Second Circuit gets it wrong in Cartoon Network v. Cablevision

On August 4, 2008, the Second Circuit court of appeals overturned a lower courts opinion that Cablevision's Remote Storage” Digital Video Recorder ("RS-DVR") system violated the Copyright Act by infringing plaintiffs’ exclusive rights of reproduction and public perf ormance.  The full 44-page opinion is available at Cartoon Network, LLP, et al. v. Cablevision.  In my humble yet fully animated opinion, the Second Circuit's opinion was not at all well reasoned nor, for that matter, even common sense -- I believe it misinterprets at three very important areas of the Copyright Act and interpretation thereof:

When is a work "Fixed" According to Section 101

Through a system of buffers, Cablevision's RS-DVR will allow customers who do not own stand alone DVR's to record programming, which resides on Cablevision's servers, and "time-shift" it to view it at a later date.  Certainly a great concept, but one which, in my opinion, should require authorization from the owners of the copyrights. 

In arriving at its conclusion, the court determined that the buffer used to process the steam of data only "copies" the data for a duration of 1.2 seconds, before transferring it to another buffer used to reconstruct a copy of the program for any customer who has asked to view it at a later time.  The court concluded that this "embodiment," i.e. the copy, was transitory in duration and therefore not "fixed" pursuant to Section 101 of the Copyright Act.  Therefore, the copyright owners' right of reproduction was not violated.  This is clearly erroneous reasoning:

The definition of "fixed" in Section 101 of the Copyright Act states, in its entirety:

A work is “fixed” in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration. A work consisting of sounds, images, or both, that are being transmitted, is “fixed” for purposes of this title if a fixation of the work is being made simultaneously with its transmission.

In arriving at its determination, the Second Circuit focused on its condensed version of the definition, i.e. a work is “fixed” when its embodiment “. . . sufficiently permanent or stable to permit it to be . . . reproduced . . . for a period of more than transitory duration.”  The court concluded, based on this shortened version of the definition, that the "language plainly imposes two distinct but related requirements, i.e. an "embodiment requirement" and a "duration requirement."

The Second Circuit's error is grammatical in nature:  it misinterprets the language of the definition of "fixed" by assuming that the phrase "for a period of more than transitory duration" modifies the words "permanent or stable" when in fact it actually modifies the antecedent phrase "permit it to be perceived, reproduced or otherwise communicated."  This is certainly the case with regard to the RS-DVR - it fixes the copies for in sufficiently permanent state in one buffer (i.e. the 1.2 seconds) to permit them to be reproduced in another buffer for a period of more than transitory duration.  Thus, the court got it wrong.

Without getting into too much detail, the court also incorrectly analyzes a 9th Circuit cases, MAI Systems and its progeny which correctly apply the definition of fixed to a copy of a work created in RAM memory for a period of minutes.  The effect of this misinterpretation is to put legal practitioners in the precarious position of trying to determine at what point between 1.2 seconds and 2 minutes does a reproduction arrive at a "more than transitory" state.

Ironically, the Second Circuit ignores the U.S. Copyright Office's analysis of this precise issue in its 2001 report on the Digital Millennium Copyright Act which elaborated that a work was fixed "unless a reproduction manifests itself so fleetingly that it cannot be copied, perceived or communicated."  This clarification is in line with my earlier interpretation that the phrase "more than transitory in duration" modifies the communication or perception, not the embodiment itself.  The Second Circuit stated that, in its mind, the U.S. Copyright Office's interpretation "reads the 'transitory duration' language out of the statute."  To the contrary, however, it is the correct interpretation in that it incorporates the transitory duration requirement into the appropriate section of the definition.

Finally, the Second Circuit completely ignores the last sentence of the definition, to wit:  A work . . . is “fixed” for purposes of this title if a fixation of the work is being made simultaneously with its transmission."  In this instance, the court readily admitted that an unauthorized copy of the work was stored, i.e. "fixed" on Cablevision's servers simultaneously with its transmission.

When is an infringer not an infringer?

In extending recent trends by some circuits to weaken the strict liability component of the Copyright Act, the Second Court refused to find that Cablevision was a direct infringer.  Instead, it rules that the customer is the direct infringer in this instance of digital recording, showing his or her intent to make a copy when he or she presses the record button on the remote.  The court reasons as follows:

In this case . . . the core of the dispute is over the authorship of the infringing conduct.  After an RS-DVR subscriber selects a program to record, and that program airs, a copy of the program–a copyrighted work–resides on
the hard disks of Cablevision’s Arroyo Server, its creation unauthorized by the copyright holder. The question is who made  this copy. If it is Cablevision, plaintiffs’ theory of direct infringement succeeds; if it is the customer, plaintiffs’ theory fails because Cablevision would then face, at most, secondary liability, a theory of liability expressly disavowed by plaintiffs.

Emphasis mine.  The first thing to note about the court's conclusion is that it realizes, right off the bat, that the copy created on the servers of Cablevision is an infringement.  In its mind, however, the only question is who made the copy.  Now, that, of course, flies directly in the face of a host of copyright concepts which I will not address here, but suffice it to say that this is problematic.

But, for the moment, let's just examine how the court ultimately determines who had the "volition" to infringe in this specific case:

There are only two instances of volitional conduct in this case: Cablevision’s conduct in designing, housing, and maintaining a system that exists only to produce a copy, and a customer’s conduct in ordering that system to produce a copy of a specific program. In the case of a VCR, it seems  clear–and we know of no case holding otherwise–that the operator of the VCR, the person who actually presses the button to make the recording, supplies the necessary element of volition, not the person who manufactures, maintains, or, if distinct from the operator, owns the machine. We do not believe that an RS-DVR customer is sufficiently distinguishable from a VCR user to impose liability as a direct infringer on a different party for copies that are made automatically upon that customer’s command.

