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. 1See my post Copyright is for the Author First and the Nation Second.

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.” 224 Journals of the Continental Congress 326.

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

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.” 4Annals of Congress, 1st Cong., 2nd sess., 1080.

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. 5Eldred v Ashcroft, 537 US 186, n.18.

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. 6Golan v Holder, 565 US ___ (2012).

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.” 7See, for example, previous posts on The Story of John and Jack and 100 Years of Copyright and Disruptive Technology. 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.'” 879 Southern California Law Review 993, 1004 (2006). 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. 9Dr. Peter Drahos, The Universality of Intellectual Property Rights: Origins and Developments.

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. 10See 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.”

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. 11The Records of the Federal Convention of 1787, Vol. 2, August 18, 1787, ed. Max Farrand (New Haven: Yale University Press, 1911). 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. 12Some might also argue that “to oppose copyright is to oppose capitalism.”

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. 13This phrase comes from Edmund W. Kitch, Elementary and Persistent Errors in the Economic Analysis of Intellectual Property, 53 Vand. L. Rev. 1727 (2000). 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.” 14The Penny Cyclopedia of the Society for the Diffusion of Useful Knowledge, Vol. 15, pg 341 (C. Knight, London, 1839). 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. 15Philip H. Nicklin, Remarks on Literary Property (Phila. 1838).

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. 16The Question of Copyright, pg. 86 (GP Putnam, 1896).

There are many other examples from more recent decades. 17See, 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.

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

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

References   [ + ]

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. 1The 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.”

The public performance right of musical compositions is almost always administered by performing rights organizations (PROs). 2These 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.” 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. 3United 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). 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. 4United States v. ASCAP, 1950-51 Trade Cas. ¶62,595 at 63,754 (SDNY 1950). The ASCAP decree was amended again in 1960 and 2001. 5US v ASCAP, Second Amended Final Judgment, No. 41-1395 (WCC) (SDNY June 11, 2001). BMI was the subject of a second suit by the US in 1964, with a new consent decree in 1966, 6United States v. Broadcast Music, Inc., 1966 Trade Cas. ¶71,941 (SDNY). amended in 1994 to include a similar “rate court” provision. 7United States v. Broadcast Music, Inc., 1996-1 Trade Cas. ¶71,378 (SDNY 1994).

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. 8Though there are differences between the two decrees, both are broadly the same.

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.” 9Daniel Crane, Bargaining in the Shadow of Rate-Setting Courts, 76 Antitrust Law Journal 307 (2009). 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. 10Id., citing US v American Optical, 95 F.Supp. 771 (SDNY 1950). There is generally a deep skepticism toward US courts engaging in rate-setting. 11See, 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.” In many other countries, such functions have been expressly delegated to governmental administrative bodies. 12Laurence 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.”

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.

References   [ + ]

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. 1H.R. No. 94-1476, 169 (1976).

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. 2See 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.

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.

References   [ + ]

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. 117 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.”). 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. 217 U.S.C.A. § 501 (West 2012). 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.” 3Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 435, n.17 (1984) (internal quotations omitted).

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.” 4Peter Starr Prod. Co. v. Twin Cont’l Films, Inc., 783 F.2d 1440, 1443 (9th Cir. 1986). 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. 5Id. (emphasis in original). 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.” 6Id.

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. 7H.R. REP. 94-1476, 61.

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. 8See, 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.”). 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.” 93-12 Nimmer on Copyright § 12.04[D][1]. 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.” 10Id. 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.” 11Id.

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.” 12ITSI T.V. Productions, Inc. v. California Auth. of Racing Fairs, 785 F.Supp. 854, 860 (E.D. Cal. 1992). 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.” 13Curb v. MCA Records, Inc., 898 F. Supp. 586, 594 (M.D. Tenn. 1995). 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. 14Expediters Int’l of Washington, Inc. v. Direct Line Cargo Mgmt. Services, Inc., 995 F. Supp. 468, 476 (D.N.J. 1998). That court held that “mere authorization . . . constitutes direct infringement and is actionable under United States Copyright Law.” 15Id. at 477. 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.” 16Thomas v. Pansy Ellen Products, Inc., 672 F. Supp. 237, 241 (W.D.N.C. 1987). 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 . . . .” 17Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1093 (9th Cir. 1994). The court of appeals quoted Nimmer for the proposition that Congress was merely codifying the preexisting “jurisprudence of third party liability.” 18Id. (internal quotations and brackets omitted). 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.” 19Venegas-Hernandez v. ACEMLA, 424 F.3d 50, 57 (1st Cir. 2005). 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.” 20Id. at 57. 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.” 21Id. at 59.

