Vanderbilt Students to receive a round of RIAA Letters

Fueled in part by its success in Virgin v. Thomas, the RIAA (on behalf of EMI Music, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group) issued a new round of pre-litigation letters to college students across the country Thursday of last week. This is its ninth such round of letters since beginning the campaign against downloaders nearly two years ago. This round included letters to 32 students at Nashville’s prestigious Vanderbilt University. Vanderbilt received the third greatest quantity of letters in this round, behind University of Southern Florida, with 43 and Southern California with 37.

In addition to those three institutions, the RIAA also sent letters to these 16 schools (quantity in parentheses): Drexel University (17 pre-litigation settlement letters), Indiana University (23), Northern Illinois University (25), Occidental College (19), State University of New York at Morrisville (18), Texas Christian University (20), Tufts University (15), University of Alabama (14), University of California, Berkeley (19), University of Delaware (18), University of Georgia (13), University of Iowa (18), University of Michigan - Ann Arbor (20), University of Nebraska-Lincoln (13), University of New Hampshire (30), University of New Mexico (17).

As with the more than 3,500 letters previously sent to college students at other schools, the letters gives students the opportunity to resolve copyright infringement claims against them at a discounted settlement rate before the threatened lawsuit is filed against them. The letters are accompanied by instructions to the university administrators to forward the letter to the appropriate individuals the give them the opportunity to promptly resolve the matter and avoid a lawsuit.

Amazon to post third quarter earnings, including profits from MP3 Sales

Amazon.com, Inc. (Tickler Symbol: AMZN) will hold a conference call on October 23, 2007 at 5:00 p.m. ET to discuss its 2007 third quarter financial results. This announcement has tremendous relevance for those of us interested in the commercial viability of digital sales and downloads of DRM-free music -- since Amazon launched its online music store, Amazon MP3, which sells songs without copy protection in this fiscal quarter, the sales of said music will be a component of the report. Many financial analysts are expecting Amazon to announce earnings of around 18 cents per share on just over $3 billion in revenue for the quarter.

Most online reviewers agree that the Amazon experience of buying digital music is very favorable when compared to iTunes. My feeling about iTunes generally is that is an overbloated, unwieldy piece of software that doesn’t do the job it was designed to do very well at all, so this favorable comparison comes as no surprise to me. Although Amazon’s MP3 store is web-based, once you download a small companion program (on either Windows or the Mac) you get a better one-click experience than Apple's iTunes store, and the software automatically adds purchased files to iTunes, if you choose to use that software, or any of the myriad of better music players available on the Internet.

In addition to the favorable software experience, many users are impressed that Amazon offers over 2 million at an average of 10 cents less than the cost on iTunes. The offering, while only about 20% of Apple’s offerings on iTunes, is the largest collection of DRM-Free music anywhere.
Both UMG and EMI have signed up with Amazon, while Sony BMG and Warner Music Group still lurk in the Dark Ages when it comes to the digital spectrum. The only negative vibe about Amazon’s service is that UMG is slipping watermarks into the downloads to enable tracking.
According to some stock analysts, Amazon’s global site traffic rose 13 percent year-over-year in July and August.

The thing that attracts me to the Amazon model is the flexibility. The ala carte digital music can be used on any player, with any software and reproduced on as many devices as you want. It does not expire and you are not required to subscribe to any service or use any specialized players or software. This, in my opinion, is the business model of the future. As Amazon’s catalog expands, I expect that it will become increasingly more competitive than Apple. The Motley Fool described Amazon's chances for success in the digital music download business as follows:

Amazon sold $10.7 billion worth of merchandise last year -- $7.1 billion in
the form of media -- but at issue here is more than just respect for Amazon's
girth. Amazon is a trusted source in music. Now it also happens to offer the
better deal. If you have a choice of paying $0.89 on Amazon for a higher-quality
track with no DRM, or $0.99 for a lower-quality track with portability
restrictions, where will you turn?

I can only add that Amazon has an incredible database of customer preferences and cross-references. Amazon does an amazing job at suggesting impulse purchases.Most consumer already have an established account with Amazon that has established preferences. Amazon is the Wal-Mart of online merchandisers, the king of the Internet in sales. I believe it will succeed where others have failed.