The court then continues its analysis by example, offering the examples of a retailer who owns a photocopier and rents it out to the public as reinforcement of its conclusion, finding that because the retailer would not be liable for infringement, neither should Cablevision.   Despite the fact that there is case law holding that such a retailer WOULD, in fact, be liable for infringement, the Second Circuit errs in failing to see the difference between a VCR in the analog world, a single, stand-alone device used express by the customer, and a process devised by a company which makes infringement as simple as pressing my record button on my remote.  The court does not find this a "sufficient" distinction.  The court's error in logic is apparent in this prose when it examines a 6th Circuit case on the issue:

In determining who actually “makes” a copy, a significant difference
exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct.

Is this 2001 Space Odyssey?  Did H.A.L. take over when I wasn't looking?  Who programmed the system?  

If this were not enough, the Second Circuit then performs a great deal of legal gymnastics to support its finding:  First, it examines the video on demand process to illustrate that Cablevision does not have control over the transmissions being recorded by the subscribers in the RS-VCR system.  Are they for real?  Ever heard of apples and oranges.  The VOD system is a fully licensed process which is, dare we say it, nothing like the RS-VCR system.  Secondly, the Second Circuit uses the distinction between "active" and "passive" infringement under the Patent Act to jump to the almost humorous, if it weren't so wrong, conclusion that:

If Congress had meant to assign direct liability to both the person who actually commits a copyright-infringing act and any person who actively induces that infringement, the Patent Act tells us that it knew how to draft a statute that would have this effect.

Every intellectual property attorney worth his or her salt knows that the Copyright Act and the Patent Act are very limited in their usefulness for purposes of using one to interpret the other.  That's why it's said that the Copyright Act is a strict liability statute, whereas, the Patent Act is not so much.

When is work "publicly performed"?

The final error committed by the court is in its analysis of whether the buffered copy delivered to individual customers was "publicly performed." In this regard, the Second Circuit concluded:

under the transmit clause, we must examine the potential audience of a given transmission by an alleged infringer to determine whether that transmission is “to the public.” And because the RS-DVR system, as designed, only makes transmissions to one subscriber using a copy made by that subscriber, we believe that the universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create that transmission.

Again, the Second Circuit has to do a hatchet job on the definition of "public performance" in order to arrive at this convoluted conclusion.  The definition of "public performance" in the Copyright Act is actually found in the "publication" definition of Section 101.  It states, in its entirety:

To perform or display a work “publicly” means — 

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

Emphasis mine.  Whereas the Second Circuit zeroed in on the phrase "to the public" in making its determination, the definition clearly intends to define public performance as any process that allows the public, in general, the ability to receive the transmission, whether or not it is in the same place or the same time.  Its not very difficult to see the fallacy of the Second Circuit's reasoning.   The Cablevision RS-DVR clearly does precisely what the definition anticipates, it creates multiple copies stored in the buffers for individual subscribers in multiple places, who then view the (buffered) transmissions at different times. 

While this seems simple, the Second Circuit jumps through numerous irrational hoops to arrive at the idea 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.”

Nothing in the statute dictates this conclusion, to the contrary, the legislators probably thought that the word "public" was generic enough to not need interpretation. 

The effect of this ruling, at least for now, is that anyone can make digital copies of any copyrighted work on their servers for purposes of transmitting to an individual customer, so long as that individual customer makes a request for it, and there is no implication of the performance rights.

This is a fine example of a court "reasoning" the meaning completely out of a statute. 

Conclusion

If it is not obvious by now, I think this is one of the most poorly reasoned and drafted opinions by a Circuit Court that I have read in a long time.  If there is a bright side, it is that the effect of this decision is primarily that it overturns the grant of a summary judgement by the lower court.  From a broader perspective, however, and the more unfortunate result is that, because of the concept of stare decisis, this reasoning can now be cited in other cases in other jurisdictions across the country as good law.  So, unfortunately, we entertainment attorneys will be dealing with the negative impact of this decision for some time to come, until perhaps some higher court, in this case the Supremes, decides to rectify it.

Technorati Tags: Copyright Infringement,Direct Infringement,Contributory Infringement,Fixation,Public Performance,Performance Royalties,Digital Downloads,Intellectual Property,Internet Law,Computer Law

Why "Freeconomics" - and the Music Industry's Five Point Plan - won't work in the long term

There is a great deal of talk these days about the concept of "freeconomics," spurned by the fact that most teenagers and college students are still ripping music and sharing it online.  Most recently, the major record labels commissioned a study from two think tanks, The Leading Question and Music Ally, which resulted in a five recommendations for the music industry, including "bundling" of product.  Another of the points was "Free doesn't mean no money."  How original.  And oh, by the way, IT DOES ACTUALLY MEAN THAT!  You can read the full article about the study here.

Let me start out by observing an old adage, which still holds true in life, that you tend to "get what you pay for."  I've always believed in that adage.  There is generally a direct correlation in the amount of sawbucks you shell out to the quality of the product you receive.   When I cook, for example, I use the freshest ingredients.  I spare little expense.  Sure, I try to find bargains, but if you skimp on the quality of your ingredients, you always skimp on taste.  I have always resisted the impulse to buy meat on clearance!

What about "free" goods?  Just think about how many junk e-mails you receive every day offering you a "free" iPhone, or a "free" laptop, or a free whatever. . . the list goes on and on.  Don't you automatically just delete those?  Of course you do -- because everyone knows these types of things are given out for free:  first, someone is actually paying for those goods; secondly, you have to subscribe to a certain number of paying offers in order to actually receive the "free" iPhone or laptop.  There is another adage:  nothing is life is free.   Fact of the matter is, if I wanted an iPhone, I'd go out and buy it.

Now, let's turn our attention to "freeconomics" and honestly call it what it really is:  freakenomics!  Again, nothing in life is free. 

