Music Licensing Takes Center Stage at Congressional Hearing — On Wednesday, the House Judiciary Committee held a hearing on music licensing and the Internet Radio Fairness Act. At the risk of shameless self-promotion, I have a recap of the hearing over at the Copyright Alliance’s Idea/Expression blog.

Copyright Policy and Economic Doctrines— Robert D. Atkinson of the Information Technology and Innovation Foundation offers this fascinating paper looking at the influence of differing economic doctrines on copyright discussions. “Views on copyright policy are shaped in large part by the economic doctrine held by the advocate, scholar or policymaker. These differences in doctrine cause partisans to view facts differently and to focus on small segments of complex debates, leading to a breakdown of constructive dialog and much ‘talking past each other.'”

Why Are Cable Companies Forcing People to Turn to Piracy? — “Hint: they’re not. Also, they’re probably better at running their business than their many, many freelance marketing consultants among the digerati.”

Everything, Everywhere, All the Time — The Cynical Musician, responding to Rep. Chaffetz’s challenge during Wednesday’s IRFA hearings to name another successful internet radio service besides Pandora, describes why the internet only wants one of everything. “Once we have someone in this position, there’s very little other businesses can do to compete. They can’t sell something that the established power player isn’t selling, ‘coz he is. They can’t go for geographic advantage because there’s no issue of distance on the internet. They cannot hope to sell when the big guy’s closed, ‘coz he’s always open. Their only hope is either to compete on price, which is a race to the bottom (and one could argue that online everyone’s living in silt as it is) or on purchasing experience, which only becomes a factor if they can match the established player’s prices – tricky if you ain’t got the scale to make it up on.”

Deconstructing: Pandora, Spotify, Piracy, And Getting Artists Paid — Chris Ruen provides a detailed, in-depth look at IRFA and hot it fits into the context of the larger discussion of copyright’s vitality in a digital age. “The digital revolution has brought about a great many things. However, the obvious exploitation of artists — in knowing denial of their basic rights — remaining at such an industrial scale in 2012 is an embarrassment to that revolution; it is the cancer at the core of its lofty talk of “openness”; it is what child labor was to the Industrial Revolution.”

Congressional Research Service Memo on Constitutionality of IRFA Section 5— The Trichordist raised First Amendment concerns a few weeks ago about one of the lesser-known provisions of IRFA a few weeks ago, one that would create anti-trust liability for copyright owners who “impede” direct licensing efforts by internet radio services. The concerns stem from a recent lawsuit by SiriusXM against SoundExchange and A2IM that alleged just that, premised on blog posts the organizations had made explaining to artists some of the details of recent direct license offers. After an exchange with David Lowery at the Future of Music Coalition’s annual summit earlier this month, bill sponsor Senator Wyden passed along the concerns to the Congressional Research Service, which recently completed its analysis.

Music startups aren’t dead — they’re just changing — Former Last.fm exec Matthew Hawn responds to recent criticisms from Peter Kafka and David Pakman concerning the difficulties of finding sustainable business models for digital music startups. “Start-ups create the most value when they carve out new business models and transform the way we used to do things. They are less valuable (and thus less viable) when they just wringing the last drop of money out of old models. The truly great ones transform industries and build new opportunities, growing the market for everyone.”

Fair (?) dealing in Canada’s colleges — John Degen posts troubling video of members of the Writers’ Union of Canada being blocked from attending a series of seminars from the Association of Canadian Community Colleges about new “fair dealing” policies. “On November 12th, 2012, freedom meant writers were free to be removed by security, and access meant writers were allowed access only to the airport parking lot (for a fee).”

Myths and Facts about Copyright — More criticism about Derek Khanna’s recent policy brief published briefly on the Republican Study Committee’s website, this time from James DeLong at The National Review.

How Are Google’s Anti-Piracy Search Policies Working? — The answer, according to Vox Indie’s Ellen Seidler, is “not too well.”

The House Judiciary Committee will be holding a hearing on music licensing today at 11:30EST. The hearing, which will be streamed live online, looks to focus on recent proposed legislation that concerns internet radio royalties. Representatives from Pandora, the National Association of Broadcasters, SoundExchange, and the Recording Academy will be testifying, as well as economist Dr. Jeffrey A. Eisenach and venture capitalist David B. Pakman.

In anticipation of the hearing, I thought it would be helpful to provide a brief history of internet royalty rates. It’s not the most exciting topic, but it’s also difficult to find a singular, satisfactory source on the subject. For this article, I’m going to focus primarily on “webcasting”, or internet radio services like Pandora.

The Digital Performance Right for Sound Recordings

Musical compositions — songs — and sound recordings are each is separately protected by copyright. Copyright protection for songs came first, implicitly under the original Copyright Act of 1790 and explicitly under the Copyright Act of 1831. This copyright was limited to reproduction of the works until 1897, when Congress added the right to publicly perform musical compositions.

Recorded sound, of course, only appeared toward the end of the 19th century, and it wasn’t until 1972 that the US Congress granted separate federal copyright protection to sound recordings. But this protection excluded the right to publicly perform sound recordings. So while copyright owners of songs were paid anytime a venue or radio station performed their work, the same was not true for sound recording owners.

This changed somewhat in 1995, when Congress passed Digital Performance Right in Sound Recordings Act (DPRA). Though it didn’t give sound recording owners a full public performance right, it did give them the exclusive right “to perform the copyrighted work publicly by means of a digital audio transmission.”1

This right was modified in two major ways. First the right did not extend to “eligible non-subscription transmissions”, which primarily meant retransmission of AM/FM radio broadcasts over the internet. Second was a compulsory blanket license for “noninteractive subscription transmissions.” Any service under this definition could, so long as it complied with the license terms, play any sound recording without needing permission from the copyright owner at a royalty rate set by the Copyright Arbitration Royalty Panel (CARP), an ad hoc body that set rates for the various compulsory licenses under the Copyright Act. The Act provided, however, that CARP would only step in if copyright owners and noninteractive subscription services failed to reach voluntary agreement over rates under the compulsory license. When this occurred, CARP was directed to set a rate using the standard set in § 801(b)(1) of the Copyright Act, subject to revisions by the Librarian of Congress.

Any other type of transmission under DPRA required direct licensing from sound recording owners, which led to the first dispute. Non-subscription webcasters — webcasters who relied on advertising or other forms of revenue — disagreed with the recording industry over whether they were exempt from DPRA.2 This led to Congress revisiting the digital performance right in the Digital Millennium Copyright Act (DMCA) a few years later (the same Act that created safe harbors for online intermediaries, among other things).

The DMCA affected digital performances in a number of ways. First, it added “eligible non-subscription services” to the types of webcasters who qualified for the compulsory license (interactive services still needed to privately negotiate for performance rights). Second, it altered the standard the CARP must apply when determining royalty rates for these compulsory licenses — instead of the §802(b)(1) standard, CARP would “establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller” (the “willing buyer/willing seller” standard). However, it “grandfathered” the existing §802(b)(1) standard for “preexisting subscription services” and preexisting satellite radio services — at the time, these consisted solely of five services: DMX, Music Choice, Muzak, Sirius, and XM (since then, the last two have merged to form Sirius XM Radio).

One quick note: the DMCA also expanded the term “interactive service” to include services “that are specially created for a particular individual.”3 In 2001, a group of record labels then under the umbrella of BMG sued internet radio provider Launch Media for copyright infringement, alleging that its service, which, like Pandora, allows listeners to create “custom” radio stations based on genre or artist, was required to obtain direct licenses from BMG because it was an “interactive service” under the DMCA.4 The 2nd Circuit disagreed with the labels, holding that Launch Media was not an “interactive service” under the definition of the statute.

Since then, webcasting has been the subject of three rate proceedings, each involving issues that have spilled over into Congress and the courts.

Webcaster I

The Copyright Office announced in November 1998 the beginning of the voluntary negotiation period for the first round of licensing, which would cover through the end of 2000.5 No private agreement was reached, so a CARP proceeding was commenced, and, because of procedural delays, was consolidated with a proceeding on licensing for the next period, through 2002.

The CARP reached its determination on royalty rates February 2002 (informally referred to as “Webcaster I”), which was revised and published by the Librarian of Congress on July 8, 2002.6 Among its determinations, the LOC accepted the Panel’s rejection of a “percentage of revenue” rate in favor of a “per performance” rate. It noted:

A key reason for rejecting the percentage-of-revenue approach was the Panel’s determination that a per performance fee is directly tied to the right being licensed. The Panel also found that it was difficult to establish the proper percentage because business models varied widely in the industry, such that some services made extensive music offerings while others made minimal use of the sound recordings. The final reason and perhaps the most critical one for rejecting this model was the fact that many webcasters generate little revenue under their current business models. As the Panel noted, copyright owners should not be ‘‘forced to allow extensive use of their property with little or no compensation.’’7

The LOC adopted the Panel’s tiered rate structure for different classes of licensees. Webcasters and commercial broadcasters would pay $0.0007 per performance, non-commercial broadcasters $0.0002. The LOC also designated SoundExchange, a non-profit organization established by the RIAA in 2000 and later spun-off as an independent entity in 2003, as a Designated Agent for collecting and distributing royalties under the compulsory license.8

Smaller commercial and noncommercial webcasters immediately protested the LOC’s final determination, and Congress acted quickly in response, introducing the Small Webcaster Settlement Act of 2002 (SWSA) less than 20 days after the determination and passing the bill in December. SWSA provided a grace period for small webcasters for paying royalties and encouraged SoundExchange to engage in negotiations for alternative rates with these webcasters. Such agreements were reached — one for small commercial webcasters that same December and one with noncommercial webcasters the following June. Under these agreements, “small” webcasters (defined by annual revenues) would pay a graduated “percentage of revenue” rate while noncommercial webcasters would pay a flat annual fee, plus a $0.0002 per performance rate on any performances that exceeded a monthly “Aggregate Tuning Hours” cap.

These agreements would remain in effect through 2004, extended through 2005 by The Copyright Royalty and Distribution Reform Act of 2004.

Through this Act, Congress also replaced the ad hoc Copyright Arbitration Royalty Panel with the current system of three standing Copyright Royalty Judges. Judges were to be appointed by the Librarian of Congress and serve staggered six year terms. The Act established qualifications for the Judges. “Each judge must be an attorney with at least seven years of legal experience. The Chief Copyright Royalty Judge must have at least five years experience in administrative hearings or court trials and may hire 3 full-time staff members. Of the other two CRJs, one must have expertise in the area of copyright law and the other economics.”9

The Act also removed the Librarian of Congress from any role in revising final determinations by Copyright Royalty Judges — determinations were directly appealable to the DC Circuit Court.