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.” 22Capitol Records, Inc. v. Thomas, 579 F.Supp.2d 1210, 1221 (D. Minn. 2008). Moreover, said the district court, “the authorization right . . . only applies if there is an actual dissemination.” 23Id. at 1223.

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

References   [ + ]

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.

Last week, the Supreme Court held oral arguments in Kirtsaeng v John Wiley & Sons. You can read a transcript of the arguments or listen to audio of the arguments.

The US Government, through the Solicitor General, is participating as amicus curiae, not uncommon when a Supreme Court case involves a question of statutory interpretation. During arguments, Deputy Solicitor General Malcolm Stewart started by saying:

I would like to discuss — begin by discussing our Bobbs-Merrill argument, because it’s a part of our brief that’s different from both the parties’ submissions, and I do think it’s very important to understanding the practical implications of the Court’s decision.

The Bobbs-Merrill argument that the US advanced has been described as a “middle-ground” between Kirtsaeng and Wiley’s positions, though at least a few observers have characterized it as “odd.” Many have also commented that this argument did not seem to land during arguments, being greeted by skepticism from the Justices.

The actual argument made by the US is a relatively minor one, discussed in just three paragraphs in its 31 page brief. However, I think it deserves some attention, because it may have some merit.

The Government’s Argument

Kirtsaeng involves nonpiratical copyrighted works — as opposed to infringing works — manufactured overseas. Section 602(a)(1) of the Copyright Act prohibits the “[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States.”

Petitioner Supap Kirtsaeng was sued by John Wiley & Sons under this section but argued in the lower court that the first sale doctrine, codified in 17 USC § 109, allows such conduct. Section 109(a) provides that “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

The issue in front of the Supreme Court is primarily focused on the meaning of the phrase “lawfully made under this title” — Kirtsaeng argues that this means any copy that would be lawful had US law been applied (thus allowing importation of nonpiratical works manufactured overseas) while John Wiley & Sons argues that it only includes works manufactured in the US.

Virtually every court in the past 30 years has held that the first sale doctrine is not available as a defense when works manufactured overseas are imported into the US without authorization. However, Kirtsaeng has raised several concerns with this interpretation on appeal.

In its brief, the US addressed one such concern: that, if you interpret the Copyright Act to say the first sale doctrine does not allow importation of nonpiratical copies, it would also mean the first sale doctrine never applies to copies made outside the US, allowing copyright owners to control resale markets and all downstream sales.

Petitioner’s argument assumes that, if Section 109(a) is inapplicable, 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.

The US argues that this conclusion does not follow its (and John Wiley’s) interpretation of the statutes. Section 109 explicitly only applies to copies lawfully made within the US, allowing copyright owners to prohibit the importation of copies lawfully acquired overseas. But, says the US, this interpretation does not expand a copyright owner’s distribution right in other respects.

Thus, when a copyright holder has authorized goods to be imported into the United States and/or sold within this country, applying a “first sale” or “exhaustion” principle as an implicit limitation on the copyright holder’s exclusive right to “distribute” would be consistent with the current text of the Copyright Act and faithful to the doctrine’s historical underpinnings. (Emphasis added.)

To get to this point, the US relies on the 1908 Bobbs-Merrill case, one of the earliest applications of the “first sale doctrine.” Though Bobbs-Merrill was framed as an interpretation of the Copyright Act as it existed then, the US argues that it relied on common-law principles to reach its result. Foremost among these principles is the deep suspicion of restraints on alienability of property.

At the time, the Copyright Act gave a copyright owner the sole right to “vend” a work and did not explicitly contain a first sale doctrine. The Bobbs-Merrill Court nevertheless held that the right to “vend” a work did not extend past the first sale of a work.