Nonetheless, we are lead by these researchers to examine Google and its model of giving out free software as an example of how the music industry can give away music and still achieve a profit.  This analogy is wrong on so many levels, but I'll just point out one basic incongruity:  the software developers that are writing software for Google work for the conglomerate under a work for hire agreement - Google does not have to compensate multiple rights owners.  It owns the entire product. 

This is not so with a musical composition/sound recording combination.  That is bundle that is not so readily united.  The record label generally owns the sound recording of a musical composition, but does not always own the underlying music compositions.  There may be multiple owners of the underlying compositions which have to be compensated - multiple songwriters and multiple publishers.  The producer also must be compensated.  The musicians who play on the record have to be compensated, not to mention their union fees and retirement fund.  The engineers who work on the project are compensated. The artist has to be compensated for their performance.  The people who master the product must be compensated. 

What the simplistic - dare I say naive - five point plan laid out by the record "think tank" overlooks is that in order to accomplish the equivalent of something like a Google in the music industry, one has to completely rewrite the industry.  While this is not a new idea, it is also not an idea that can be accomplished in today's copyright structure nor within the current orientation of the music industry.  Hundreds of years of practice have to be completed abolished for the Google model to work in the music industry.

Let's look an entity that has actually tried to make such a paradigm shift:  MySpace.  It is most definitely the place where independent artists go to get their music heard.  The music is generally free.  How many artists have you listened to on MySpace in the last month?  I'm in the industry, and I have listened to maybe two, but only because I received a specific request to do so. 

How many artists on MySpace actually make a lucrative living doing what they are doing there?  Again, the music is free isn't it?  Freecomonics will get us something akin to the quality of music that you find on MySpace in general.  There is no realistic way to sift the wheat from the chaff. 

The instant you stop rewarding the songwriters and artists that create the music -- removing a real incentive for creating their art full time -- the sooner you'll find a void in the really high quality music.  Yes, there are some who say that artists will produce art regardless of whether they receive compensation, because that is what they do.  However, this is not historically accurate in music or any of the arts.  If you find an artist who is thriving, you will generally find a source of money, whether it be selling the artwork to a famous benefactor or having financial muscle behind him or her. 

In music, the major labels have historically been the finders and funders of the talent.  They spend a lot of money discovering, developing and marketing the talent.  For the most part, it is the major label product that gets traded on the P2P networks.  That is one factor that is often overlooked.  What the general public wants to hear, and shares on P2P, is generally the music that is marketed heavily - generally by the major labels.  That will not change until someone constructs a better way to get music heard by the public in general. 

So, I believe if you remove the economic component of music, you will ultimately eliminate the talent altogether.  Otherwise, the talented will have to get day jobs to support their art and the art will most certainly diminish and/or suffer.

Let's turn to some of the other suggestions made by The Leading Question and Music Ally:

(1)  Music needs to be bundled with other products and entertainment packages.  They conclude that "music needs to move away from per unit sales and become more of a service than a product."  Can we say YAWN class?  The record labels cannot break themselves of the idea that people want a package deal.  We don't.  We want ala carte!  The sooner that the industry comes to this realization, the better off they will be.  Isn't this what the labels have been feeding us for years?  This is but the "record album" in another iteration.  Buy this collection of 10 songs, 2 of which are what you actually want and 8 of which bite!  Come on guys, hasn't the digital revolution taught you anything?  Wake up and smell the single downloads.  That IS what the consumer wants.  Build a model that incorporates the single download.  Don't build a model that ignores it.

(2)  Labels needs to experiment with new release schedules and formats.  Seriously?  Again, the think tanks suggest that "single . . . releases have run [their] course."  Ditto what I said above.  Check out the success of iTunes, emusic, Amazon, etc. etc.  Check out what happens on P2P networks when a new digital single is released.  The single is NOT a thing of the past.  Now, granted, I agree that digital only releases and new pricing models are going to be part of the new model -- couldn't any fourth graders could tell you that?  But again, people want their music ala carte.  They want good music.  They don't want the bundles, the fillers, the parasitical crap that the industry wants to latch onto what they really want.

(3)  Change the charts.  Yes, people actually get paid to say this stuff!  The conclusion is that the charts don't make sense anymore because fewer people are buying music.  In fairness, I understand this one to some degree. But, has anyone noticed that Billboard already tracks digital downloads?  Has anyone noticed any of the other p2p tracking devices, such as Big Champagne, just to name one.  Sure they have and so have the major labels.  In fact, that is in part where many of the researchers get their data.  No doubt, the tracking of general overall consumption should be an important factor in consideration.  While we are at it, why not pay more attention to the portion of the market called baby boomers.  The older generation that buys music, but rarely gets consulted when discussing these issues.

(4)  Trust the DJ.  Next to the CD format, the other big thing the record industry has a hard time letting go of is the radio format.  The record industry likes to control the advise given about music so that they control what the listener "wants" to hear.  The think tanks concludes that "the instant and massive availability of music on demand means you need a trusted guide like John Peel more than ever."  I disagree with this conclusion because I believe that this "advisor model" is antiquated.   These days, most people rely more on social networking - either virtual or real -- and trending algorythms to determine what music they enjoy.  I don't know of any teenager that listens to terrestrial radio any more.  For them, a DJ is someone at a wedding reception and they are not likely to take advise from that person. 

Yet, the file sharing continues and, more importantly, so does the need for change.  Now that I have ranted a little about the suggestions made by these industry think tanks, let me say that I do, in fact, appreciate their efforts to come up with solutions to the declining music industry.  I wholly agree with what the managing director of Music Ally, Paul Brindley says in the article, that the

"business models need to change radically if the music business is to stand any chance of halting the current decline in sales."  Without a doubt, something truly has to be done or the industry will fail.

As I heard one venture capitalist put it, for him to consider an investment in the music industry, it must be a paradigm shifting, industry changing business model.  These suggestions by The Leading Question and Music Ally just don't quite rise to that level, in my humble opinion.  In my opinion, the ultimate solution will be a fair priced - but not free - digital download model.  The most important component that is missing thus far, and that is critical, is a means of getting the music heard by the general population.  We have many services which may be close, but as of yet, we are not quite there.