Webcaster II

The first rate determination proceeding for digital performances conducted by the new Copyright Royalty Board (CRB) concerned license rates for 2006-2010, but despite the changes Congress had made, this proceeding (“Webcaster II”) played out in much the same way as Webcaster I. Notice announcing commencement of the proceedings was published by the CRB February 2006. The Board announced its final determination on March 2007.10 Again, the CRB rejected a percentage of royalty rate for a per performance rate.11

The CRB set rates for commercial webcasters at “per play” rates of $0.0008 for 2006, $0.0011 for 2007, $0.0014 for 2008, $0.0018 for 2009 and $0.0019 for 2010. Non-commercial webcasters would pay an annual $500 flat rate for performances under the same “Aggregated Tuning Hours” cap as was set by the SWSA, with performances above the cap assessed at the same rates as commercial webcasters.

Several webcasters again raised objections to the rate determinations in Webcaster II. A petition for rehearing was filed but denied by the CRB, and appeals were filed by several parties for review in the DC Circuit Court. In a 2009 opinion, the DC Circuit affirmed nearly all of the CRB’s determination.12

And as in Webcaster I, webcasters turned to Congress, which responded with the Webcaster Settlement Act of 2008.13 The Act was essentially a rewrite of the Small Webcaster Settlement Act of 2002 and encouraged the private negotiation of alternative licensing rates. The timeframe for these negotiations was extended by Congress the following year through the Webcaster Settlement Act of 2009.14

Following these Settlement Acts, settlements with webcasters in a wide variety of segments of the webcasting market were reached — eight total agreements resulting in around a dozen different royalty schedules.15 The “Pureplay” agreement, for example, which Pandora operates under, set a per play rate lower than the one set by the CRB or 25% of gross revenues, whichever is greater. In nearly all cases, these agreements set royalty rates through 2015.

Webcaster III

While these agreements covered nearly 95% of all digital performances administered by SoundExchange, the Copyright Royalty Board was still required to conduct proceedings for rates for 2011-2015 for those webcasters who did not elect any of the settlements — Intercollegiate Broadcasting System and Live365 being the only two — or webcasters that weren’t in existence at the time. These proceedings began January 9, 2009 and concluded with a final determination only three months later, dubbed “Webcaster III.” The CRB largely applied the royalty schedules from the recent settlements across the board.

The CRB rejected, however, Intercollegiate’s proposal for different rate structures for “small” and “very small” noncommercial webcasters. Intercollegiate appealed the CRB’s determination to the DC Circuit and also raised a collateral attack on the constitutionality of the appointment of the Copyright Royalty Judges. Just this past July, the DC court held (wrongly, in my opinion) that the appointment of Copyright Royalty Judges violated the Appointments Clause.16 It remedied the infirmity by striking statutory language that limited the ability of the Librarian of Congress to remove Judges and vacated Webcaster III. The existing settlement agreements were unaffected by this decision.

Webcaster IV?

Current rates for webcasters under the compulsory license are set to expire in 2015. The hearings today will perhaps offer one of the earliest glimpses at some of the issues we can expect during the CRB’s next rate proceeding.

At center stage is the recently introduced Internet Radio Fairness Act (H.R. 6480). The primary effect of the bill, supported most publicly by Pandora, would be to change the standard used by the Copyright Royalty Judges from the current “willing buyer/willing seller” standard to the §801(b) standard used for satellite radio and pre-existing subscription services. The bill would also implement a host of procedural changes to CRB proceedings, discussion of which would make this post longer than it already is.

Discussion of a competing bill circulated last August by Rep. Nadler, the Interim FIRST Act, may also come up. That bill would instead subject all digital performance rate proceedings to the “willing buyer/willing seller” standard.

The Competing Standards

Before wrapping up, I thought it would be worthwhile to take a closer look at the two standards that have been discussed above.

§ 801(b)(1) was created as part of the Copyright Act of 1976. Draft bills establishing the agency to administer the new statutory licenses created by the Act originally provided only that the rates be “reasonable.”17 Some concerns were raised about the constitutionality of delegating rate-setting authority under such a vague standard. In response, Congress added four factors to guide the setting of rates. Prior to the DPRA, the Copyright Royalty Tribunal — the precursor to the CARP — had only applied this standard in two other proceedings: the 1980 Jukebox License Proceeding and the 1981 Mechanical License Proceeding.

The standard requires that royalty rates be set in order—

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

The “willing buyer/willing seller” standard, found in 17 USC § 114(f)(2)(B), requires the Copyright Royalty Board to set a rate—

that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller. In determining such rates and terms, the Copyright Royalty Judges shall base their decision on economic, competitive and programming information presented by the parties, including—

(i) whether use of the service may substitute for or may promote the sales of phonorecords or otherwise may interfere with or may enhance the sound recording copyright owner’s other streams of revenue from its sound recordings; and

(ii) the relative roles of the copyright owner and the transmitting entity in the copyrighted work and the service made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, and risk.

The two standards are essentially the same, save for the fourth factor of the § 801(b) standard. Very broadly speaking, copyright owners tend to favor the “willing buyer/willing seller” standard while services using copyrighted works tend to favor the § 801(b) standard. And while I’ve detailed above lengthy proceedings over the past decade regarding royalty rates for webcasters, that is not necessarily a result of the standard used — keep in mind that these proceedings involved thousands of separate webcasters while only a small handful of services continue to operate under the § 801(b) standard. So it is no surprise that there has been more disagreement during proceedings that affect the vast majority of digital music services.

Footnotes

  1. 17 USC § 106(6). []
  2. In the matter of rate setting for digital performance right in sound recordings and ephemeral recordings, Report of the Copyright Arbitration Royalty Panel, No. 2000-9, 8 (2002). []
  3. H.R.Rep. No. 105-796, at 87 (1998) (Conf.Rep.). []
  4. Arista Records v Launch Media, 578 F.3d 148 (2nd Cir. 2009). []
  5. 67 FR 45239. []
  6. Id. []
  7. Id. at 45249. []
  8. Id. at 45267. []
  9. Robin Jeweler, CRS Report Report for Congress, The Copyright Royalty and Distribution Reform Act of 2004, Order code RS21512 (2004). []
  10. 72 FR 24084. []
  11. In doing so, the CRB stated in a footnote:

    It must be emphasized that, in reaching a determination, the Copyright Royalty Judges cannot guarantee a profitable business to every market entrant. Indeed, the normal free market processes typically weed out those entities that have poor business models or are inefficient. To allow inefficient market participants to continue to use as much music as they want and for as long a time period as they want without compensating copyright owners on the same basis as more efficient market participants trivializes the property rights of copyright owners. Furthermore, it would involve the Copyright Royalty Judges in making a policy decision rather than applying the willing buyer/willing seller standard of the Copyright Act. []

  12. Intercollegiate Broadcasting System v Copyright Royalty Board, 574 F.3d 748. The exception was the court’s remand of the CRB’s omission of a cap on minimum fees for commercial webcasters. []
  13. Pub. L. No. 110-435, 122 Stat. 4974. []
  14. Pub.L. 111−36, 123 Stat. 1926. []
  15. See Notification of Agreements Under the Webcaster Settlement Act of 2008, 74 FR 9293 (March 3, 2009), Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 FR 34796 (July 17, 2009), Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 FR 40614 (August 12, 2009. []
  16. Intercollegiate Broadcasting v Copyright Royalty Board, 684 F.3d 1332 (DC Cir. 2012). []
  17. 73 FR 4080. []

Debate over the role and scope of copyright law in a digital age was reignited last week after the brief appearance of a policy brief by a Republican Study Committee staffer, Derek Khanna. The brief was officially pulled from the RSC website, but copies are easily found online.

Copyright skeptics were quick to dub the brief a “watershed” moment and seem unable to confine the hyperbole of their remarks. One Twitterer compared the policy brief to the 95 Theses, which catalyzed the Protestant Reformation. One might chalk up the reaction to a form of confirmation bias — or, “brilliant people agree with me“.

But as I mentioned last Wednesday in the first part of my examination of the policy brief, any debate should begin with sound premises. And the RSC policy brief, which first lays out three “myths” about current copyright law, does not do this. If copyright skeptics can’t advance arguments without rewriting history, perhaps their arguments are not as solid as they think.

Today, I want to continue my in-depth look at the RSC policy brief, focusing on the final “myth” and sections on the current status of copyright law.

Myth 3. The current copyright legal regime leads to the greatest innovation and productivity

First, this myth begs the question that the purpose of copyright under the Constitution is to provide the greatest amount of the ill-defined concepts such as “innovation” and “productivity.” Too often “innovation” is used as a code word for increasing the bottom line of venture capital firms and the consumer electronics sector. As I noted in my first part, this interpretation of the purpose behind the Copyright Clause does not comport well with history.

Second, and more importantly, is the suggestion that there are those who would say the current copyright legal regime is ideal. I doubt you will find many from any side of the copyright debate who will declare this. In fact, the perceived shortcomings of the law do much to explain its expansion over the past two centuries.

There were four major revisions to the Copyright Act since the first Act in 1790: 1831, 1870, 1909, and 1976.1 During each of these, you can find those who expressed the need for reform precisely because the existing copyright law was inadequate in some fashion.

You can see this in the work of Noah Webster, writer of what would become the seminal American dictionary. Webster actively lobbied for copyright legislation under the Articles of Confederation.2 But before the end of his life, he would return to Congress in the 1820’s to argue on behalf of the “justice of a more liberal law” that would cure some of the “defects” in the 1790 Copyright Act. His efforts in part resulted in the first major revision of US copyright law in 1831.3

Librarian of Congress Ainsworth Spofford remarked upon these shortcomings as motivation for the progression of copyright law during the third major revision to the Copyright Act in 1870. “It is a very notable fact that the United States of America was the first nation that ever embodied the principle of protection to the rights of authors in its fundamental law. Thus anchored in the Constitution itself, this principle has been further recognized by repeated acts of Congress, aimed in all cases at giving it practical effect.”4

Within forty years, Congress would again seek to revise the copyright law. During this period, the first US Register of Copyrights Thorvald Solberg said in 1904: “The laws as they stand fail to give the protection required, are difficult of interpretation, application, and administration, leading to misapprehension and misunderstanding, and in some directions are open to abuses.”

In the decades following, Congress engaged in perhaps the most thorough and comprehensive revision of copyright law. During this time, former Register of Copyrights Barbara Ringer said in a 1975 Congressional Hearing:

The Constitution speaks of the desirability of promoting the progress of science and useful arts, science in the broad sense of learning or knowledge, by offering protection for limited times to authors and inventors.

It seems to me that it is this protection, the exclusive rights that are supposed to be granted to authors, that is the ultimate public interest that the Constitution and its drafters were thinking about. I do not think that this has ever been fully or even partly realized in any copyright law we have had in our entire history.

If anything else, the past two decades have borne witness to many arguments that copyright law is not ideally fit to accomplishing its purpose of establishing a functional marketplace for the creation and dissemination of expressive works. This “myth” is little more than a strawman.

Current status of Copyright Law?

Khanna begins the next section of his brief by remarking:

Under the Copyright Act of 1790, the first federal copyright act, it stated that the purpose of the act was the “encouragement of learning” and that it achieved this by securing authors the “sole right and liberty of printing, reprinting, publishing and vending” their works for a term of 14 years, with the right to renew for one additional 14 year term should the copyright holder still be alive. This is likely what our Founding Fathers meant when they wrote in the Constitution for a “limited time.” Gradually this period began to expand, but today’s copyright law bears almost no resemblance to the constitutional provision that enabled it and the conception of this right by our Founding Fathers.