The Future of the Music Industry - the continuing dialogue

There is a very well written blog entry by McQuinn on the blog MCQESQ entitled The Future of the Music Industry. You can read the article in its entirety here, and it is well worth the effort. It attempts with acute perception and finesse to dispel the rampant rumors that the music industry conglomerates are are a dying breed of dinosaurs. The essence of the authors opinion are as follows:

It’s popular to bash the labels (especially the majors) and to celebrate their apparently imminent demise. For me, there is no pleasure in seeing people get laid off and large companies go bankrupt in any industry. But I also dispute the idea that labels (in general) have been a bad thing for music. . . . Without record labels recording and promoting music, we would never have heard of most of the artists that we now recognize as music legends.

I wrote similar sentiments back in 2000 when Courtney Love bashed the very industry which gave her soap box any credibility at all. In the article by Mcquinn, the author is not attempting to defend all record labels nor the actions of all record industry professionals, but successfully points out that without the music industry moguls’ promotion and even love of music, there would be no “superstars” for us to download! There would only be garage bands. Ugh! (no disrespect to any particular garage band intended, but we must realize there is a reason why some bands “make it” and some don’t).

I tell my clients that they should consider the major label to be not only their marketing arm, but a bank! The fact is, a major label will customarily spends upward to 3–5 million dollars to record, advertise, market and promote ONE act. Granted, much of that investment is recoupable from the artists’ royalties (meaning that the artist must pay it back the money back of earned royalaties - the artist doesn’t pay it back if the label cans them), however, it still garners the artist a very valuable commodity: name recognition. How many superstars can you name off the top of your head? Madonna. McCartney. Garth. Prince. Dolly. The Eagles. Elvis. Elton John. I may be dating myself a bit here, but you get the idea – without the record labels, these artists would not have what they have today – the ability to annouce a concert date and sell it out a 200,000 seat venue within hours, for example. Is it totally fair to denounce the industry that helped these artists become the superstars that they are? Is it fair to expect that industry to take no profits from the product we so much enjoy?
So, what about the rumor that the major labels are heading for an imminent demise? A recent article in the September 2007 issue of Country Aircheck entitled Music Sales at a Crossroads – Labels Face the CD’s Swan Song gets a little more specific. The article cites RIAA-compiled data that illustrates that the gross sales of the CD format have diminished by almost one third since 1999, when it was over 14 billion, to 9 billion last year. In the country genre, where the CD format is still a popular one, total sales through September 2007 were 31 million units, whereas the genre tallied a total of 75 million units last year. Overall, total sales of CD for all genres is down 20% over the same time last year, a very significant drop. While I do not believe the music industry is going away, I do believe that the CD format will ultimately be gone. Tower’s demise was a forecast of this inevitability.

In the past, loss in profits from one format meant a rise in profits from another format, as, for example, when the CD format replaced records and cassettes, or when cassettes replaced 8–tracks (for those of you old enough to remember tape-based product). But in today’s market, the sell of digital downloads is not generating enough profilt to offset the loss of profits from the demise of CDs. Why, you might ask? I think all of us know that the reason for this is that the majority of songs being consumed today are either ripped from somone else’s CD or iPod, or they are obtained over the P2P networks. Those methods of obtaining music do not profit the artist, the songwriter, or, of course, the record labels.

McQuinn’s article points out that the label must find alternative methods of making profits, and mentions touring, merchandising and expanded licensing. This is not a new concept as, in fact, I have already started seeing contracts from labels taking an interest in more of the revenue streams than they have in the past. As Joel Galante, chairman of Sony BMG Nashville, points out in the Country Aircheck article, “you can’t have the label engine driving everything and being compensated the way it was before. We are taking most of the risk and there are a lot of revenue streams making money.” The trend in the music industry is for more independent-type deals with the artist in which the artist actually becomes a partner with the label. I also believe that we will see a resurgence of the “single” concept and/or the “mini-album” and a shift away from the 10–12 song album idea.

The music industry will also find reprive in the form of direct-to-retail marketing. The Eagles release through Wal-Mart is only one in a long chain of well-known artist who have found their own path to the retail market — Prince, McCartney, Radiohead, Nine Inch Nails — circumventing the Big Four: Song BMG, Warner, UMG and EMI. These artists are certainly blazing new trails and have been successful. The major labels, however, still maintain that they have the edge when it comes to developing and promoting artists and/or distributing their product. In view of the success of the aforementioned artists, however, this point is certainly not a given anymore.