True, the statute also secures, to make this right of multiplication effectual, the sole right to vend copies of the book, the production of the author’s thought and conception. The owner of the copyright in this case did sell copies of the book in quantities and at a price satisfactory to it. It has exercised the right to vend. What the complainant contends for embraces not only the right to sell the copies, but to qualify the title of a future purchaser by the reservation of the right to have the remedies of the statute against an infringer because of the printed notice of its purpose so to do unless the purchaser sells at a price fixed in the notice. To add to the right of exclusive sale the authority to control all future retail sales, by a notice that such sales must be made at a fixed sum, would give a right not included in the terms of the statute, and, in our view, extend its operation, by construction, beyond its meaning, when interpreted with a view to ascertaining the legislative intent in its enactment.

This is the implicit limitation that the US argues survives today. Using the same reasoning as Bobbs-Merrill, to add to the right of importation the authority to control all future retail sales “would give a right not included in the terms of the statute.”

Deputy Solicitor General Stewart made clear the import of this argument last Monday:

JUSTICE KAGAN: So Mr. Stewart, if I understand your argument, both here and in Quality King you want the copyright holder to have some control over importation, but at the same time you don’t want the copyright holder to have control over all downstream sales.

MR. STEWART: That’s correct.

JUSTICE KAGAN: And that’s what your Bobbs-Merrill argument is designed to do. It’s designed to prevent that.

MR. STEWART: That’s correct.

However, Justice Alito first expressed skepticism of this argument, followed by Chief Justice Roberts.

CHIEF JUSTICE ROBERTS: That’s an awfully difficult maze for somebody to — to get through. You have to start with the difficulty of the language here, and then you have to proceed and put the Quality King gloss over it; and, when you finally get to that point, you say, well, now you’ve got to read Bobbs-Merrill and figure out how the common law governs all that.

Justice Roberts is correct in noting the awfully difficult maze here (I would place the blame mostly on the Quality King decision), but most of the difficulty would arise in crafting an opinion that incorporates the Government’s argument. Actual application would be fairly straight-forward.

Under the US approach, copyright owners could engage in the type of market segmentation that § 602 permits and block unauthorized importation of nonpiratical goods manufactured overseas. However, if a copyright owner were to try to extend its right under § 602 to control downstream uses and resales of works once they were in the US, Bobbs-Merrill would kick in.

It may be a “difficult maze”, but it’s also one of the few ways out presented to the Supreme Court.

Why Cory Doctorow’s “Pirate Cinema” Makes Me Root for Big Content — A fabulous read from a self-ascribed fan of remix culture who finds Doctorow’s latest anti-copyright screed so over-the-top that it turns him off. “That’s the gaping black hole at the center of this book: any sort of acknowledgement that copyright law is IMPORTANT. What he dismisses as ‘greed,’ the entertainment industry would certainly defend as “basic fairness.”

Google News wars are here again: Schmidt vs France on ‘news tax’ — In response to a French proposal to copy a recent German law requiring a license to excerpt material online, Google has stated that such a levy would “threaten its very existence.” Hyperbole?

Have EU orphans found a caring home? — IPKat reports on the recent Orphan Works Directive from the EU. Some good preliminary analysis from the Directive, which is directed at certain permitted uses of orphan works.

Kirtsaeng v. John Wiley & Sons, Inc. — Sandra Aistars of the Copyright Alliance shares some thoughts on the first sale case which the Supreme Court heard this week. “If you are concerned that as a result of a copyright case the Supreme Court is hearing tomorrow, Kirtsaeng v. Wiley, you will be frisked at the border for foreign newspapers and magazines when you return from your next trip abroad, that libraries will stop lending books, and that discounted overstock items will no longer be available from big box stores, read on.”

On Letting Foxes Mind Chicken Coops — David Newhoff continues to post thought-provoking articles on his new site, Illusion of More. “So far, it looks a lot like there isn’t a piece of legislation, a trade agreement, a civil action, or any other policy initiative that is not going to be labeled a ‘threat to freedom’ by [internet] companies, their lobbyists, and their PR groups. The first sane question anyone should ask when any industry makes such a claim is, ‘Do you mean a threat to my freedom or your cash flow?'”