But is this “likely what our Founding Fathers meant”?

The US Copyright Act of 1790 borrowed the UK’s 1710 Statute of Anne Statute of Anne (1710) almost in its entirety, including the fourteen year term of protection.5 It’s worth noting that the adoption of the fourteen year term is entirely arbitrary, and reminds me of the old story about the Easter Ham.6

The US Congress chose a fourteen year term because that’s how long England protected copyright under the Statute of Anne. And England settled on a fourteen year term in the Statute of Anne because that is how long the Statute of Monopolies (1624), passed nearly a century prior, had protected letter patents.7 And that term, according to one scholar, was “based on the idea that 2 sets of apprentices should, in 7 years each, be trained in the new techniques.”8

Thus, the original fourteen year term was not “likely what our Founding Fathers meant when they wrote in the Constitution for a ‘limited time'” as Khanna claims. Instead, the 14 year term was a “quirk of history”, borrowed from tradition without much thought by a Congress that at the dawn of a new nation had more pressing matters to attend to.9 The argument that the length of copyright protection should be based on how long it took apprentices to master a craft 500 years ago is not so compelling.

Khanna next states:

Critics of current law point out that the terms of copyright continue to be extended perpetually, ensuring that works never actually enter the public domain – particularly Walt Disney’s production of Steamboat Willey, the first Mickey Mouse film. If this is true, if copyright is to be indefinitely extended, then that would effectively nullify Article I, Section 8, Clause 8 of the Constitution which provides protection only for “limited times.”

While this meme seems to begin to appear in early 2000, it was really Lawrence Lessig who popularized this alternative reality. Here is Lessig in a 2002 speech:

Eleven times in the last 40 years it has been extended for existing works–not just for new works that are going to be created, but existing works. The most recent is the Sonny Bono copyright term extension act. Those of us who love it know it as the Mickey Mouse protection act, which of course [means] every time Mickey is about to pass through the public domain, copyright terms are extended.

Lessig’s revisionist statements quickly became gospel among copyright skeptics. You can easily find these ideas — that copyright was extended 11 times in the past 40 years10 and that these copyright extensions amount to “perpetual copyright on the installment plan” and/or have occurred everytime Mickey Mouse or Steamboat Willie is set to enter the public domain.11

To put it bluntly, this idea is hogwash.

In a 2002 law review article, Scott Martin thoroughly debunks this idea.12 Says Martin:

According to myth, Congress relentlessly extended the term of copyright eleven times in just forty years, and, unless the courts intercede, the “copyright dictators” will continue to successfully pressure Congress into extending the term countless times in the future.

In fact, Congress revised its view of the appropriate duration of copyright protection only twice in the past forty years: once in the 1976 Copyright Act-which changed the term from an initial term of twenty-eight years plus a renewal term to a term of life of the author plus fifty years (with a commensurate increase in the term of protection for existing works); and then again in the 1998 CTEA-which added twenty years of additional protection to all existing terms of copyright. The other nine extensions were short interim extensions passed during the deliberation over the 1976 Act in order to ensure that authors of works on the cusp of falling into the public domain would not be penalized by Congress’s glacial pace in enacting the new Copyright Act.

The 1909 Act provided for an original and a renewal term of statutory copyright totaling fifty-six years. Congress changed this in the 1976 Act, effective January 1, 1978, to a term of life plus fifty years for new works. Congress did not apply the new term to existing works, but it did add nineteen years to the term of protection for existing works which were not yet in the public domain. Congress began actively working on the new Copyright Act in 1962, but it took fourteen years to reach agreement on all the details of the new Act. Ironically, the term of protection to be applied by the new Act was one of the least contentious provisions of the new law. Since the provisions of the new Act did not apply to works which entered the public domain prior to the effective date of the Act, Congress provided for a series of nine short interim extensions of copyright pending final enactment of the new law.

The congressional intent behind the interim extensions was clear: Congress felt that it would be inequitable to deny the benefit of the extended copyright term to works on the cusp of entering the public domain solely because of the long delays in the legislative process.

The need for nine successive short-term extensions can be traced directly to the fact that no one expected the process of enacting the new Act would take years to complete.

 

And while the statement that copyright duration was extended eleven times in the past forty years might be forgiven because it is technically correct though meaningless, the notion that the impetus for these extensions was to circumvent the Constitution’s “limited times” mandate and keep Steamboat Willie out of the public domain is simply wrong.

As Martin says later:

Characterizations of these short-term interim extensions, all of which were a part of the single congressional effort to enact a revised Copyright Act, as unrelated extensions of the term of protection, or as a recidivist congressional pattern of endlessly extending the duration of copyright are either uninformed or intellectually dishonest.

Martin is not alone. Law professor Edward Samuels has also remarked that “these statements are misleading, if not downright disingenuous.”13

Even the Supreme Court has weighed in. In Eldred v Ashcroft, where the constitutionality of the 1997 Copyright Term Extension Act was challenged, the Court declared that “a regime of perpetual copyrights ‘clearly is not the situation before us.'”14

So far, Khanna’s policy brief is not holding up.

Footnotes

  1. William Patry, Copyright Law and Practice, Chap. 1 (2000). []
  2. Noah Webster, A Collection of Papers on Political, Literary, and Moral Subjects, pp 173-75 (Webster & Clark, 1843). []
  3. Id. 175-78. []
  4. The Copyright System of the United States—Its Origin and Growth. []
  5. See Oren Bracha, The Adventures of the Statute of Anne in the Land of Unlimited Possibilities: The Life of a Legal Transplant, 25 Berkeley Technology Law Journal 1427 (2010). []
  6. “As a little girl watches her mom prepare the Easter ham, she wonders why her mother cuts off both ends of the ham before putting it in the pot. So, she asks why, and her mom realizes that she doesn’t know. That’s the way her mother prepared the Easter ham.

    So they call grandmother and pose the question about cutting off the ends of the Easter ham. Grandmother admits to not knowing either. She just prepared the ham the way her mom did it.

    Their next call is to great-grandmother. When they ask her about her method of preparing the Easter ham, she laughs. Then she says, ‘It was the only way I could get the Easter ham to fit the small pot I had!'” []

  7. Ronan Deazley, ‘Commentary on the Statute of Monopolies 1624‘, in Primary Sources on Copyright (1450-1900) (eds L. Bently & M. Kretschmer, 2008). []
  8. Fritz Machlup, “An Economic Review of the Patent System”, pg 5, Study of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, United States Senate, United States Printing Office, Washington: 1958. []
  9. See Oren Bracha, Commentary on the U.S. Copyright Act 1790, in Primary Sources on Copyright (1450-1900) (eds L. Bently & M. Kretschme 2008). []
  10. Ian McClure, Be Careful What You Wish For, 10 Chapman Law Review 1, 11 (2007), “The copyright term has been lengthened eleven times in the past forty years”; Gary Shapiro, President, Consumer Electronics Association, Remarks at the Cato Institute Conference: Copyright Controversies: Freedom, Property, Content Creation, and the DMCA, Copyrights and Property Rights, CATO Policy Report, July-August 2006, “Congress has acted 13 times to expand the length of the copyright terms; 11 of those expansions were passed during the last 40 years”; Larry Downes, ‘Free the Mouse’ for creativity’s sake, USAToday (Oct 7, 2002), ” In the past 40 years, entertainment industry lobbyists have persuaded Congress 11 times to extend copyrights on their vast treasure troves of books, films and music”; Kendra Mayfield, Setting Boundaries on Copyrights, Wired (Feb. 20, 2002); See also Lawrence Lessig, Free Culture, Ch. 10 (2004), “Eleven times in the last forty years, Congress has extended the terms of existing copyrights”; Jesse Walker, Copy Catfight, Reason (March 2000), “This period has been gradually extended, especially lately: It has been lengthened 11 times in the last 40 years, most recently by the Sonny Bono Copyright Term Extension Act of 1998.” []
  11. “In the United States, we have perpetual copyright on the installment plan,” said Peter Jaszi in 2003; Jane Hamsher, GOP Tries to Overthrow the Tyranny of Mickey Mouse…Then Sadly Backs Down, bytegeist, Nov. 19, 2012, “Disney keeps bribing congress to extend copyright laws and keep Mickey Mouse under copyright”; Mike Masnick, Do Bad Things Happen When Works Enter The Public Domain? The Data Says… No, TechDirt, Sept. 28, 2012, “As you know, whenever Mickey is getting close to the public domain, Congress swoops in, at the behest of Disney, and extends copyright”; Matt Asay, Copyright extension of 45 years to net just $40 for most performers, CNet, Sept. 9, 2008, “Every few years the US extends copyright terms because Disney lobbies the heck out of Congress’ weak-kneed legislators to prevent Mickey Mouse from becoming public domain”; Kevin Goldman, Limited Times: Rethinking the Bounds of Copyright Protection, 154 University of Pennsylvania Law Review 705 (2006), “Each time the term of copyright protection has been due to expire, Congress has passed another extension.” []
  12. Scott M. Martin, The Mythology of the Public Domain: Exploring the Myths Behind Attacks on the Duration of Copyright Protection, 36 Loy. L.A. L. Rev. 253 (2002). []
  13. The Public Domain Revisited, 36 Loyola LA Law Review 389, 423 (2002). []
  14. 537 US 186, 209 (2003), quoting Eldred v Reno, 239 F.3d 372 (DC Cir. 2001). []

Late last Friday evening, a policy brief written by 24 year old Derek Khanna was posted to the website for the Republican Study Committee (RSC), a caucus of conservative House Republicans. The brief, Three Myths About Copyright Law and Where to Start to Fix It, was removed from the site Saturday morning, but copies were all over the internet shortly afterward, with critics of copyright applauding the paper.

Many on the internet were quick to declare the paper the absolute most stunningly brilliant paper history has ever produced. Techdirt’s Mike Masnick lamented the fact that, having read the paper, he will no longer be able to enjoy future papers, for they will only pale in comparison.

RSC spokesman Brian Staessle remarked upon retracting the brief that “we hope people will now use this opportunity to engage in polite and serious discussion of copyright law.” I agree. Copyright law increasingly requires dialogue from all corners of society; this is, in fact, one of the reasons I began writing this blog over two years ago.

But any debate or dialogue should begin with sound premises. This policy brief doesn’t. Instead, like an unfortunate strand of copyright skepticism, it runs from reality, rewrites history, and hides from logic.

The brief begins with Khanna presenting three “myths” that he debunks, and then turns to several areas of concern under current copyright law while finally offering a number of potential policy solutions. Today I want to begin an in-depth look at the brief, starting with the first two “myths”. In later posts, I will look at the remaining sections.

