNode
SuperNodeUser 7
User 8
User 9
User 6User 5
User 4
Adapted from Webnoize
Fasttrack
Authorized ServicesMusicNet
EMI, AOL Time Warner, BMG, RealNetworks
Pressplay Sony, EMI, Vivendi
Universal (MP3.com), Yahoo
Listen.com Subscription streaming,
$10 per month [Ongoing civil
investigation by USDOJ]
Secure (nontransferrable) short-term digital downloads and streaming
Subscription fees, $10-$25 per month
Limits on permanent downloads and CD burning slowly lifting
Copy-Protected CDs
Rapidly spreading experiment in US 10,000,000 CDs produced by Midbar so far
Similar initiative in JapanConsumer backlashPhilips, owner of patents on much of CD
technology, protests deviations from Red Book standards
Likely shift toward DVD-Audio
Internet Distribution of Unsecured Digital Files
Benefits(1) Cost Savings(2) Eliminate
Overproduction and underproduction
(3) Convenience & precision
(4) Increase number & variety of musicians
(5) Semiotic Democracy
Dangers:
(1) Threaten Revenues of Musicians
--fairness
--incentives
(2) Threaten Revenues of Music Industry
Defects of the Current RegimeHigh transaction costsPrice to consumers of access to recorded
music remain highNo “celestial jukebox”Encryption and ephemeral downloads
reduce flexibility, curtail “fair use” and impede semiotic democracy
Continued concentration of music industry reduces consumers’ choices
Limited effectiveness: P2P threatens artists’ revenues
Theory: Clarify and enforce the property rights of the
creators of music; Rely upon Coasean bargains and the emergence
of private collective rights societies to overcome transaction costs (Merges)
Private Property
Features of Private Property
In Real PropertyRight to exclude
Injunctive Relief
Criminal Trespass
Prohibition of burglary tools
In Recorded MusicAdd full public-
performance right for sound recordings
Eliminate compulsory licenses
No Electronic Theft Act
DMCA; SSSCA
Clarify treatment of streaming buffers Public performances Not reproductions or incidental DPDs
Clarify treatment of downloads Reproductions and DPDs Not public performances
Remove royalty payments in 112(e)
Private Property
§112(e)
Creates a compulsory licensing system for the making of multiple ephemeral copies
Copyright Office recommends repeal of the compulsory license on the ground that it has no economic justification
CARP Ruling (2/20/2002): agree with the recommendation, but leave it to Congress
SSSCASecurity Systems Standards and Certification Act Would make it “unlawful to manufacture, import,
offer to the public, provide or otherwise traffic in any interactive digital device that does not include and utilize certified security technologies that adhere to the security system standards”
Private sector has 12 months to agree on a standard
If fail, standard selected by National Institute of Standards and Technology
SSSCA“The term ‘interactive digital device’ means any
machine, device, product, software, or technology, whether or not included with or as part of some other machine, device, product, software, or technology, that is designed, marketed or used for the primary purpose of, and that is capable of, storing, retrieving, processing, performing, transmitting, receiving, or copying information in digital form.”