Technorati Tags: Music Industry,Digital Downloads,Music Publishing,Songwriting,Music Law,Internet Law,Record Labels,RIAA Litigation

Taking a Bite out of Apple: iPhone Hackers File Lawsuits

Posted with the permission of the author Matthew Williams, Esquire.  Matthew is an intellectual property attorney practicing with the firm of Mitchell Silberberg & Knupp.  All rights reserved.

Apple’s release of the iPhone in June 2007 was an unqualified business success - 1.4 million iPhones were sold in just a few months. However, as has become the norm when a business is successful, several legal problems have arisen for Apple and its telecommunications partner, AT&T. Many of these problems began shortly after the iPhone’s release, when a New Jersey teenager announced that he had circumvented the technological 'lock' that renders the iPhone inoperable with wireless telephone carriers other than AT&T. The hacking of the iPhone received almost as much press attention as its release and Apple estimates that as many as 250,000 iPhones have been unlocked . 

In response, Apple issued a press release which warned consumers that modifying iPhones in order to switch wireless carriers could damage the product and void Apple’s warranty. Apple also announced that future Apple software updates would likely render modified iPhones permanently inoperable. Shortly afterwards, an Apple software update did just that. Predictably, two class action lawsuits alleging unfair competition and antitrust claims were filed against Apple in October 2007: one, which also names AT&T as a defendant, in the US District Court for the Northern District of California,(1) and one in the California Superior Court in the County of Santa Clara.(2)

Among other things, the complaints allege that consumers may unlock iPhones legally on the basis of a November 2006 regulation promulgated by the librarian of Congress regarding exceptions to the Digital Millennium Copyright Act’s prohibition against circumventing technological protection measures. Furthermore, the complaints allege that the software update issued by Apple, rendering thousands of iPhones inoperable, was an illegal effort to prevent consumers from exercising this exception.

Whether the unlocking of iPhones fits within the librarian of Congress’s exception to the act depends on the answers to a number of difficult questions. It is far from clear that unlocking an iPhone is legal. The librarian crafted narrow language which limits the exception to circumstances in which “circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network”. 

At least one court(3) has ruled that unlocking a mobile phone for the purpose of reselling it to third parties violates the act and does not fall within the exception; fearing that many of the iPhone hackers purchased multiple iPhones for resale, Apple recently limited the number of iPhones that an individual may purchase and stopped accepting cash for iPhones. Determining whether the librarian’s exception applies to unlocking iPhones and, if so, how many of the class members involved in the cases fall within the scope of the exception are likely to be central issues. Copyright owners should follow these cases carefully, especially because the anti-circumvention provisions of the act are infrequently interpreted and are often critical to many business models.

Endnotes

(1) Holman v Apple, Inc.

(2) Smith v Apple, Inc.

(3) In TracFone Wireless, Inc v Dixon, 475 F Supp 2d 1236 (MD Fla 2007).

You Say You Want A REVOLUTION?

You say you want a revolution

Well, you know

We all want to change the world . . .

 

You say you've got a real solution

Well, you know

We'd all love to see the plan

You ask me for a contribution

Well, you know

We are doing what we can

 

But if you want money

for people with minds that hate

All I can tell is, brother, you'll have to wait

 

Don't you know it's gonna be alright?

 

-John Lennon

Perhaps John Lennon said it best:  if you push people hard enough and long enough, they will revolt.  The question is, has the RIAA gone too far for too long? A recent motion filed in their case against students at the University of Maine may very well answer that question.

The RIAA named numerous "John Doe" students in their complaint in Arista Records v. Does 1-27, as is their practice in all of their lawsuits.   The RIAA's purpose of naming the John Doe defendants is so that they may obtain an ex parte (i.e., without the other party being notified) order from the Judge requiring the targeted university to provide the various students' name, address, and, particularly, their IP address.

Student lawyers at the University school of law Cumberland Legal Clinic have filed a motion for Rule 11 sanctions against the RIAA claiming that this practice improperly seeks to circumvent the student's rights under the Family Educational Rights and Privacy Act, §1232g(b)(2)(B) ("FERPA"), gain publicity for its cause, and coerce students into settling for "nominal" amounts in the $3-5000 range.

Rule 11 of the Federal Rules of Civil Procedure allows sanctions against an attorney who signs a pleading without properly investigating the facts and the law and does so with an improper purpose.

The motion also questions whether the joinder of plaintiffs and defendants under the RIAA-type lawsuits is proper because the actions do not, in fact, arise out of the same transaction.  Rule 20 of the Federal Rules of Procedure provides that multiple plaintiffs can join in one action if “they assert any right to relief jointly, severally, or in the alternative with respect or arising out of the same transaction, occurrence, or series of transactions or occurrences…and any question of law or fact common to all plaintiffs will arise in the action.” Fed. R. Civ. P. 20(a).  Similarly, multiple defendants can be joined in one action if “any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transaction or occurrences . . . and any question of law or fact common to all defendants will arise in the action.” Id.  The student motion alleges that the RIAA does not, in fact, believe that all of these copyright infringements arise out of the same facts, but join together against multiple defendants for the sole purpose of trimming litigation and discovery costs.

In this case, the student lawyers are seeking more than just monetary damages under this Rule 11 motion:  they also seek dismissal of the complaint and a permanent injunction preventing the RIAA from filing "fishing expedition" type complaints against "unconnected" defendants in the future.  These types of injunctions may be applied in jurisdictions other than the one in which it was issued, so in theory such an order may be applied to thwart lawsuits in other Federal courts across the country.

This in one ruling that should be very interesting.