Myth 1. The purpose of copyright is to compensate the creator of the content

Khanna begins:

It’s a common misperception that the Constitution enables our current legal regime of copyright protection – in fact, it does not. The Constitution’s clause on Copyright and patents states:

“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;” (Article I, Section 8, Clause 8)

Thus, according to the Constitution, the overriding purpose of the copyright system is to “promote the progress of science and useful arts.” In today’s terminology we may say that the purpose is to lead to maximum productivity and innovation

Khanna is correct on one point: the view of the Copyright Clause he disagrees with is indeed common. But rather than being a misperception, this is the view embraced by the Founding Fathers and, over the past 200 years, the Supreme Court, Congress, and numerous jurists, scholars, and writers.1

In recent decades, many copyright skeptics have increasingly turned to the Founding period of US history in search of arguments against the perceived overreach of the law. This search has given birth to many myths about the goals and purposes of Congress’s copyright power.

Though there was little said about the copyright power during this time, what was said more often than not supports a property right to establish a functioning market for the creation and dissemination of expressive works, not the utilitarian view embraced by Khanna here.

This is evident several years before the Constitution would be drafted. James Madison, who would author the Copyright Clause sat on the committee of the Continental Congress which recommended that the states pass laws protecting copyright. In March 1783, this committee issued a report saying it was “persuaded that nothing is more properly a man’s own than the fruit of his study, and that the protection and security of literary property would greatly tend to encourage genius.”2

Most of the States that subsequently adopted copyright statutes explicitly adopted the Continental Congress’s natural rights language.3

If compensating creators is not the purpose of copyright law, then early lawmakers must not have gotten the memo either. As the first Congress worked on a copyright act, South Carolina Representative Aedenus Burke urged his fellow Representatives of the importance to creators of passing a copyright bill, noting “several gentlemen had lately published the fruits of their industry and application, and were every hour in danger of having them surreptitiously printed.”4

Most telling, the Supreme Court has spoken on the Constitutional purpose of copyright twice in the past decade. Claims similar to Khanna’s were thoroughly rejected by the Court in 2003:

JUSTICE STEVENS’ characterization of reward to the author as “a secondary consideration” of copyright law understates the relationship between such rewards and the “Progress of Science.” As we have explained, “[t]he economic philosophy behind the [Copyright] [C]lause … is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors.” Accordingly, “copyright law celebrates the profit motive, recognizing that the incentive to profit from the exploitation of copyrights will redound to the public benefit by resulting in the proliferation of knowledge…. The profit motive is the engine that ensures the progress of science.” Rewarding authors for their creative labor and “promot[ing] … Progress” are thus complementary; as James Madison observed, in copyright “[t]he public good fully coincides . . . with the claims of individuals.” JUSTICE BREYER’s assertion that “copyright statutes must serve public, not private, ends,” similarly misses the mark. The two ends are not mutually exclusive; copyright law serves public ends by providing individuals with an incentive to pursue private ones.5

And again in 2012:

Even were we writing on a clean slate, petitioners’ argument would be unavailing. Nothing in the text of the Copyright Clause confines the “Progress of Science” exclusively to “incentives for creation.” Evidence from the founding, moreover, suggests that inducing dissemination—as opposed to creation—was viewed as an appropriate means to promote science. Until 1976, in fact, Congress made “federal copyright contingent on publication[,] [thereby] providing incentives not primarily for creation,” but for dissemination. Our decisions correspondingly recognize that “copyright supplies the economic incentive to create and disseminate ideas.6

Khanna next attempts to cast proponents of copyright as somehow taking an “entitlement” mentality toward their rights. He concludes this first section by saying:

Strictly speaking, because of the constitutional basis of copyright and patent, legislative discussions on copyright/patent reform should be based upon what promotes the maximum “progress of sciences and useful arts” instead of “deserving” financial compensation.

I doubt many — if any — creators believe they are “entitled” to financial compensation merely because they have created something. Like any market, creators are only entitled to seek profit, not have it given to them. As Irwin Karp testified during the last Copyright Act revision, though the Copyright Clause establishes these rights, “it does not guarantee a fair reward, or any reward.”

For authors and publishers, both commercial and non-profit, must depend on income derived from uses of their books and journals to compensate for the talent, labor and money expended in creating them, and provide working capital for further publications. And as entrepreneurs, they must assume the ever-present risk that books and journals produced by substantial labor and cash outlays will fail financially although they make valuable intellectual contributions to the public interest.

But there’s a huge difference between feeling entitled to a reward and arguing for compensation when economic users exploit one of the exclusive rights of a work — by reproducing or publicly performing a work, for example. One of the favorite claims of copyright skeptics is that creators routinely oppose new technology because it “disrupts their business model.”7 On the contrary, it is often the case that the businesses utilizing the new technology are the ones who feel entitled — entitled to profit off the exploitation of established rights without compensating creators merely because they are using new technology. In this case, creators do “deserve” compensation. This isn’t a prize at the bottom of the box, it’s one of the foundations of a just capitalist society.

Myth 2. Copyright is free market capitalism at work

Khanna next writes:

Copyright violates nearly every tenet of laissez faire capitalism. Under the current system of copyright, producers of content are entitled to a guaranteed, government instituted, government subsidized content-monopoly

These two sentences are packed with so many misconceptions that I want to address them each one by one.

First, copyright has historically been treated like property — not a government subsidy.

Thomas Paine said in 1782, “in all countries where literature is protected, and it never can flourish where it is not, the works of an author are his legal property.”

At the birth of the United States, copyright was couched in terms of property more often that not. In Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson, Justin Hughes traces the “robust history of copyright being referred to as ‘property.'”8 Most frequently, those involved in the creation and maintenance of copyright law have cited to the work of John Locke and his labor theory of property to justify copyright — a view that remains viable to this day.

Eaton Drone’s 1879 treatise on copyright, considered “the most extensive and comprehensive published on the topic in the United States in the nineteenth century” and the dominant treatise for decades, also embraced the view of copyright as property in Lockean terms. More importantly, it noted, in stark terms, that “To preserve the sanctity of property has ever been a chief function of government. Next to protecting the lives and liberties of the people, it is the highest.”

Not only is the security of property a chief function of government, but its protection is inextricably linked to the advancement of life and liberty. Even today, this important role of property in free capitalist societies continues to be expressed:

States which did not guarantee property and contract did not flourish economically compared to states that did. . . Property and contract law have indeed been foundational to enabling capitalism to take off. . . The emergence of well defined, secure property rights was a part of a much broader historical process in which absolute monarchies and their legitimating political philosophies lost their institutional dominance to be replaced by the institution of the modern state and secular political philosophies that recognized the rights of individuals within and against the state. . . The idea of a natural right of property was one crucial premise in John Locke’s rejection of the absolute authority of Kings.9

Like property in general, copyright — the recognition of the rights of creators — has contributed to free society. Former Register of Copyrights Barbara Ringer wrote in 1974, “It is striking that the second and third copyright statutes in the world — those of the United States of America and of France — were adopted immediately following the revolutions in those countries that overthrew autocratic government and were based on ideals of personal liberty and individual freedom.” She adds:

Freedom of speech and freedom of the press are meaningless unless authors are able to create independently from control by anyone, and to find a way to put their works before the public. Economic advantage and the shibboleth of “convenience” distort the copyright law into a weapon against authors. Anyone who cares about freedom and authorship must insure that, in the process of improving the efficiency of our law, we do not throw it all the way back to its repressive origins in the Middle Ages.

Far from the government instituted regulation that Khanna suggests in his policy brief, copyright is no more and no less like any other free market system.10

In fact, the Constitutional Convention delegates explicitly rejected proposals that would give the federal government a more active role in promoting the progress of the sciences and useful arts — for example, the establishment of a national university or provisions for premiums and rewards to inventors and authors.11 The delegates tossed these aside for the hands-off approach embodied in the Copyright Clause, which would establish a functioning market for expression. This suggests that the delegates thought the pursuit of self-interest would best serve to promote the public interest — as James Madison said of the Clause in the Federalist Papers, “The public good fully coincides. . . with the claims of individuals.”

Some might argue that the promotion of the public interest through the pursuit of self-interest is one of the cornerstones of capitalism.12

Much along the same lines, Khanna’s characterization of copyright as “government-subsidized” is completely erroneous. The government offers nothing to creators except a functioning market to pursue their own ends. Khanna’s suggestion that because copyright holders can pursue civil and criminal remedies for infringement acts as a subsidy is bizarre. That would make all property a government subsidy — contracts too, since contractual parties can turn to courts in the event of a breach. Khanna asserts that because the statutory damages are “massive”, this creates a subsidy. While I think it’s completely appropriate to debate whether copyright remedies are fair and effective, for purposes of this myth, it’s enough to point out that the nature of the remedies does not transform a copyright into a government subsidy.

Second, Khanna describes copyright as a “content-monopoly.”

There is perhaps no more elementary and persistent error in the history of copyright then the claim that it is a monopoly.13 And, just as persistently, it has been debunked.

As in the entry for “monopolies” in an 1839 encyclopedia, which states, “Copyright and patents are now generally placed among monopolies by legal writers, but not correctly.”14 A treatise on literary property written around the same time says:

[The author’s] case is precisely the same as that of the maker of houses, who cannot get a monopoly rent, because other men make more houses, as soon as he demands too much. So, when an author who has produced a book for which the demand is great, is unwise enough to ask too high a price, another author, (perhaps greater than he,) will write another book on the same subject, and thus demolish his ideal monopoly.15

An 1896 book on copyright goes into more detail, noting that such “monopoly language” is based more on rhetoric than reality:

It is sometimes attempted to stigmatize copyright as monopoly, and writers of loose and careless habit sometimes speak of copyright as monopoly. It is no more monopoly than is the ordinary ownership of a horse or a piece of land. Blackstone says that a monopoly is—

A license or privilege . . . whereby the subject in general is restrained from that liberty of manufacturing or trading which he had before.

The law dictionaries define it in the same way. A monopoly takes away from the public the enjoyment of something which the public before possessed. Neither copyright nor patent does this, for neither can be applied to anything which is not new; neither can be applied to anything which the public before possessed. The author and inventor must produce something new in order to be entitled to copyright or patent.16

There are many other examples from more recent decades.17

Finally, as the Supreme Court said in one of its more recent copyright cases, “copyright gives the holder no monopoly on any knowledge. A reader of an author’s writing may make full use of any fact or idea she acquires from her reading.”18

Final Notes

Next time, I’ll dive into the remaining pages of Derek Khanna’s policy brief, but, in my opinion it has so far not gotten off to a great start.

Parker Higgins of the EFF said of the paper that Congress shouldn’t debate copyright in a reality-free zone. I agree. But we should concentrate on actual reality, not the alternative reality that Khanna and some other copyright skeptics have constructed over the past few years. No doubt there are areas of copyright law that need improving. And certainly there’s no argument that some who favor the continuing vitality of creators’ rights at times use unhelpful rhetoric. But Khanna’s brief is Exhibit A in what not to do. A fair, just, and equitable marketplace for creative expression deserves better.