We are, as I said in earlier articles and blogs, facing a new paradigm in the music industry. The major labels have yet, in my opinion, found the holy grail of digital downloads. What can the labels do to move into the 21st century? The answer cannot be yielding 90% of the market to iTunes. Labels have to take the lead of EMI and UMG and offer their music without any digital rights management — after all, the music on CDs is DRM-free! They must abandon the misplaced trust in “subscription-based” services which require monthly fees. As I have maintained in my ten years of analyzing and thinking about this issue, I believe that they must do what all good entrepreneurs have done: find a price point that will make it foolish for people to download music through a P2P and risk litigation. Sell the product at a reaonsable price. Most people, myself included, want to pay for their music — they just don’t want to overpay for their music. The first configuration of label and online distributor that finds that right combination of value and profit — i.e. the right price point — will be the significant winner in my opinion.

Jammie Thomas to appeal verdict in RIAA Litigation.

Imagine that you have a wireless network router in your home which you set up yourself. Also imagine that, because you are not computer saavy, you failed to establish a password for that router, or established a “weak” password consisting of only numbers, or your birthdate, or something of that nature. Consider now the proximity of homes, roads or pathways within around 100 feet of your home. How many people would have access to your unsecured wireless network? Your wireless router has an IP Address. Regardless of the the number of nodes using that IP Address, it appears the same to others in cyberspace. It does not matter if it your own computer or someone else with a laptop that has jumped onto your wireless network. Now, using the precedent established in the decision against Jammie Thomas, you could be liable for any copyright infringement committed by a scavenger utilizing your wireless network. Does that seem fair?

Something like this scenario is what Jammie Thomas still maintains happened to her. The latest news in this case is that she is appealing the $222,000 verdict against her. She still claims that her computer was spoofed, which generally refers to various techniques of using falsified data to obtain entree, services and/or goods using a “middle man” to obscure identification.

In order to appeal to the 8th U.S. Circuit Court of Appeals, the court with jurisdiction in this matter, Thomas must establish some clear error in the district court’s finding of facts. See Glover v. McDonnell Douglas Corp., 150 F.3d 908, 910 (8th Cir. 1998). On the other hand, the RIAA can defeat the argument by showing that any trial errors committed were harmless and had very little effect on the jury’s verdict See United States v. McCrady , 774 F.2d 868, 874 (8th Cir. 1985)

In this instance, Thomas’ primary argument will undoubtedly be that Jury Instruction No. 15 was not a correct statement of the law with regard to the Copyright Act, that the judge erred in submitting it to the jury, that the instruction significantly impacted the jury’s decision, and therefore there is reversible error in the instruction as provided. Jury Instruction 15 read as follows:

The act of making copyrighted sound recordings available for electronic
distribution on a peer-to-peer network, without license from the copyright
owners, violates the copyright owners' exclusive right of distribution,
regardless of whether actual distribution has been shown.

Thomas argues that this instruction made it too easy for the jurors to find liability if they found she made her Kazaa shared file folder available to others, regardless of whether anyone downloadied any of the music from the public folder.

For it’s part, the RIAA has argued this theory successfully in several cases prior to this one, including, for example, Electra v. Barker. The essence of the argument is that Section 106(3) of the Copyright Act gives the copyright owner the exclusive right to distribute copies of its work to the public and, while “distribute” is not defined, it is the equivalent of “publish” which is defined in the Copyright Act as follows: “the offerring to distribute copies or phonorecords to a group of persons for the purpose of further distribution . . . constitutes publication.” It is not an unsolid argument.

The question quickly becomes whether it is necessary that a tangible copy actually be distributed, or whether simply creating the possibility of that distribution is sufficient. One of the grandfathers of copyright law, Nimmer on Copyright, states that the “sine qua non of publication should be the acquisition by members of the public of a possessory interest in tangible copies of the work in question.” This seems to suggest a conclusion to the contrary.

That definition, in fact, seems to suggest that a tangible copy of the work must be acquired before publication can occur. A new line of cases, however, are interpreting this section differently when it is applied to making digital copies available for download on the Internet, including two U.S> Circuit Court cases, one in the 4th Circuit and one in the 9th Circuit.

The most apropros of these two is A & M v. Napster, 239 F.3d 1004 (9th Cir. 2001), which found that “Napster userse who upload file names to the search index for others to copy violate plaintiffs’ distribution rights.” Id. at 104.