Benefits:Music companies, confident in their ability to
make money in the new environment, would accelerate Internet distribution
Associated socioeconomic advantages and cost savings
Emergence of refined and flexible private licensing societies (cf. ASCAP) would overcome transaction-cost barriers to licensing (Merges)
The price system would provide music creators precise signals concerning the tastes of consumers (Goldstein)
Disadvantages
Increased Concentration of Music Industry duopoly of MusicNet & Pressplay
Oligopolistic pricing and associated welfare losses
Encryption and anti-circumvention retard semiotic democracy
Ancillary costs of SSSCA
ASCA
Automobile Standards and Certification ActIt shall be unlawful to manufacture, import,
or sell an automobile capable of driving more than 70 miles per hour
ASCA
Drawbacks: Widespread evasion and resistance Prevent socially beneficial activities
• Emergency trips to hospitals• Passing slow automobiles safely
Frustrate long-standing socially acceptable, though technically illegal, custom (driving 65 mph)
Forfeit ancillary benefits of technological innovation of building fast cars
“End-to-end” Architecture
Intelligent, multi-purpose, variegated devices located on the “ends” of the Internet
Simple, open pipes connecting the ends, allowing the transmission of all types of content and all types of applications
Advantages: Foster competition and innovation
Server Server
Server
Server Server Server
Server
Server
PC PC PC PCPC
PC
PC
PC
PC
PC
PCPC PC PC PC PC PC
PC
PC
PC
PC
PC
PCPC
Router
Router
Router
Router
Threats to “End-to-end”
Proprietary control over the pipes E.g., AT&T’s exercise of control over its cable
modem systemStandardization and “dumbing down” of the
computers located on the endsResults:
Greater proprietary control over digital content Curtailment of both competition and innovation
Regulated IndustryTheory: Increased
governmental involvement necessary to:
Respond to oligopolistic structure of the industry
Calibrate more finely the balance between incentives and public access
Equalize bargaining power between artists and record companies
Reject the “propertization”of copyright; Reinstatethe utilitarian balance
Theory ofcompulsoryterms
Compulsory RoyaltiesCARPs at two-year intervals establish:Types of Internet distribution of recorded music
Nonsubscription noninteractive webcasting Subscription noninteractive webcasting Interactive webcasting Ephemeral downloads Permanent downloads
Terms and conditions for eachRoyalty rates for each
For owners of copyrights in musical works For owners of copyrights in sound recordings
boundarieswill shift asconsumptiontechnologieschange
ReplaceASCAP,BMI,SESAC
Regulated Industry
Preserve and extend prohibitions on file-sharing and encryption circumvention
Enforcement at ISP level NET prosecutions of operators of SuperNodes
Compulsory Royalty Systems for all forms of Internet distribution of recorded music(extend current §114(f)(2)(B) and AHRA)
Mandatory (inalienable) distribution of revenues between performers and producers(extend current §114(g); cf. EC Directive)
Likely ResultsBenefits:
Internet distribution of recorded music grows rapidly Reverse vertical integration of the music industry Diversity of services available to consumers increases Net revenues of record industry stable Composers and performers get larger shares of revenues
Drawbacks: Transaction costs remain high Copy-protections limit semiotic democracy Surveillance and invasions of privacy
Intellectual Products are “Public Goods”
Can be used and enjoyed by an infinite number of persons without being “used up” (nonrivalrous)
It is difficult to prevent people from gaining access to the good (nonexcludable)
Creates a danger that an inefficiently low number of such goods will be produced
Possible Responses to Public-Goods Problem
1) Government provides the good • e.g., lighthouses; armed forces
2) Government subsidizes production of the activity• e.g., basic scientific research; NEA
3) Government issues prizes• cf. Shavell & Ypersele on patents
4) Government assists private parties in keeping information secret
5) Government confers monopoly power on producers• e.g., 19th c. toll roads; intellectual-property rights
Alternative Compensation SystemWatermark music, movies, books, etc.
Simple watermarks sufficient, because no incentive to break Tax things used to consume music, etc.:
ISP access -- rates proportional to speed of Internet access CD burners Blank CDs Portable MP3 players
Estimate consumption of each workDistribute revenues in proportion to frequency of use
Cf. ASCAP, BMI, AHRA, European blank-tape taxesEliminate prohibitions on file-sharing, encryption circumvention, and
Internet distribution (downloads and streaming) of published recorded music
Estimate Consumption
For streaming, require webcasters to supply data
For downloads, require suppliers to provide data
For CD copying, extrapolate from CD salesFor P2P copying
Require services to supply data sample Internet traffic at router or ISP level
MeritsLarge cost savingsLower transaction costsElimination of deadweight loss (music priced at
marginal cost of replication)Creators compensated in proportion to consumer
demand for their productsConsumer convenienceReverse concentration of the music industrySemiotic democracy
Practicability?
Risk of “ballot stuffing” International application