Read Republican Study Committee Policy Brief on Copyright: Part 2

Footnotes

  1. See my post Copyright is for the Author First and the Nation Second. []
  2. 24 Journals of the Continental Congress 326. []
  3. The preambles to the Massachusetts, New Hampshire, and Rhode Island copyright acts stated:

    Whereas the improvement of knowledge, the progress of civilization, the publick weal of the Commonwealth, and the advancement of human happiness, greatly depend on the efforts of learned and ingenious persons in the various arts and sciences: As the principal encouragement such persons can have to make great and beneficial exertions of this nature, must exist in the legal security of the fruits of their study and industry to themselves, and as such security is one of the natural rights of all men, there being no property more peculiarly man’s own than that which is produced by the labour of his mind.

    In a similar fashion, North Carolina’s copyright act read:

    Whereas nothing is more strictly a man’s own than the fruit of his study, and it is proper that men should be encouraged to pursue useful knowledge by the hope of reward; and as the security of literary property must greatly tend to encourage genius, to promote useful discoveries and to the general extension of art and commerce. []

  4. Annals of Congress, 1st Cong., 2nd sess., 1080. []
  5. Eldred v Ashcroft, 537 US 186, n.18. []
  6. Golan v Holder, 565 US ___ (2012). []
  7. See, for example, previous posts on The Story of John and Jack and 100 Years of Copyright and Disruptive Technology. []
  8. 79 Southern California Law Review 993, 1004 (2006). []
  9. Dr. Peter Drahos, The Universality of Intellectual Property Rights: Origins and Developments. []
  10. See also Testimony of Irwin Karp: “the instrument chosen by the Constitution to serve the public interest, i.e., the securing of literary and scientific works of lasting value — is an independent, entrepreneurial property-rights system of writing and publishing”; David Householder, The Progress of Knowledge: A Reexamination of the Fundamental Principles of American Copyright Law, 14 Loy. L.A. Ent. L. Rev. 1, 35 (1993): the Copyright Clause “assumes that promoting the progress of knowledge is advantageous and directs Congress to achieve this benefit by securing exclusive rights in intellectual property. It mandates the creation of a marketplace, wherein this unique form of property, the copyright, may be traded and protected.” []
  11. The Records of the Federal Convention of 1787, Vol. 2, August 18, 1787, ed. Max Farrand (New Haven: Yale University Press, 1911). []
  12. Some might also argue that “to oppose copyright is to oppose capitalism.” []
  13. This phrase comes from Edmund W. Kitch, Elementary and Persistent Errors in the Economic Analysis of Intellectual Property, 53 Vand. L. Rev. 1727 (2000). []
  14. The Penny Cyclopedia of the Society for the Diffusion of Useful Knowledge, Vol. 15, pg 341 (C. Knight, London, 1839). []
  15. Philip H. Nicklin, Remarks on Literary Property (Phila. 1838). []
  16. The Question of Copyright, pg. 86 (GP Putnam, 1896). []
  17. See, for example, RR Bowker, Copyright, Its History and Its Law, pg 50 (Houghton Mifflin 1912), “Copyright is a monopoly only in the sense that any ownership is a monopoly”; Karp, Id.,

    The copyright in a book is not a “monopoly” in the antitrust sense. It does not give the author control over the market in books, or the business of publishing them. His book must compete in the market place with the 40,000 other titles published that year and the hundreds of thousands still in print from prior years, including many that deal with the same subject. His copyright only gives him certain rights to use the book he created. The owner of a copyright only has a “monopoly” in the innocuous sense that all property owners do — each owns a collection of rights, granted by law, to use that which he has created, purchased or inherited.

    Householder, Id.,

    It is like saying the owner of the lot on the northwest comer of Elm and First Streets controls, and is able to exclude competitors from the market for, property on the northwest comer of Elm and First Streets. That owner’s right is a property right; calling it a monopoly adds nothing to an understanding of the owner’s rights. Such usage merely serves to make the meaning of the term “monopoly” less precise and therefore less useful. []

  18. Eldred v Ashcroft, 537 US 186, 217 (2003). []

A lot of ink has been spilled over the years over copyright. Many of the arguments against copyright, however, start to sound the same; trotted out again and again no matter how often they are debunked.

Case in point — the following is testimony from Irwin Karp, in his capacity as general counsel of the Authors League of America, during a hearing on copyright law revisions for what would become the Copyright Act of 1976, nearly 40 years ago.

Karp, who passed in 2006, “was a tireless advocate for author’s rights and remembered by many for his work on the 1976 Copyright Revision Act and on the Berne Convention.” Here, he is testifying specifically about “sections 107 and 108 of the Copyright Revision Bill and the issue of ‘library photocopying'”, but his remarks are just as applicable to broader issues. Karp lays out the purposes of copyright law — including its important free speech function — and then moves on to tackle the most popular “anti-copyright” arguments — copyright is a “monopoly”, it restricts access to knowledge, it is merely a government “privilege”. It’s telling that in the past thirty-five years, copyright skeptics have done little to move beyond these arguments.

As the Supreme Court has explained, the Copyright Clause of the Constitution was intended to establish independent, entrepreneurial, self-sustaining authorship and publishing as the means of serving the public interest in securing the production of valuable literary and scientific works. In so doing, the Copyright Clause serves a second purpose — it implements the First Amendment’s freedoms to express and publish ideas, information, opinions and all manner of literary, scientific and artistic works. The First Amendment protects against restraints on these freedoms. But the Copyright Clause is the only constitutional provision which establishes a legal-economic foundation for exercising them. The Copyright Clause thus frees authors from the need for subsidization by the state or other powerful, institutional “patrons”, and from the restraints such support often imposes. And it was intended to sustain the existence of a diversity of independent publishers, who would give a wide range of viewpoints access to the market place of ideas.

The Supreme Court has emphasized that the Copyright Clause of the Constitution

“was intended to grant valuable, enforceable rights to authors, publishers, etc. without burdensome requirements; ‘to afford greater encouragement to the production of literary [or artistic] works of lasting benefit to the world.'”

The Court said that the “economic philosophy” underlying the Copyright Clause

“is the conviction that the encouragement of individual efforts by personal gain is the best way to advance public welfare through the talents of authors . . .” {Mazer v. Stein, 347 U.S. 201, 219)

Thus, the instrument chosen by the Constitution to serve the public interest, i.e., the securing of literary and scientific works of lasting value — is an inde- pendent, entrepreneurial property-rights system of writing and publishing. The Copyright Act establishes the rights which prevent others from depriving authors and publishers of the fruits of their labor. But it does not guarantee a fair reward, or any reward. For authors and publishers, both commercial and non-profit, must depend on income derived from uses of their books and journals to compensate for the talent, labor and money expended in creating them, and provide working capital for further publications. And as entrepreneurs, they must assume the ever-present risk that books and journals produced by substantial labor and cash outlays will fail financially although they make valuable intellectual contributions to the public interest.

We urge that Congress should not disrupt the delicate balance of this essential system. Carving exemptions out of the “enforceable rights” of authors and publishers does not serve the public interest. For although the resulting uncompensated uses may further the convenience or ambitious plans of some “user” group, they diminish or destroy the ability of authors and publishers to serve the ultimate public interest — to continue producing new works of lasting benefit. The publication of scientific and technical journals, for example, richly serves the public interest — but it is at best a marginal economic operation. Learned societies and others who publish them do not grow fat on their profits. Squeezed by ever-increasing costs and static circulations, publishers will be forced to close down some journals or not start new ones if they are denied reasonable compensation for uses of their articles in the new medium of systematic, library one-at-a-time reproduction. Periodicals and journals are neither immortal nor immune from the laws of economics. The process of attrition may not be apparent to library spokesmen, but it is nonetheless inevitable. Yet, while they are willing to make substantial payments to the Xerox Corporation, suppliers and library employees to provide users with hundreds of thousands of copies of copyrighted articles, they demand of Congress the privilege of denying the journal’s publishers any compensation. [Ironically, libraries pay the Xerox Corporation a per-page fee — a royalty, if you will — for each page of each article they reproduce].

THE ANTI-COPYRIGHT ARGUMENTS

It has become ritual for library organization and Ad Hoc Committee spokesmen to accompany their demands for new exemptions with a series of attacks on copyright, calculated to suggest that the author has no legitimate claim to reasonable protection for the work he creates.

THE “ANTITRUST ARGUMENT”

Library and Ad Hoc Committee spokesmen charge that a copyright is a “monopoly”, suggesting it offends the Sherman Act. This is not so. The copyright in a book is not a “monopoly” in the antitrust sense. It does not give the author control over the market in books, or the business of publishing them. His book must compete in the market place with the 40,000 other titles published that year and the hundreds of thousands still in print from prior years, including many that deal with the same subject. His copyright only gives him certain rights to use the book he created. The owner of a copyright only has a “monopoly” in the innocuous sense that all property owners do — each owns a collection of rights, granted by law, to use that which he has created, purchased or inherited.

THE “RESTRAINT OF INFORMATION” ARGUMENT

Library and Ad Hoc Committee spokesmen charge that a copyright places a restraint on information. This is not so. A patent prevents others from using the ideas it protects. A copyright does not impose such restraints. Anyone is free to use the ideas, facts or information presented in a copyrighted book or article. The copyright only protects the author’s expression, not the ideas, facts or information. Other writers can draw on them. Other writers are free to independently create similar (indeed closely similar) works; the copyright only prevents substantial copying of the author’s expression.

In Progress and Poverty, Henry George made this trenchant observation about copyright :

“Copyright . . . does not prevent any one from using for himself the facts, the knowledge, the laws or combinations for a similar production, but only from using the identical form of the particular book or other production — the actual labor which has in short been expended in producing it. It rests therefore upon the natural, moral right of each one to enjoy the products of his own exertion, and involves no interference with the similar right of any one else to do likewise . . .”

The Copyright is therefore in accordance with the moral law — (p. 411)

THE “MERE PRIVILEGE” ARGUMENT

To Library and Ad Hoc Committee spokesmen, it smacks of immorality to suggest that the author has a moral claim to copyright protection in a work that he created, that would not have existed but for his talent, labor and creative efforts. They charge that copyright is not “property” because the rights are created by statute, and that Congress is not required to pass copyright laws since Art. I, Sec. 8 “merely” says that it “shall have the power” to do so. But the phrase “Congress shall have the power” does not precede the copyright clause of Sec. 8 — it prefaces the enumeration of all powers granted to Congress, including the powers to collect taxes, borrow money, raise armies and regulate commerce. Obviously Sec. 8 intended that Congress would enact copyright laws as well as exercise these other vital functions.

Of course a copyright is property. Like all other property, it is “a creature and creation of law . . .” (73 C.J.S. Sec. 1, p. 145). Like all property, it is a bundle of rights granted by the state, through legislation or court decision Copyright is hardly the only form of property created by statute. Property rights in billions of dollars worth of land, minerals and other natural resources have been created by acts of Congress.

But there is one basic distinction. These other statutes grant individuals perpetual, exclusive rights in resources that belonged to the Nation; they take property from the public domain and give it to private citizens. The Copyright Act grants the author rights in something he created and that already belonged to him at common law; and within a short time, the Act takes his creation from him or his heirs and places it in the public domain. Henry George was right in saying the author’s claim to adequate copyright protection rests on “natural, moral right”. The common law recognized that right, holding that an author “has an absolute property right in his production which he could not be deprived of so long as it remained unpublished, nor could he be compelled to publish it.” (Ferris v. Frohman). And as the Register noted, these exclusive common law rights “continue with no limit even though the work is used commercially and widely disseminated.”