CCI Recommits to Independent Evaluation of Content Methodology — The Center for Copyright Information, responsible for implementing the Copyright Alert System, was in the news this week because of the expert they retained for evaluating their system. “Recent reports that a former employee of Stroz Friedberg lobbied several years ago on behalf of RIAA on matters unrelated to CCI have raised questions about the impartiality of Stroz Friedberg,” says the CCI, and in response, the organization will be retaining a second, independent expert to evaluate the system’s methodology.

Future of Music Coalition Summit 2012 — FOMC’s annual conference is November 13th and features an interesting lineup of panels and speakers, including friends of the blog David Lowery and Chris Ruen. Check out the site for links to a livestream of the event.

NYC Conference: Earlybird Extended Until Next Monday — Another upcoming event that looks interesting, the Copyright and Technology NYC 2012 conference in December, is still open for registration. Because of this weeks weather, the deadline has been extended to November 5th.

On Monday, the Supreme Court heard oral arguments in Kirtsaeng v John Wiley & Sons, a case dealing with the impact of copyright’s first sale doctrine — 17 USC § 109(a) — on the Copyright Act’s importation prohibition — 17 USC § 602(a)(1). I’ve previously written about the case here, with more thoughts here.

A decision is months away, but before closing the book on this case until then, I wanted to look at one other aspect of the legal issues involved. While Kirtsaeng involves textbooks, one of the traditionally copyright protected works, other cases, including the two previous cases involving these provisions to reach the Supreme Court (Costco v Omega and Quality King v L’anza Research), involve consumer goods, goods that we don’t typically think of as within the subject matter of copyright. Those cases generally rely on an assertion of copyright protection over the goods’ packaging or labels, rather than the good itself. Generally, we would think of such products as relying on trademark law rather than copyright law for any protection.

Trademark law does provide effective protection against grey market goods, but this protection is curtailed in several respects that explains why some companies have turned to the importation provisions of the Copyright Act. 1Parker A. Howell, Cheaper Watches and Copyright Law, 7 Washington Journal of Law, Technology & Arts 237, 244 (2012). Perhaps most importantly, trademark law does not prohibit unauthorized importation of goods that had been manufactured by a foreign subsidiary of a US company. 2K Mart v Cartier, 486 U.S. 281, 295 (1988) (Brennan, J., concurring).

Whether overlap between copyright and trademark law creates concerns is an interesting academic question. 3See, for example, Viva R. Moffat, Mutant Copyrights and Backdoor Patents: The Problem of Overlapping Intellectual Property Protection, 19 Berkeley Technology Law Journal 1473 (2004). Whether it matters in the real world, especially in the context of parallel imports, is also, I think, a legitimate question. 4For example, Moffat notes that one of the main concerns with extending trademark protection into the copyright arena is that trademark’s potentially perpetual duration runs counter to copyright’s limited term. When the situation is reversed, as here, and copyright protection is extended into the trademark arena, this concern vanishes.

Regardless, I think it’s worth examining the use of copyright law to police importation of non-piratical goods which aren’t customarily considered within the scope of copyright subject matter. I’ve done so by first surveying §602 case law and then examining several of the defenses raised in actions involving consumer goods.

I’ve looked for published opinions on cases with claims arising under §602 that involved non-piratical, or “authentic” goods (§602 also provides remedies for the importation of piratical, or infringing, goods). The result is a list of 35 cases in total, 27 of which a first sale defense was raised. 5First sale defense raised