 

Technorati Tags: RIAA Litigation,Digital Downloads,MP3,Entertainment Lawyer,Music Lawyer,Music Law,Copyright Infringement

Columnist David Pogue sings a humorous diddy about the RIAA

New York Times technology columnist and Emmy-award winning CBS news correspondent David Pogue is featured in this YouTube video singing a fun diddy about the digital wave of media on the Internet, ending with a humorous take on the RIAA and its wave of litigation against college students nationwide.  Enjoy

 

Technorati Tags: digital copyright law online internet law legal download upload peer to peer p2p file sharing filesharing music movies indie independent label freeculture creative commons pop/rock artists riaa independent mp3 cd favorite songs intellectual property

Atlantic Records et al. v. Brennan: Federal Judge Denies Default Judgment for RIAA

U.S. District Judge for the District of Connecticut  Justice Janet Bond Arterton, handed down a very pointed and decisive opinion hammering the R.I.A.A. for its boilerplate style of pleading in the nationwide wide campaign against illegal file sharing.   Justice Arterton was appointed by President Clinton in 1995.  The full decision is here:  Decision.  At several key junctures in the opinion, Justice Arterton based her opinion on the fact that the Plaintiff's complaint was based on "information and belief" rather than direct evidence.

The two areas of concern in the opinion, one is whether to grant a default judgment under Federal Rule of Civil Procedure 55(b)(2) and the second is whether the complaint fails to state a claim for which relief can be granted under Rule 12(b).

Default Judgment Analysis under Rule 55(b)(2)

The granting of default judgment is generally almost a "rubber stamp" kind of process.  If the defendant is properly served and fails to respond to the complaint, a default judgment is almost always automatic.  If the complaint demands an exact amount as judgment, the default judgment can even be entered by the court's clerk under Rule 55(b)(1).  If not, then the court holds a hearing to determine the amount of damages under Rule 55(b)(2).  In this instance, however, the court stepped in and took it upon herself to examine the validity of the claims.

Reasoning from a 2nd Circuit case, Au Bon Pain Corp.v. Artect, Inc., 653 F.2d 61 (2d Cir. 1981), the court found that the default judgment process is not, in fact, automatic, but that “a district court has discretion . . . to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action.”  Artect, at 65, citing Wright & Miller, a well known legal treatise on procedure. 

Looking a another legal treatise, Moore's Federal Practice, Justice Arterton reasoned that the analysis should combine elements from Rule 55(c), the rule allowing the setting aside of a default judgment, and Rule 60(b), a more generic rule allowing  a court to set aside judgments.  Finding support for this analysis in 2nd Circuit case law, the court held that three factors arose in determining whether to set aside a judgment under either of the two rules:  (1) “the willfulness of default”; (2) “the existence of a meritorious defense”; and (3) “the possibility of prejudice to the plaintiffs should the default judgment be vacated.”

In weighing these factors, the judge determined that the latter two factors shifted in favor of the defendant, i.e., there were abundant meritorious defenses raised in similar cases filed by the RIAA across the country, and the Plaintiff would not be prejudiced by being required to produce more specific evidence.  In both instances, the court again mentioned the language that the Plaintiff's complaint was based on "information and belief."

Failure to State a Claim Upon Which Relief Can be Granted under Rule 12(b)(6)

The more telling section of the opinion is the court's ostensibly sua sponte (i.e., of its own accord) analysis of whether the Plaintiff's complaint failed to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  This rule generally gives the defendant a right to raise this defense in a response to a complaint.   Ostensibly, the court raised this issue in the context of possible meritorious defenses.

Justice Arterton cites the recent Supreme Court opinion that a complaint “does not need detailed factual allegations, [but] a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions.”  Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65 (2007).  She then observed that Plaintiff's complaint in this case was almost identical to the one filed in Interscope Records v. Rodriguez, where the court held:

Plaintiff here must present at least some facts to show the plausibility of their allegations of copyright infringement against the Defendant. However, other than the bare conclusory statement that on “information and belief” Defendant has downloaded, distributed and/or made available for distribution to the public copyrighted works, Plaintiffs have presented no facts that would indicate that this allegation is anything more than speculation. The complaint is simply a boilerplate listing of the elements of copyright infringement without any facts pertaining specifically to the instant Defendant. The Court therefore finds that the complaint fails to sufficiently state a claim upon which relief can be granted and entry of default judgment is not warranted.

Rodriguez, No. 06-2485, 2007 WL 2408484, at *1 (S.D. Cal. Aug. 17, 2007).  Citing the Second Circuit case Greyhound Exhibit Group, Inc. v. E.L.U.L. Realty
Corp., 973 F.2d 155, 158 (2d Cir. 1992), which held that the entry of default “constitute[s] a concession of all well pleaded allegations of liability," Justice Arterton ruled that Plaintiff's complaint was "speculative" and "inadequate."

Eric Bangeman, of Ars Technica reports that the RIAA plans to file a brief, probably accompanying a motion for reconsideration, and possible an amended complaint, as they did in Interscope v. Rodriguez.  The amended complaint provided additional details about dates, times, and IP addresses.  Whether the additional details of that amendment will alter the application of Rule 12(b)(6) is still unknown, as the judge in that case has since retired.

Technorati Tags: RIAA Litigation,Digital Downloads,Copyright Infringement,File Sharing

Expert Witness Fund established to defend against RIAA Lawsuits

The Recording Industry v. the People, an anti-RIAA blog operat ed by New York attorney, Ray Beckerman, is cooperating with the Boston-based non-profit, The Free Software Foundation, to establish "a fund to help provide computer expert witnesses to combat RIAA's ongoing lawsuits, and to defend against the RIAA's attempt to redefine copyright law."

The Free Software Foundation was established to promote the development and use of free software.  It manages several campaigns to achieve that goal, including one called "BadVista.org," fighting the adoption of Microsoft Vista, and "DefectivebyDesign.org" which was established for the purpose of eliminating digital rights management in music and movies from "Big Media."