Library and Ad Hoc Committee spokesmen have not asked Congress to grant them an exemption from the property rights of the Xerox Corporation which would permit them to use its machines without charge to reproduce “single copies” of journal articles or other copyrighted works. Property rights in machinery is something that apparently wins their respect. But the copyright owner’s right to compensation for systematic library reproduction stands on equally firm moral and legal footing. And his contribution to the libraries’ copying operations is indispensable. Unless the American Chemical Society and other publishers can afford to continue producing their journals, the Xerox machines and libraries will not have articles to reproduce.

The record label is dead: long live the record label — Despite over a decade of predictions of its imminent demise, the record label still plays a vital role. As Francis Moore of the IFPI points out, from the group’s latest study, record labels worldwide invested $4.5 billion last year developing and promoting recording artists, and over 70% of unsigned musicians want to be signed to a label.

With new channel investments, YouTube becomes even more like TV — Last year, YouTube invested $100 million toward original content for its site. This week, it announced it will only continue to fund 30-40% of those channels, according to GigaOm, making its renewal rate strikingly close to that of broadcast TV.

The Real McCoy: Should Intellectual Property Rights be the New Civil Rights in America? — That’s the question Raymond Millien asks in this must-read article from IP Watchdog. Also check out part 2.

The Education of Senator Wyden: Don’t break the artists…You can’t get away with the old RIAA Booga Booga Booga or that you’ll make it up on volume — Oregon Senator Ron Wyden gave the keynote address at this week’s Future of Music Coalition Summit. As Chris Castle puts it here, “Senator Wyden’s speech writers wrote a speech for him to give in 1999. It does not play in 2012.”

Radio-active: Internet Broadcasting and Artist Compensation [VIDEO] — Also from the FOMC Summit, video of the panel discussion on the Internet Radio Fairness Act, featuring Kurt Hanson of AccuRadio.com, David Lowery of University of Georgia/Cracker/Camper Van Beethoven, Michael Petricone of the Consumer Electronics Association, Patricia Polach of the American Federation of Musicians, and Colin Rushing of SoundExchange.

A Musician’s Perspective on Pandora [PDF] — The ad appearing in Billboard Magazine this weekend, signed by 125 artists. The range of artists represented on the list is notable; many different genres and a mix of newer and more established musicians. Says the ad, “Let’s work this out as partners and continue to bring fans the great musical experience they rightly expect.”

How to avoid accidental dealings with pirates — David Hahn, writing at iMediaConnection, provides three suggestions for helping brands avoid providing revenue to illicit sites. Hahn notes, “As RTB continues to grow and scale, it’s increasingly difficult to appeal to a brand’s goodwill alone to stop appearing on torrent sites. It’s more than likely that these brand marketers have no idea their ads are supporting these sites, and they’re probably horrified when they learn of the placements.”

Why Doesn’t MTV Play Music Videos Anymore? [VIDEO] — From sketch comedy duo Brian and Maria comes this (slightly NSFW because of language) funny video explaining the lack of music on MTV.

Google’s Serial Obfuscation: Music Canada, BPI, Billboard Question Whether Google Has Really Lowered Pirate Sites Search Rankings — The Trichordist sees little evidence that search rankings for illegitimate sites have dropped since Google announced in August tweaks to its algorithm to lower the rank of sites receiving large numbers of takedown notices.

Copyright and Technology 2012 Conference — December 5th in New York City is the annual Copyright and Technology Conference. Featuring a keynote speech by Rob Levine and panel discussions on both technology and law and policy. Registration is currently open. Be sure to also check out David Newhoff’s podcast interview with conference chair Bill Rosenblatt.

Internet radio service Pandora has been in the news in recent weeks as it gears up for a fight to reduce the amount it pays out to musicians, a fight that will take place in front of the public, Congress, and the courts. Most recently, Pandora has sued ASCAP, seeking lower license rates from songwriters and music publishers.

This might seem odd to someone unfamiliar with music and copyright in the US — how can you sue someone just for offering a price you think is too high? If you’re asking yourself that or something similar, read on.

Leaving Public Performance to the PROs

Recorded music by and large consists of two separate and discrete copyrights. One copyright covers the musical composition, which is the underlying song. The other covers the particular sound recording of that song. In addition, each copyright is actually a bundle of divisible rights; the holder of a musical composition copyright has the exclusive right to reproduce, distribute, create derivative works, and publicly perform the composition.1

The public performance right of musical compositions is almost always administered by performing rights organizations (PROs).2 These agencies don’t own the copyrights, they license them to various entities like radio stations, live venues, and websites, collect royalties, and pay them out to their members — these are blanket licenses, meaning a single license covers every song in the PRO’s catalog. The US has three PROs: ASCAP, BMI, and SESAC. Other countries have their own PROs. For example, SACEM in France, one of the world’s first PROs, has licensed public performances since 1847; Canada has SOCAN, and the UK has PRS.

ASCAP was formed in 1914 through the efforts of composer Victor Herbert and attorney Nathan Burkan to collectively administer the public performance rights of songwriters and composers. ASCAP would clash with radio broadcasters during the coming decades over compensation for public performance of music over the airwaves. In 1939, partially in response to a rate increase by ASCAP, the National Association of Broadcasters (NAB) created BMI as a competing performing rights organization.

Consent Decrees

Under pressure from NAB, the US Justice Department sued ASCAP and BMI in 1940, alleging violations of the Sherman Antitrust Act. As a result, both agencies entered into a consent decree with the government.3 ASCAP’s consent decree was amended in 1950, establishing the authority of a district court to act as a “rate court” to settle disputes over rates when ASCAP and licensees could not reach agreement.4 The ASCAP decree was amended again in 1960 and 2001.5 BMI was the subject of a second suit by the US in 1964, with a new consent decree in 1966,6 amended in 1994 to include a similar “rate court” provision.7

ASCAP and BMI together license the vast majority of musical composition public performances in the US. But there is a third performing rights organization in the US: SESAC. SESAC was originally formed in 1930 “to serve European composers not adequately represented in the United States.” SESAC does not operate under a consent decree. However, it is currently involved in a lawsuit alleging similar antitrust violations that resulted in ASCAP and BMI’s consent decrees. That lawsuit survived a motion to dismiss in 2011 and remains ongoing.

The consent decrees sharply limit ASCAP and BMI‘s conduct.

ASCAP, for example, is limited to licensing public performance rights on a non-exclusive basis — it cannot offer exclusive licenses or license any other right in the copyright bundle. It cannot prevent direct licensing between its members and music users, not can it offer different rates and terms to users who are “similarly situated” to existing licensees. And, perhaps most importantly, ASCAP is required to grant licenses to anyone who requests one.8

The Rate Court

The rate court provisions of the consent decrees are perhaps their most unusual aspect. The existence of a “rate-setting court” in the US is, in the words of one scholar, “extremely rare.”9 Only a handful of consent decrees, mostly from the 1940s, 50s, and 60s, have included such provisions, and outside of ASCAP and BMI, only one court has actually ever exercised this function.10 There is generally a deep skepticism toward US courts engaging in rate-setting.11 In many other countries, such functions have been expressly delegated to governmental administrative bodies.12

Regardless, in the US, a federal court — specifically, the Southern District Court of New York — plays the role of rate-making agency for music composition public performance licenses. Here’s how it works: under the consent decree, ASCAP is required to provide a reasonable fee upon request. If a potential licensee disagrees with the fee provided by ASCAP, it can bring suit in court. ASCAP has the burden of proving the reasonableness of the fee; otherwise, the court will weigh the evidence to determine a reasonable fee.

It is under this provision that Pandora has brought suit against ASCAP. Pandora has been operating under a license from ASCAP that expired in 2010, and, as Bloomberg has reported, negotiations over the past year for a new license have been unsuccessful. So, in a sense, it’s a bit imprecise to say Pandora “sued” ASCAP. The court filing doesn’t allege any sort of malfeasance or breach that you’d ordinarily see in a civil lawsuit. Instead, it is part of the process for rate-setting established under ASCAP’s consent decree.

Footnotes

  1. The sound recording copyright includes all these rights except the right to publicly perform; instead, a sound recording copyright holder only has a narrower right to publicly perform “by means of a digital audio transmission.” []
  2. These organizations are sometimes also called “performance rights organizations”. The US Copyright Act uses the term “performing rights society.” 17 USC § 101. These organizations fall under a broader umbrella of what are called “collective rights organizations”, “collective management organizations”, or “collective societies.” []
  3. United States v. ASCAP, 1940-43 Trade Cas. ¶56,104 (SDNY 1941); United States v. Broadcast Music, Inc., 1940-43 Trade Cas. ¶56,096 (ED Wisc. 1941). []
  4. United States v. ASCAP, 1950-51 Trade Cas. ¶62,595 at 63,754 (SDNY 1950). []
  5. US v ASCAP, Second Amended Final Judgment, No. 41-1395 (WCC) (SDNY June 11, 2001). []
  6. United States v. Broadcast Music, Inc., 1966 Trade Cas. ¶71,941 (SDNY). []
  7. United States v. Broadcast Music, Inc., 1996-1 Trade Cas. ¶71,378 (SDNY 1994). []
  8. Though there are differences between the two decrees, both are broadly the same. []
  9. Daniel Crane, Bargaining in the Shadow of Rate-Setting Courts, 76 Antitrust Law Journal 307 (2009). []
  10. Id., citing US v American Optical, 95 F.Supp. 771 (SDNY 1950). []
  11. See, for example, Arsberry v Illinois, 244 F.3d 558, 562 (7th Cir 2001), noting a “historical antipathy to rate setting by courts, deemed a task they are inherently unsuited to perform competently”; In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 906 F.2d 432, 445 (9th Cir 1990), “The federal courts generally are unsuited to act as rate-setting commissions.” []
  12. Laurence R. Helfer, Collective Management of Copyrights and Human Rights: An Uneasy Alliance Revisited, Collective Management of Copyright and Related Rights, 75, 91 (Daniel Gervais (ed.), Kluwer Law Int’l BV 2010), “governments in nearly all countries in which CMOs operate exercise some form of regulatory control over licensing practices to prevent abuse of their dominant positions. The source, extent and enforcement of these regulations vary widely, however. In some countries, copyright laws limit CMO activities. In others, administrative agencies, tribunals or other specialized regulatory bodies monitor CMO activities and adjudicate complaints by licensees. In yet other nations, users seek relief from the courts by filing competition or antitrust claims against CMOs, leading to judicial monitoring of licensing practices in the form of detailed consent decrees”;

    Simon Helm, Intellectual Property in Transition Economies: Assessing the Latvian Experience, 14 Fordham Intellectual Property Media & Entertainment Law Journal 119, 201 (2003), “An example is the Copyright Board in Canada. Invested with quasi-judicial powers, the Copyright Board functions as an arbitral tribunal, and its decisions have the effect of superior court judgments. Under the Canadian model, collective rights administrative societies are required to submit an annual tariff, which is then published. The Copyright Board has jurisdiction to receive submissions from interested parties in relation to the proposed tariff and to make any amendments to the tariff that it considers necessary. Canadian law also sets tariffs for wireless broadcasters based upon their advertising revenues. In cases where an individual license cannot be agreed between the collective rights administration society and a user, the Canadian scheme provides for the submission of the dispute to the Copyright Board for resolution.” []

An invitation to free internet advocates to join us — Following the sentencing of two Vietnamese songwriters for “spreading propaganda against the state” through their songs, the Copyright Alliance has urged others to call for their release. “We encourage artists and creators, as well as anyone who has shared a link, signed a petition, or blacked out a website in support of internet freedom, to exercise your right to free speech and share the plight of Vo Minh Tri and Tran Vu Anh Binh with your friends, your community and your elected officials.”