John Wiley & Sons v Kirtsaeng, 654 F.3d 210 (2nd Cir. 2011) (books)
Microsoft v Technology Enterprises, 805 F.Supp.2d 1330 (SD Fla. 2011) (software)
Pearson Education v Kumar, No. 1:07-CV-9399 (CSH) (D. Conn. 2010) (books)
Pearson Education v Arora, 717 F.Supp.2d 374 (SDNY 2010) (books)
Pearson Education v Liu, 656 F.Supp.2d 407 (SDNY 2009) (books)
Pearson Educaction v Liao, 2008 WL 2073491 (SDNY 2008) (books)
Omega v Costco, 541 F.3d 982 (9th Cir. 2008), aff’d without opCostco v Omega, 131 S.Ct. 565 (2010) (watches)
Microsoft v Intrax Group, No. C 07-1840 CW, 2008 WL 4500703 (ND Cali. Oct. 6, 2008) (software)
Microsoft v Cietdirect.com, No. 08-60668-CIV, 2008 WL 3162535 (SD Fla. Aug. 5, 2008) (software)
Microsoft v Big Boy Distribution, 589 F.Supp.2d 1308 (SD Fla. 2008) (software)
Swatch SA v New City, 454 F.Supp.2d 1245 (SD Fla. 2006) (watches)
UMG Recordings v Norwalk Distributors, 2003 U.S. Dist. LEXIS 26302 (CD Cali. 2003) (phonorecords)
Lingo Corp v Topix, 2003 WL 223454 (SDNY 2003) (electronic language translator)
Quality King v L’anza Research, 523 US 135 (1998) (hair care products)
Denibcare USA v Toys’R’Us, 84 F.3d 1143 (9th Cir. 1996) (diapers)
DAISA v Costco, 97 F.3d 377 (9th Cir. 1996) (figurines)
Summit Technology v High-Line Medical Instruments, 922 F.Supp. 299 (CD Cali. 1996) (medical devices)
Parfums Givenchy v Drug Emporium, 38 F.3d 477 (9th Cir. 1994) (perfume)
Parfums Givency v C&C Beauty Sales, 832 F.Supp. 1378 (CD Cali. 1993) (perfume)
Red Baron v Taito, 9 U.S.P.Q.2D (BNA) 1901 (1988) (video games — Double Dragon) (first sale doctrine applied as a defense against unauthorized importation of nonpiratical work first manufactured overseas)
BMG v Perez, 952 F.2d 318 (9th Cir. 1991) (phonorecords); Neutrogena v United States, 7 USPQ.2d (BNA) 1900 (D SC 1988) (cosmetic products)
Sebastian Int’l v Consumer Contact (PTY), 664 F.Supp. 909 (D NJ 1987), rev’d 847 F.2d 1093 (hair care products)
Original Appalachian Artworks v JF Reichert, 658 F.Supp. 458 (ED Pa. 1987) (soft sculptured dolls — Cabbage Patch Kids)
Hearst v Stark, 639 F.Supp. 970 (ND Cali 1986) (books)
Cosmair v Dynamite Enterprises, 226 USPQ (BNA) 344 (SD Fla. 1985) (cosmetic products)
Columbia Broadcasting v Scorpio Music, 569 F.Supp. 47 (ED Pa. 1983), aff’d without op, 738 F.2d 421 (3d Cir. 1984) (phonorecords).

No first sale defense raised

Microsoft v EEE Business, 555 F.Supp.2d 1051 (ND Cali. 2008) (software)
UMG Recordings v Disco Azteca, 446 F.Supp.2d 1164 (ED Cali. 2006) (phonorecords)
U2 Home Entertainment v Lai Ying Music & Video Trading, No. 04-CIV-1233 (DLC) (SDNY 2005) (motion pictures)
Enesco v Jan Bell Marketing, 992 F.Supp. 1021 (ND Ill. 1998) (figurines — Precious Moments)
TB Harms v Jem Records, 655 F.Supp. 1575 (D. NJ 1987) (phonorecords)
Selchow & Righter v Goldex, 612 F.Supp. 19 (SD Fla. 1985) (game board and rules — Trivial Pursuit)
Goebel Porzellanfabrik v Action Industries, 589 F.Supp. 763 (SDNY 1984) (figurines — Hummel)
CBS Inc v Pennsylvania Record Outlet, 598 F.Supp. 1549 (WD Pa. 1984) (phonorecords)

These cases are a mix between the situation where, as in Quality King, a good was first manufactured in the US and, as in Kirtsaeng, a good was first manufactured overseas. Though I haven’t indicated which is which, I will note that, before Quality King, courts were split on whether the first sale doctrine applied to goods first manufactued in the US and then re-imported without authorization. Where goods were first manufactured overseas, however, courts have been virtually unanimous in holding that the first sale doctrine does not apply — I’ve only been able to find one case in the past 30 years that has held otherwise.