As of the end of November, the fund had raised over $4,000.  The fund will be administered by Mr. Beckerman and will be disbursed to technical witnesses hired by RIAA litigation defense teams on a variety of criteria, including the basis of the importance of the case to critical legal issues.

To donate to the fund, click here.

Technorati Tags: RIAA Litigation,Digital Downloads,Recording Industry,Copyright,MP3

The Magic Bubble Bursts: Did the Record Labels made their own grave?

For almost a decade now, the major labels (at the beginning there were five of them, now only four, EMI, Sony BMG, Vivendi Universal and Warner) have declared that illegal downloading is ravaging their business by destroying the sales of physical product.  One may question this declaration, however, in few of the fact that ever since the RIAA filed its 1998 litigation again the manufacturer of the Diamond Rio MP3 player and extending to its most recent lawsuits against individuals across the country, the music industry has committed more public image faux pas than Dan Quayle and George W combined, making it one of the most hated industries among high school and college students.  It should be apparent to everyone now that it is not illegal downloads that is causing the downturn in music sales, as there are many other contributing factors.

This marred image is evident.  According to an article in Rolling Stone magaine entitled The Record Industry's Decline:

About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Last year the eighty-nine-store Tower Records chain, which represented 2.5 percent of overall retail sales, went out of business, and Musicland, which operated more than 800 stores under the Sam Goody brand, among others, filed for bankruptcy. Around sixty-five percent of all music sales now take place in big-box stores such as Wal-Mart and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artists.

Nonetheless, a new research study on the issue, commissioned by the Canadian government to explore issues related to copyright reform, was recently released.  The study is entitled The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada, and was written by Birgitte Andersen and Marion Frenz, of the Department of Management at the University of London in England.  A PDF version of the study is published here.

The results of the new study affirm many of the conclusions found in an earlier study entitled, The Effect of File Sharing on Record Sales: An Empirical Analysis.  This paper was published in the February 2007 issue of The Journal of Political Studies, and was written by Koleman Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer of the Harvard University Business School.  Both studies directly contradict the claims of the music industry that file sharing is related to revenue losses.

In fact, the new study supports an opposite assertion, i.e., that distribution of music files on P2P networks actually promotes the sale of physical product.  Andersen and Frenz found, among people who actually participate in P2P file sharing, downloading actually increases the sale of physical product by a ration of 2 to 1, in other words, on average when a P2P file sharer downloaded the equivalent of two CDs in files, he or she would purchase of one physical CD (Note:  I have extrapolated here, as the numbers set forth in the study actually say that for every 12 P2P songs downloaded, physical purchases increased by 0.44 CDs).  It is important to note that the study concluded that, when incorporating the Canadian population as a whole (i.e., including the group who participate in P2P file sharing along with those who do not), file sharing on P2P networks has neither a positive nor a negative impact on CD sales.

One fact in the report I found very intriguing is its conclusion that the owners of MP3 players are less likely to purchase physical product.  This is interesting, in my mind, because I believe it is connected to the popularity of the iPod and iTunes.  If a person purchases the iPod and uses iTunes, there is really no need to buy physical product, whereas when a person uses a different brand of MP3 player, he or she is, in my humble opinion, more likely to go out in search of alternative means of finding music, including purchasing CD's.  I would like to see a study which compares iPod owners with owners of third party MP3 players.  It may turn out that the biggest culprit in the demise of the record industry is Apple!

One story I found really revealing is the Rolling Stones article on The Record Industry's Decline.  In it, the author tells the story about how the major labels were unable to come to a settlement with Napster which would have given them immediate access to Napster's 38 million users.  I don't know the details of that meeting, but it seems to me that when the industry burst that bubble, those 38 million users disbursed into millions of subgroups on P2P networks so varied that it become virtually impossible to get the magic back.  Hindsight is, of course, always better than foresight, but this event certainly seems to me to one of the biggest turning points in our industry's history.

Is the music industry going to survive.  Of course!  It will certainly not be in the form many traditionalists in the industry wish it to be.  CD's eventually be ancient relics of the past, sought after by collectors much as jazz lovers currently seek out old vinyls and record players.  The radio industry will not have control over marketing and thus the role of radio consultants on the industry will be diminished.  Marketing efforst will shift to television outlets and Internet marketing.  Search engines and online communities will continue to surface new music and expose the long tail.  Major labels will no be the sole repository of the major talent, as independents will rise to fill the void, fueled by venture capital from investors.  Whatever happens, it going to be an interesting ride!

Some further reading:

The Freakonomics of Music

File Sharing:  Zero Effect on Downloads

The Record Industry's Decline

Technorati Tags: Record Labels,Recording Industry,Entertainment Industry,CD,Digital Downloads,Diamond Rio,Major Labels,File Sharing,P2P Networks,P2P,Music Lawyer,Entertainment Lawyer

Music Publishing 101, Part 4: Show me the money!

Section 106 of the Copyright Act gives the owner of a copyright a bundle of rights which includes the rights to 1) reproduce the work, 2) prepare derivative works, 3) distribute copies of the works, 4) publicly perform the work and 5) publicly display the work.  All of the music publisher's income flows from this basic bundle of rights.  It should be noted that the right to perform the work is sometimes segmented into two descriptions, one called the grand rights, or dramatic and theatrical performances of the work, and small rights, or all public performances other than theatrical, including live performances of the work and radio broadcasts.  Here is New York attorney, Peter Shukat discussing grand rights:

To exercise control over these rights, a music publisher issues licenses to authorize various uses falling into this bundle of rights.  For example, if a company wants to reproduce and distribute a copyright in a musical composition, the publisher will issue a mechanical license to a record label, for example.  Mechanical royalties are a primary source of income for music publishers.  In the United States, the U.S. Copyright Office sets the rate for mechanical royalties, which is currently 9.1 cents for songs that are 5 minutes or less, and 1.75 cents per minute for songs exceeding 5 minutes.  The current mechanical royalty and historical rates can be found at the Harry Fox Agency's website.  The Harry Fox Agency administers licenses for, and collects and distributes royalties to its member of the National Music Publishers Association, although a music publisher can, and often does, perform this task on its own  Since the rate is always subject to increase,  a music publisher should also request language in the license that provides that payment is made at the rate in effect at the time the product is distributed.