Going Memeless – Do civil rights abuses have to be hip to get attention? — This is the question posed by David Newhoff regarding the above convictions. “Almost every day, I encounter some proclamation that democratic governments are trying to stifle free speech, and the claim usually comes from some middle-class American or European whose rights are more than intact.  But it really does seem that when we have clear evidence of exactly this kind of oppression, there has to be a hook before it can get much attention.”

I Loved the Whole ‘Information Is Free’ Thing. Until It Was My Book Getting Stolen… — Duke professer Dan Ariely discusses his personal conversion of his views on illegal downloading.

Maintaining Transparency — In response to concerns raised over the methodology of the Copyright Alert System’s process for identifying alleged infringement over p2p networks, the Center for Copyright Infringement, responsible for implementing the System, has released a copy of the independent expert report assessing its system.

Sorry, Internet, SOPA had zero effect on election day results — Digital Trends’ Andrew Couts reports that “Blockage of the Stop Online Piracy Act (SOPA) may have served as the Web’s defining political moment of the year, but the anti-SOPA movement appears to have had little to no effect on Congressional elections, with 21 out of 24 SOPA supporters hanging on to their seats.”

Workspace: Cherry Chevapravatdumrong — Screenwriter John August has a wonderful recurring series on how and where other screenwriters get their jobs done. Here, he talks with Family Guy writer Cherry Chevapravatdumrong, who confesses “I’m fine if there’s an actual deadline, I can totally kick it into high gear then, but if there isn’t one staring me right in the face, yikes. This is probably also a problem with writing at home most of the time…it’s so easy to be like ‘Oh, there’s the TV.’ ‘Oh, there’s the kitchen where the snacks live.’ ‘Oh wow, what if I turned on some music and had a one-woman dance party for the next hour?'”

Inside the Music of ‘Nashville’ — I’ve been watching ABC’s new drama Nashville since it premiered and have been pleasantly surprised (Connie Britton, what more could you want?) Rolling Stone looks behind the scenes at Nashville‘s music, a major component of the show, guided by the more than capable hands of executive music producer T Bone Burnett.

NAACP calls Pandora-backed legislation unfair — According to CNet’s Greg Sandoval, “In a letter to Congress, the civil rights group asks that lawmakers vote no on legislation designed to cut the rates paid by Pandora and other Webcasters to artists — some of whom are elderly Motown performers who weren’t compensated fairly for their original work.”

Megaupload Faces Mega Problems Before Relaunch — Kim Dotcom wants you to keep paying attention to him.

If you get confused reading about Kirtsaeng v John Wiley & Sons, the Supreme Court case argued last week involving copyright’s importation provisions and the first sale doctrine, you are not alone. Resolving the issue requires wading through a morass of interdependent statutory provisions. Add previous Supreme Court precedent, and you end up with, in the words of Chief Justice Roberts, “an awfully difficult maze.”

I would suggest that there is an easy way out of this difficult maze (though as explained below, unlikely to be adopted by the Supreme Court in its eventual opinion): interpret “import” as independent from a sale or other disposition. (I briefly discussed this idea in More on Kirtsaeng v John Wiley & Sons.)

The first sale doctrine, codified in 17 USC § 109(a), gives the owner of a particular copy the ability “to sell or otherwise dispose of the possession of that copy.” The argument in Kirtsaeng treats this language as including the ability to import a particular copy, so how this language interacts with § 602’s prohibition on importation of copies “that have been acquired outside the United States” turns on how the Supreme Court chooses to interpret the phrase “lawfully made under this title” in the first sale doctrine.

But if the act of importation is distinct from the act of selling or otherwise disposing, than everything lines up neatly. This interpretation offers a number of advantages.

First, it is consistent with the plain language of the relevant statutory provisions. Section 602 applies to both nonpiratical and piratical copies acquired outside the US. Interpreting the first sale doctrine to include overseas sales of copies made overseas would render much of § 602 superfluous and its exceptions — listed in 17 USC § 602(a)(3) — meaningless.

Second, it is consistent with the legislative intent of both the first sale doctrine and the importation prohibition. The House Report on the Copyright Act of 1976, to give just one example, clearly states that:

The second situation covered by section 602 is that where the copies or phonorecords were lawfully made but their distribution in the United States would infringe the U.S. copyright owner’s exclusive rights. As already said, the mere act of importation in this situation would constitute an act of infringement and could be enjoined.1

Third, this interpretation would allay concerns raised by Kirtsaeng and several amici that “a copyright owner could make copies abroad, import them into the United States and sell them subject to onerous restrictions on resale, and then obtain copyright remedies from buyers who disregard those restrictions.” But if it is only the act of unauthorized importation that triggers § 602, then an authorized importation would eliminate any liability for downstream users and resellers.

Is Importation a disposition?

The argument that the act of importation should be treated independently of the acts protected by the first sale doctrine is not in front of the Supreme Court in Kirtsaeng. However, it was made in 1998, when the Court heard Quality King v L’anza, a case involving similar issues concerning the first sale doctrine and § 602.

It was primarily raised by the United States, acting as amicus curiae. In its brief, the US argued:

The first sale doctrine does not divest the copyright owner of its right to prevent unauthorized importations. Petitioner’s argument proceeds from the assumption that a first sale abroad completely exhausts a copyright owner’s distribution right. Nothing in Section 109(a)’s text, however, suggests that the limitation on rights effected by a first sale is coextensive with the entire distribution right defined by Section 106(3). To the contrary, Section 109(a) allows the owner of a copy only “to sell or otherwise dispose of the possession of that copy” without the authority of the copyright owner. Because the “mere act of importation”  regulated by Section 602(a) does not entail a sale or disposal of possession by the owner of a copy, the first sale doctrine offers petitioner no safe harbor.

Among the other amici who filed briefs in Quality King, various trade associations — the RIAA, MPAA, Association of American Publishers, American Film Marketing Association, Business Software Alliance, Interactive Digital Software Association, National Music Publishers’ Association, and International Intellectual Property Alliance — also argued this point (coincidentally, this brief was authored by Theodore Olson, who argued on behalf of John Wiley & Sons last Monday):

The language of section 109(a) and the structure of the Copyright Act establish that the first sale doctrine is not a defense to unauthorized acts of importation.

First, section 109 by its terms only allows an owner of a particular tangible copy of a copyrighted work to “sell or otherwise dispose of the possession of the copy or phonorecord.” It does not grant the owner of that copy the right to import the copy into the United States. Importation is distinct from sale or disposition. As noted, importation entails only the carrying of copies or goods across borders, and does not, by definition, necessarily involve sale or transfer of possession.

If importation were not distinct from sale or distribution, there would be no need for section 602: Unauthorized sale or other disposition of possession of imported copies in the United States would be, and is, actionable by a copyright owner under section 106(3). Moreover, there would be no need for the various exceptions to section 602(a) liability expressly set forth by Congress. In particular, there would be no need for the exception to section 602(a) which allows unauthorized importation of copies “forming part of [a] person’s personal baggage” if such copies are “for the private use of the importer and not for distribution.” Importation of a few copies “for private use and not for distribution” cannot, by definition, constitute a distribution “to the public.” If importation were a form of sale or other distribution, or otherwise limited by the first sale doctrine, the “private use” exception to the importation right would be wholly superfluous.

Quality King, the distributor seeking protection under the first sale doctrine, responded to these arguments in its reply brief, arguing that the meaning of disposition should not be read so narrowly:

The terms of Section 109(a) are quite broad: they allow any owner of a copy made lawfully under U.S. copyright law (and it is undisputed that Quality King is such a person) to sell “or otherwise dispose of the possession” of that copy. As this Court has noted, “‘the expression ‘dispose of’ is very broad, and signifies more than ‘to sell.’ Selling is but one mode of disposing of property.'” And as even the Government notes, the term “dispose of” means, among other things, “to transfer,” –a meaning that is plainly broad enough to include the act of transporting from one country to another. Section 109(a) was plainly intended to immunize more activities than those listed in Section 106(3) itself, and importation is a principal example of such an activity. A disposal of possession of any article could include the article’s transport, delivery, export or import, and there is no exception to Section 109(a) when an importation is part of the transaction by which a lawfully obtained article is “disposed of.” Moreover, very few situations covered by Section 602(a) would not entail selling or disposing of the possession of the imported item–whether to a shipper or the ultimate recipient–and there is no allegation that this case presents such a situation.

During oral arguments in front of the Supreme Court, the question of whether importation was included within the scope of otherwise disposing came up only briefly, in the following exchange:

[JUSTICE GINSBURG]: There’s one other language point that the Government makes in addition to its 501 argument.

It refers to the later provision, the one in the… what is it, the chip, the 905 and 906, and that 906 includes… 906(b) refers not simply to otherwise dispose, but includes the word, import, and the argument is, and when Congress… Congress knows there’s a difference between importing and otherwise disposing.

In the end, Quality King appears to have convinced the Court. It summarily rejected the argument that importation is not a form of disposition in its opinion:

Whether viewed from the standpoint of the importer or from that of the copyright holder, the textual argument advanced by the Solicitor General—that the act of “importation” is neither a sale nor a disposal of a copy under § 109(a)—is unpersuasive. Strictly speaking, an importer could, of course, carry merchandise from one country to another without surrendering custody of it. In a typical commercial transaction, however, the shipper transfers “possession, custody, control and title to the products” to a different person, and L’anza assumes that petitioner’s importation of the L’anza shipments included such a transfer. An ordinary interpretation of the statement that a person is entitled “to sell or otherwise dispose of the possession” of an item surely includes the right to ship it to another person in another country.

If you read this carefully, you should be able to quickly spot the flaws in the Court’s logic. The act of importation is not a disposition, but “in a typical commercial transaction” there is a disposition, therefore the act of importation is a disposition. At the very least, the Court’s conclusion seems an awkward shoehorning of one act into the definition of another.

The Better Definition?

Reading “importation” as distinct from “otherwise dispose” seems the better interpretation for several reasons.