Perhaps even more supportive of the “making available” theory is the international WIPO treaties to which the United States is a siganatory. Article 6 of the WIPO Copyright Treaty states that the “authors of literary and artistic works shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their works through sale or other transfer of ownership. Article 8 is even more specific, stating that “authors of literary and artistic works shall enjoy the exclusive rights of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works.”

Finally, the Register of Copyrights, Marybeth Peters, weighed in on the discussion in a letter to Rep. Howard L. Berman dated September 25, 2002. Citing the Napster case, she opined that “making [a work] available for other users of a peer to peer network to download . . . constitutes an infringement of the exclusive distribution right, as well as the reproduction right.”

So, as these citations illustrate, the theorectical concept of “making available” as copyright infringement is not merely the construct of the RIAA lawyers’ imagination, as is concluded by The Recording Industry v. The People in Argument Over "Making Available" in Virgin v. Thomas. While the 9th Circuit case was, indeed, a brainchild of the RIAA, the concept of “making available” has its origns in the international community as reflected in the WIPO treaties.

It seems, therefore, that Thomas’ appeal will not be an easy battle to win. At the very least, the Judge’s decision to include the jury instruction was based on some pretty solid and well argued prior case law and supporting opinions. In order to prevail, Thomas’ attorney will have to convince the Eighth Circuit that merely making the files available does not constitute publication.

One case which might offer some support this theory is the 8th Circuit’s opinion in Nucor Corp. v. Tennessee Forging Steel Service, Inc., 476 F.2d 386. That opinion cites the Nimmer quote above in ruling that distributing brochures and photographs of architecture did not constitute general publication of the detailed plans. This case, however, involves common law copyright and is factually distinquishable from the Thomas fact pattern.

Thomas will also, no doubt, have tremendous support from various third parties, as evidenced by the Electronic Frontier Foundation’s announcement on Monday that they will be filing a friend of the court brief in support of Thomas’ appeal. A friend of the court brief is a procedure whereby an interested third party who are not a party to the litigation can file a document in support of a party’s position.

Wired’s THREAT LEVEL blog reports that one of EFF’s attorneys, Fred von Lohmann, will hinge their arguments, at least in part, on the “tangible” requirement as set forth in Nimmer. "Look into the Copyright Act — it narrowly defines distribution as distribution of a phonorecord or a copy. The definition says it has to be a physical object," von Lohmann is quoted as saying.
Whether there will be enough to overturn the trial court on appeal is, of course, yet to be seen.

I will attempt to keep you posted on the appeal as it develops.

Mens Rea & Digital Activity

For a very reasoned commetary on the potential impact of Virgin v. Thomas on other Internet activity, read John Mahoney’s article entitled Forget File Sharing: the Internet is on Trial at his blog, The Digital Edge.  Thanks for the insight John.

Mr. Mahoney correctly points out that in this age of wireless technologies and computer malware, many people are less in control of their devices than they may think.  The lines between computer actions and people’s intentions are more blurred than many realize.  This certainly has a great deal of impact on what we lawyers call the mens rea, i.e., the guilty mind.  If a jury wants to hold someone liable for an action, the law generally requires that their be mens rea, particularly in the criminal arena.  If that concept is applied to the copyright infringement that occurred in this case, the plaintiffs may have established the likely presence of a “mind,” but they have not established the presence of Ms. Thomas’ mind.

To be more precise, the plaintiffs were unable to establish the identity of the actual person, i.e., the guilty mind, if you will, behind the acts of infringement.  Mahoney correctly points out that the only thing the plaintiffs succesfully proved was that the infringing activity occurred through the use of a specific hardware address associated with Ms. Thomas’ internet account, using a username that was consistent with other online usernames associated with her in the past.  To use another legal term, the evidence was, at best, circumstantial.

This is more than just “smoke and mirrors,” a phrase plaintiffs’ counsel, Richard Gabriel, used in his closing to describe the defendant’s legal strategy.  Is is an important component in any copyright infringement action to establish that the defendant, in this case Ms. Thomas, actually committed the acts of infringement.  It is not enough to establish the the acts of infringement were committed using a computer owned by Ms. Thomas at a particular internet protocol.

We all await the verdict of the twelve.  It is my hope that the jurors will see the subtleties of this distinction between an actual person and their online “identity.”