Another major source of income for music publishers is public performance royalties.  in the United States, these royalties are almost always collected by the three major performance rights organizations, ASCAP, BMI & SESAC.  Outside the U.S., each country has its own performances rights organizations.  See the "Resources" page on my blog for a list of and links to many of these.  As discussed in Part 2 of this series, music publishers, as well as songwriters, affiliate with (i.e., enter into an agreement with) the performance rights organization to enable them to track airplay and live performances, and collect and distribute the royalties.  Performance rights organizations issues "blanket" licenses to radio stations, television stations, large nightclubs, large restaurant chains, and retail source so that these entities can play the music of their affiliated songwriters and publishers.  In exchange, these venues pay the performance rights organizations fees based on the anticipated usage.  The societies then use varying formulas based on such factors as airplay and usage to issue payment to its affiliate songwriters and publishers.

The music publisher issues a synchronization license to the producers of  television shows, movies and commercial advertisements for reproduction and distribution of the work.  The "sync fee" is usually a one time payment, varying from the hundreds of dollars to hundreds of thousands, dependent upon numerous factors such as the length of the segment in which the song is used, the prominence of the song in the scene (whether it is prominently featured or in the background), and whether it is the primary focus of the scene (as, for example, BTO's old song Takin' Care of Business as used in the Office Depot commercials).  The publisher typically splits this type of revenue equally with the songwriter.

A less generous source of income, but still significant nonetheless, is revenue generated by printing sheet music and lyrics.  This is a type of public display, but can also fall into the category of reproduction and distribution.  Print licenses are most commonly issued to publishers of individual sheet music (sometimes called "piano copies") and so-called "folios" (a collection of sheet music by a particular artist) and sheet music collections.  Income is also generated when lyrics to musical compositions are reprinted in a publication, such as, for example, when a book is printed in connection with a movie.  How much of this income is given to the songwriter varies widely, as it is sometimes based on percentage basis, but also can be on a flat, cent rate, e.g, 15 cents per copy.  When a percentage basis is used, it is sometime based on wholesale, sometimes retail.  The general trend among publishers in past years, however, is to split everything equally on a 50/50 basis.

Of course, one rapidly growing area of revenue is in the arena of  technology, i.e., computer software, multimedia products, singing greeting cards, DVD's and particularly ringtones.  Though these usages also involve the reproduction and distribution rights, they generally require specialized licenses and the rates a very market driven. Again, it is customary for a music publishers to split these fees equally with the songwriter.

Finally, a very significant source of income for a music publisher is foreign sub-publishing.  Outside of the U.S., music publishers solicit foreign sub-publishers on a territory by territory basis.  The arrangement is generally exclusive, meaning that the foreign publisher has the rights to exploit the music publisher's entire catalogue of songs within that territory, including the entire bundle of rights, and issue mechanical, performance, synchronization and print licenses for the usage of the music.  Typically, the U.S. publisher will receive 75% of the income generated by the foreign sub-publisher, while the sub-publisher retains 25%.  The sub-publisher does not receive any ownership interest in the copyright and usually pays the U.S. publisher a significant advance on future royalties, dependent in large part on the amount of income the catalogue has generated in the U.S.  Foreign income is often the subject of intense negotiation in writer deals, but very often a songwriter will receive half of everything the U.S. publisher receives, or 37.5 cents of the 75 cents received by the publisher.

Technorati Tags: Music Publishing,Music Lawyer,Entertainment Lawyer,Public Performance Royalties,Sychronization Fees,Licenses,Mechanical Royalties,Performance Royalties,Print License,Grand Rights,Copyright,Copyright Law,Music Business

 

Copyright: it's the end of the world as we know it.

Abraham Maslow’s famous “hierarchy of needs” places self-actualization as the pinnacle of human behavior.  To illustrate what the phrase "self-actualization" meant , Maslow said:

“a musician must make music, an artist must paint, a poet must write, if they are to be ultimately at peace with themselves.” 

Of course, the thing that is important to note about Maslow’s hierarchy is that  physiological needs are at it’s base, i.e., a person’s basic needs must be met before that person can reach self-actualization.  In other words, “a guy’s gotta eat”!

Maslow’s theories shed some light on the ongoing social debate on the Internet regarding whether musicians would continue to produce quality music if copyright as we know it were to be abolished.  A different argument, though very related, is whether money motivates one to be creative. 

One movement advocate such ideas is the "Free Culture Movement."  Less extremist, perhaps, is Stanford professor, Lawrence Lessig's "Creative Commons" group, which advocates modified forms of traditional license agreements as a social compromise to "reconcile creative freedom with marketplace competition."  For other research regarding this debate, see also this interesting discussion on the site Against Monopoly and watch Stanford professor Lawrence Lessig's video on TED entitled "How creativity is being strangled by the law."

The underlying assumption of some of these parties involved in the debate, which is ostensibly grounded in the record and movie industry's recent campaigns against infringers, is that all intellectual property should be free for the public to use without payment and that the antiquated copyright laws should be modified or abolished.   In my opinion, this extremism  ignores the foundation principle of Maslow's hierarchy of needs, that in order to achieve self-actualization, an artist's or musician's base needs must be satisfied.