First, the Supreme Court’s interpretation renders the definition of disposition in the first sale doctrine inconsistent with other provisions in the Copyright Act. As Justice Ginsburg points out, § 906(b), dealing with limitations on exclusive rights of semiconductor chip products, reads, in pertinent part, “the owner of a particular semiconductor chip product made by the owner of the mask work … may import, distribute, or otherwise dispose of or use, but not reproduce, that particular semiconductor chip product.” Like the language of the first sale doctrine, § 906 includes to “otherwise dispose”; however, it adds an explicit reference to importation. Under the Supreme Court’s interpretation, this language is superfluous and redundant.

Likewise, provisions outside the Copyright Act explicitly refer to importation alongside disposition. For example, 18 USC § 2320, dealing with trafficking in counterfeit goods or services, defines “trafficking” as “to transport, transfer, or otherwise dispose of, to another, for purposes of commercial advantage or private financial gain, or to make, import, export, obtain control of, or possess, with intent to so transport, transfer, or otherwise dispose of.”

I think this shows, as Ginsburg remarked, that “Congress knows there’s a difference between importing and otherwise disposing.” The Supreme Court’s decision in Quality King, however, rendered the first sale’s definition of otherwise disposing an anomaly — it includes “importation” while virtually every other instance mentions importation separately from otherwise disposing.

Finally, while treating importation as synonymous with otherwise disposing might be supported through linguistic gymnastics, treating the two independently produces the better result. The former leads us into the “difficult maze” the Court currently finds itself in; the latter provides a consistent and felicitous operation of all relevant statutory provisions.

Precedent

As noted above, this argument has not been made by any of the parties in Kirtsaeng v John Wiley & Sons. And it’s doubtful it would have been successful even if it had been made, as it would require overturning, at least in part, Quality King — a unanimous decision. While the Supreme Court can overturn its own prior rulings, it is rare.2

However, while Quality King was a unanimous decision, it’s difficult to find many fans of it. Take a look at the following exchange during Kirtsaeng oral arguments:

JUSTICE KAGAN: Mr. Rosenkranz, there is that passage in Quality King, which is, I think it’s fair to say, unfortunate to your position. Is your basic view of that passage that it was simply ill-considered dicta that we should ignore?

MR. ROSENKRANZ: To put it bluntly, yes.

Interestingly, Justice Sotomayor has broached the topic of overturning Quality King not only during arguments for Kirtsaeng, but also during arguments for Costco v Omega in 2010, which concerned essentially the same issue as here.

Here is Justice Sotomayor during Costco oral arguments:

JUSTICE SOTOMAYOR: Then you are trying to rewrite Quality King. Now you are saying that the entire premise of Quality King is wrong.

MR. PANNER: Not at all, Your Honor, because in Quality King, what the Court held was that a copy that is made in the United States is lawfully made under this title.

And during oral arguments for Kirtsaeng:

JUSTICE SOTOMAYOR: So you get what you wanted anyway. That’s really the bottom line. We undo Quality King, except that the price is that people have to ship their manufacturing abroad.

MR. STEWART: Well, we’re not urging the Court to take that course, but yes, that would have been one way to accomplish the same objective.

I wouldn’t recommend reading too much into these questions — finding meaning in the questions asked during oral arguments is like reading tea leaves — but it is interesting to note that the thought of revisiting Quality King seems to at least have been on Justice Sotomayor’s mind for the past two years.

Footnotes

  1. H.R. No. 94-1476, 169 (1976). []
  2. See Planned Parenthood v Casey, 505 US 833, 854-55 (1992), discussing four factors that should guide the Court when it is deciding whether to overturn a prior holding. []

Today’s guest post comes from Copyhype contributor Devlin Hartline.

On its face, the Copyright Act provides that copyright owners actually have two separate sets of rights. Section 106 of the Act gives copyright owners the exclusive rights “to do” and “to authorize” certain listed activities with their copyrighted works, including creating reproductions, making adaptations, distributing copies to the public, publicly performing them, and publicly displaying them.1 It’s clear enough what it means “to do” any of those listed activities, but what does it mean “to authorize” them? Moreover, does merely authorizing someone else to infringe lead to liability even if that party doesn’t actually infringe?

Section 501 of the Act provides that “[a]nyone who violates any of the exclusive rights of the copyright owner” is an infringer.2 It matters not whether they violated the exclusive right “to do” or “to authorize” the listed activity. Either way it’s infringement and they’re an infringer, subject to the full range of remedies under the Act. Nonetheless, as the Supreme Court has noted, distinguishing between different types of infringement is not always easy since “the lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn.”3

Under the 1909 Copyright Act, courts “came to mixed conclusions about how much involvement in infringing was necessary to subject a defendant to liability for an infringement.”4 The doctrinal disarray was not helped by the fact that the previous Act “did not specifically state that the copyright holder had the exclusive right to authorize use” of the copyrighted work.5 But that all changed with the addition of the right “to authorize” in the 1976 Copyright Act, which “was intended to remove the confusion surrounding contributory and vicarious infringement.”6

But can merely authorizing a listed activity itself be infringement without more? In other words, can one who authorizes an infringement be liable even if that authorized infringement never occurs? That depends on whether the exclusive right “to authorize” is seen as an independent right that stands on its own. The relevant House Report has surprisingly little to say about the newly-minted right “to authorize,” though it does suggest that the right doesn’t stand alone:

The exclusive rights accorded to a copyright owner under section 106 are ‘to do and to authorize‘ any of the activities specified in the five numbered clauses. Use of the phrase ‘to authorize’ is intended to avoid any questions as to the liability of contributory infringers. For example, a person who lawfully acquires an authorized copy of a motion picture would be an infringer if he or she engages in the business of renting it to others for purposes of unauthorized public performance.7

The reason it matters is because direct infringers are always liable to the copyright owner, while indirect infringers are only liable if the authorized infringement actually occurs.8 Thus, if the exclusive right “to authorize” is in fact merely a codification of existing secondary liability doctrines, then one who authorizes an infringement has no liability unless the party authorized actually infringes. On the other hand, if the exclusive right “to authorize” stands alone, then mere authorization of an infringement is itself infringement—even if the party authorized doesn’t actually infringe.

In his influential copyright treatise, Nimmer posits that a “far more perplexing question is whether direct infringement must even exist in order for third-party liability to arise.”9 He thinks that reading the Act to create liability for mere authorization without actual infringement is “overly facile,” and that “to authorize” should be seen as “simply a convenient peg on which Congress chose to hang the antecedent jurisprudence of third-party liability.”10 He concludes that “the rule should generally prevail that third party liability, as its name implies, may exist only when direct liability, i.e., infringement, is present.”11

A few district courts have disagreed with Nimmer and found that the right “to authorize” stands alone. For example, one district court stated that “Congress created a new form of ‘direct’ infringement” when the Act was amended to add the right “to authorize.”12 Another district court stated that “tying the authorization right solely to a claim of justiciable contributory infringement appears contrary both to well-reasoned precedent, statutory text, and legislative history.”13 That court held that merely authorizing infringing acts could itself constitute direct infringement.

A different district court followed suit and stated that Section 106 should be read literally to create an independent, exclusive right “to authorize” use of a copyrighted work.14 That court held that “mere authorization . . . constitutes direct infringement and is actionable under United States Copyright Law.”15 And in yet another district court, it was held that infringement commences at the moment that authorization occurs, because “the right ‘to authorize’ infringing acts” was itself “a right newly recognized by Congress.”16 But these four district courts represent the minority view, and no appellate court that I could find has ever agreed.

In fact, the appellate courts that have addressed the issue have instead agreed with Nimmer, as have the district courts that have cited them. In a leading case, the Ninth Circuit stated that “the addition of the words ‘to authorize’ in the 1976 Act appears best understood as merely clarifying that the Act contemplates liability for contributory infringement . . . .”17 The court of appeals quoted Nimmer for the proposition that Congress was merely codifying the preexisting “jurisprudence of third party liability.”18 Accordingly, the appellate court found that the authorization right is only implicated in cases of contributory infringement, i.e., where there is also direct infringement.

The First Circuit took a similar tack while addressing the issue of whether authorization is infringement “where there is no adequate proof that the third party ever undertook an infringing act.”19 The court of appeals noted that “most (perhaps all) courts that have considered the question have taken the view that a listed infringing act (beyond authorization) is required for a claim.”20 While acknowledging that “the better bare-language reading would allow” a claim for mere authorization, the appellate court nonetheless held that there must be proof “of an infringing act after the authorization.”21

The district court in the famous Jammie Thomas-Rasset case considered whether merely “making available” song files in a peer-to-peer share folder violated plaintiffs’ exclusive right “to authorize” distributions. (This was in addition to its consideration of whether Thomas-Rasset violated plaintiffs’ exclusive right “to do” distributions, as I wrote about previously.) After surveying the statutory text, case law, and legislative history, the district court concluded that “the authorization clause merely provides a statutory foundation for secondary liability, not a means of expanding the scope of direct infringement liability.”22 Moreover, said the district court, “the authorization right . . . only applies if there is an actual dissemination.”23

Bringing us back to the Copyright Act, it’s safe to say that while the plain wording of Section 106 appears to create an independent, exclusive right “to authorize” the listed activities, the majority view is that the right “to authorize” doesn’t stand alone and that one who authorizes an infringement is only liable if the authorized infringement actually takes place.

Follow me on Twitter: @devlinhartline

Footnotes

  1. 17 U.S.C.A. § 106 (West 2012) (“the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.”). []
  2. 17 U.S.C.A. § 501 (West 2012). []
  3. Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 435, n.17 (1984) (internal quotations omitted). []
  4. Peter Starr Prod. Co. v. Twin Cont’l Films, Inc., 783 F.2d 1440, 1443 (9th Cir. 1986). []
  5. Id. (emphasis in original). []
  6. Id. []
  7. H.R. REP. 94-1476, 61. []
  8. See, e.g., 1 Goldstein, Copyright: Principles, Law and Practice § 6.1, at 705 (1989) (“It is definitional that, for a defendant to be held contributorily . . . liable, a direct infringement must have occurred.”). []
  9. 3-12 Nimmer on Copyright § 12.04[D][1]. []
  10. Id. []
  11. Id. []
  12. ITSI T.V. Productions, Inc. v. California Auth. of Racing Fairs, 785 F.Supp. 854, 860 (E.D. Cal. 1992). []
  13. Curb v. MCA Records, Inc., 898 F. Supp. 586, 594 (M.D. Tenn. 1995). []
  14. Expediters Int’l of Washington, Inc. v. Direct Line Cargo Mgmt. Services, Inc., 995 F. Supp. 468, 476 (D.N.J. 1998). []
  15. Id. at 477. []
  16. Thomas v. Pansy Ellen Products, Inc., 672 F. Supp. 237, 241 (W.D.N.C. 1987). []
  17. Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1093 (9th Cir. 1994). []
  18. Id. (internal quotations and brackets omitted). []
  19. Venegas-Hernandez v. ACEMLA, 424 F.3d 50, 57 (1st Cir. 2005). []
  20. Id. at 57. []
  21. Id. at 59. []
  22. Capitol Records, Inc. v. Thomas, 579 F.Supp.2d 1210, 1221 (D. Minn. 2008). []
  23. Id. at 1223. []
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