 

Virgin v. Thomas: Sherman testimony not allowed; possible verdict today

In a blow to the Recording Industry Association of America, U.S. District Court judge Michael Davis ruled yesterday that the infamous president of the RIAA, Cary Sherman, could not testify in the trial of accused music-sharer Jammie Thomas because "nis testimony would not be relevant," despite the arguments of Plaintiff’s attorney, Richard Gabriel, that Sherman’s testimony would allow the jury to understand why the RIAA is targeting people like Thomas for the purpose of deterring other would-be downloaders.

"Lawsuits like this are not about making money," Gabriel told the judge. "It gets the word out ... We’re serious about this even if the damages are small."

Sherman confirmed to The Associated Press’ Josh Freed that his lobbying group will continue to go after persons downloading music illegally, despite the outcome of this week’s trial. ". . .[W]e’re in [this] for a long haul in terms of establishing that music has value, that music is property, and that property has to be respected," Sherman said. See Cary Sherman on CNN.

After both sides had their day in court, the RIAA had called over 11 witnesses, while the only evidence Ms. Thomas offered was her own testimony.

The apparent strategy of Thomas’ defense teams was to produce enough doubt that Thomas was not the actual “warm body” behind the IP address. Her attorney, Brian Tober, raised the specter of “zombies, crackers and drones” in order to conjure up doubt in the minds of the jury. He suggested that someone outside of Thomas’ apartment window could have accessed her wireless router and be responsible for the incident. Tober, however, never asked Thomas on direct, nor was she cross-examined, as to whether she owned a wireless router.

The RIAA, on the other hand, put on substantial evidence that a Kazaa user named Tereastarr shared some 1,700 digital audio files on Feb. 21, 2005. The evidence proved that the defendant use the Tereastarr monikor on e-mail accounts, online logins, including match.com, and as her username to access her own computer. The evidence produced also showed that an internet protocol address associated with that Kazaa share file in question was assigned to Thomas by Charter Communications on the night RIAA investigators captured her shared folder. The cable modem used to share the files was also leased to Thomas, according to testimony from a Charter Communications security official. Finally, Iowa State University professor and computer forensics specialists Doug Jacobson opined that no wireless router was used on the night in question (that fact is difficult, if not impoosible to ascertain, since printers, routers, and other devices are all assigned the same IP Address to the “eyes” of the ISP.

In one of the more important developments of the day, Judge Davis correctly instructed jurors that the mere "act of making [a copyrighted song] available for electronic distribution... violates the copyright owner’s exclusive copyright." This has been a topic of hot debate not only during the trial but in other RIAA cases as well. This ruling would arguably make it easier for the jury to find against Thomas if they believe that she was, indeed, the fact behind the IP.

The jury is expected to diliberate today. As in all trials, it will all come down to a matter of credibility — who does the jury believe and trust?

Reba named "Woman of the Year"

On Thursday, October 5^th, Billboard magazine will release its 2^nd Annual “Women in Music” issue which honors the top 20 women in music.  The list will be revealed at a special breakfast for the honorees at The Core Club in New York.  In conjunction with delivering the keynote speech at the breakfast, Music Row’s own superstar, Reba McEntire will be receiving the first-ever “Woman of the Year” award from Billboard. 

Billboard established the award “to recognize extraordinary women in the music industry who have made significant contributions to the business and who . . . inspire generations of women to take on increasing responsibilities within the field.”

“I am thrilled to be selected as Woman of the Year by Billboard,” said McEntire. “Although my career has taken me to TV, film, and Broadway, music is and always will be my first love. I am touched to be embraced in such a warm way by Billboard, and I look forward to celebrating with all the Women of the Year.”

McEntire’s most recent release, Reba Duets, released September 18, 2007, showcases her influences on a broad spectrum of genres.  The project pairs her with some of the music industry’s biggest names, including Don Henley, Carole King, Kenny Chesney, Justin Timberlake, Kelly Clarkson, Faith Hill, LeAnn Rimes and Trisha Yearwood.

Although her start came in country music, Reba has expanded the scope of her influence into a successful acting career with her portrayal of Reba Hart on the popular television sitcom that bears her name, as well as her performances on Broadway in Annie Get Your Gun and South Pacific.

“Reba’s all encompassing career in entertainment make her an obvious choice to be honored as Billboard’s first Woman of the Year,” said Billboard’s editorial director, Tamara Conniff.  “Reba is an inspiration to women everywhere and we are delighted to be presenting her with this award.”