Proponents of the free culture movement observe that creativity and survived many years without the structural form which copyright superimposed upon it.  Indeed,  it is often observed that the great works of Mozart were created without the existence of copyright laws.  Let us not forget, however, that Mozart wrote many of his works while being employed by benefactors such as the Prince Archbishop of Salzburg, Heironymus Colloredo  and Emperor Joseph II of Vienna, names that are certainly not as prominent as Mozart's.   In fact, where would the world of the arts be without the billions of dollars that have been donated by benefactors such as J.P. Morgan, James Smithson, Bill & Melinda Gates, Andrew Carnegie, Henry Ford, John D. Rockefellar, just to name a select, if not elite, few.  So, while it is true that "a musician must create music," it is also true that a musician has to eat. 

Long before the existence of copyright laws, there was a strong relationship between money and the creation of arts and music, and it will be that way until we abolish our system of currency as we now know it.   Walk around any great city and witness the existence of hundreds of pieces of commissioned artwork.  Listen to the commissioned works of Mozart, Beethoven and other great composers, who existed at the hand of benefactors.  Walk through the Museum of Modern Art and look at the works of art generously donated by J. P. Morgan and other benefactors.  Whether it be a king or a record label, money benefits art.  Creativity, like it or not, is often inspired by the almighty dollar, whether that is represented by paper currency or some other bartered for compensation which meets our base needs as human beings.  

That's not to say that people would not continue to make music or art if they were not compensated for it - they would.  That is an entirely different question in my mind.  People's hobbies and past time activities are in a slightly different class than, say, Don Henley.  If great singer-songwriters such as Henley could not make a living at playing music and writing songs, I would venture to bet that most of us would never had heard of The Eagles.  Again, even a musician has to eat.  If the musician cannot meet his base needs doing what he loves to do, a musician will meet those needs some other way and, therefore, there would be less time to do what he loves to do.

The only legitimate question remaining, then, is how should a musician get paid for the music he or she creates?  How should the songwriter get paid for the songs he or she writes?  The answer, in the United States, is by virtue of the rights created in the Constitution, Article 1, Section 8, Clause 8, which gives Congress the right:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Investors the exclusive Right to their respective Writings and Discoveries.

The portion of this Clause dealing with the arts is further codified in the various Copyright Acts and amendments thereto.  In a nutshell, the Copyright Act creates a legal fiction, intellectual property rights, which gives creators certain exclusive rights in their works, including the rights to produce copies, create derivative works, perform or display the work, and to sell and assign the works, among other things.

The laws in the U.S. are based loosely on English concepts and laws that date back to the 17th and 18th century and are a direct result of the invention of the printing press.  The first actual copyright law was the Statute of Anne, or the Copyright Act 1709.  The concept of a copyright is a three hundred year old concept that has survived the evolution from printing press to piano rolls to digital media, and I have little doubt that it will survive the technological age, despite the rumblings of these groups. 

As the law often does, though, albeit ever so slowly in most instances, it must evolve to encompass these new technologies and the debate that is ongoing will help us formulate new and improved amendments to the laws that will hopefully address the perceived dichotomy between the rights of free speech and free culture and those of the creators and owners of intellectual properties to receive just compensation for their efforts and investments.

In the end, this blog is the my response to viewing Larry Lessig's video, recently posted on the TED website, entitled How creativity is being strangled by the law (See the link above).  In it, Lessig harkens back to the days of Sousa when children sat on the porch and sang songs, and used the analogy of Sousa decrying the advent of the phonorecord as the demise of creativity.   He points out that in our current state, copyrights should be "democratized" because the new generation uses copyrights to create something different, as "tools of creativity" and "tools of speech."  And since every such usage requires a copy, he continues, every such usage is presumably an infringement of someone's copyright.  His solution is that the artist can simply license the use of their creation for free in the instance of "non-commercial" usages, and still retain the rights to exploit it commercially.  He refers to this as the "Sousa Revival."

But my question to Professor Lessig is why does the fact that an entire generation of Internet users are using copyrighted material to create derivative works mean that the rights of copyright holders have to be abolished?  Why do the creative urges of those who utilize other people's copyrights to create different works supercede those of the people who created the original works?  Why should they? 

Second, it is important to note that people would generally not pay money to hear most children sitting on the porch singing their songs, unless that child happens to be a Don Henley.  That is the difference between most of the music on, say MySpace for example, and the music found on iTunes.  There is a tremendous difference in the value of the spontaneous, albeit creative, songs of a child and the intricate lyrics and melodies which are the product of a genius the likes of Don Henley.

Let me illustrate the principles with an example for the world of physical property.  Person A has a piece of property populated with a lot of trees.  Person B, owns the lot next door, which is flat and has a nice stream of water running around its perimeter.  Person C comes along, see this situation and, overwhelmed with creativity, cuts down Person A's trees and builds himself a house on Person B's lot and claims it as his own.  When Persons A and B confront him, stating that the law says he cannot do what he did, Person C responds that his creativity is being strangled by the law and, therefore, the law should be abolished.  Is this a good argument?  This is the argument of the Free Culture Movement and the Creative Commons.

Just as the law creates real property rights so that a person owns in a plot of real estate, the law creates intellectual property rights so that person can own an intellectual creation.  Abolishing the one makes no more sense than abolishing the other.

Now, imagine that Person A's lot was full of reeds and twigs and Person B's lot was full of ravines, rocks and arid soil.  Person C would never stop to take a second look!  The argument of these movements misses the concept of intrinsic value.

What I do like about Lawrence Lessig's movement, Creative Commons, is that it is based on the Copyright Act.  It is essentially using existing copyright laws to create a unique license which strikes a balance between fair use and full copyright reservation.  In the end, however, the license are based on the rights already granted in The Copyright Act, proving that the current laws allow for the very thing that these groups seek.  I can agree with him in that respect.

Technorati Tags: Copyright Law , Digital Downloads , Free Culture Movement , Creative Commons , Lawrence Lessig , Mozart , Beethoven , Maslow

del.icio.us Tags: Copyright law , Digital Downloads , Free Culture Movement , Creative Commons , Lawrence Lessig , Mozart , Beethoven , Maslow , Record Labels