Out of these 35 cases, 24 involved traditionally copyrighted works: books, phonorecords, software, and sculptural works. The eleven remaining cases involved situations where the goods themselves would not be copyrightable — instead, copyright protection on labels or packaging was asserted. These cases include everything from perfume, to watches, to diapers.

The first thing you note from this survey is the small usage of this provision, roughly 30 reported cases in 30 years. Compare this to, say, the fair use provision in §107, which has generated over 300 published opinions in the same time-frame. 6Barton Beebe, An Empirical Study of US Copyright Fair Use Opinions, 1978-2005, 156 University of Pennsylvania Law Review 549 (2008), surveying 306 published opinions on fair use from 1978 to 2005. And less than one-third of these involved consumer goods.

Next, I’ll look at some of the defenses that may be raised when the Copyright Act’s importation provisions are used to protect such consumer goods.

Copyrightability

The first defense that might be raised is that such goods are outside of copyrightable subject matter. The Copyright Act provides that copyright protection exists in all “original works of authorship fixed in any tangible medium of expression “It is well established that labels are subject to copyright protection, if the label manifests the necessary modicum of creativity.” 717 USC § 102. The statute lists several categories of works which may be protected, including “(1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.”

The bar for originality is low; it requires only a “modicum of creativity.” 8Feist Publications v Rural Telephone Service, 499 US 340, 346 (1991). It is well established that product labels and packaging can be protected by copyright. 9Kitchens of Sara Lee v Nifty Foods Corp, 266 F.2d 541, 544 (2nd Cir. 1959).

This avenue, then, would be a non-starter for defending against including consumer goods in the importation provision — indeed, it is precisely because of the low bar for copyrightability that such goods are within its scope. This argument was raised in one case dealing with §602, and the court, confronted with the argument against plaintiff’s hair care product labels, said, “Catch phrases, mottos, slogans and short advertising expressions are not copyrightable. But, of course, the length of a sentence is not dispositive of whether it is subject to protection. … While this text tries the limits of the modicum of creativity necessary for a work to be copyrightable, I find that taken as a whole it comes within the purview of the Copyright Act.” 10664 F.Supp. at 913.

Design inseparable from useful article

Next, one might argue that any copyrightable matter in consumer goods is inseparable from their function and thus unprotectable. The Copyright Act says of pictorial, graphic, and sculptural works, “Such works shall include works of artistic craftsmanship insofar as their form but not their mechanical or utilitarian aspects are concerned; the design of a useful article, as defined in this section, shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” Courts have interpreted this to mean that copyrightable elements of works must be physically or conceptually separable from utilitarian aspects. Easier said than done — if you think this inquiry could lead you into a metaphysical quandary, you’d be correct.

The Koosh Ball, for example, had its registration for copyright rejected by the Copyright Office, and on appeal, the DC Circuit held that the Office had not abused its discretion. 11OddzOn Products v Oman, 924 F.2d 346 (DC Cir. 1991). But in most cases, separability would not be an issue since plaintiffs would be asserting copyright protection over labelling or packaging rather than the good itself.

Indeed, the one time I’ve found where a defendant raised this defense, regarding importation of perfume, the court rejected it:

It is well established that an artistic packaging design or label is entitled to copyright protection. Indeed, the Copyright Office regulations make clear that a copyright may be issued for “a print or label that contains the requisite qualifications for copyright even though there is a trademark on it.”

Moreover, the Amarige Box Design is physically separable from the perfume with which it is associated and thus does not even raise an issue of ‘conceptual separability.’ Section 101 of the Copyright Act provides that “the design of a useful article” or a work of art that embellishes a useful article is copyrightable to the extent that it is capable of existing independently of the utilitarian aspects of the article. The legislative history specifies that the design or embellishment may be separable from the useful article either physically or conceptually. The Amarige Box Design is a two-dimensional artistic design, which is physically separable from the utilitarian aspects of Amarige perfume.  Thus, the issue of conceptual separability does not even arise. 12832 F.Supp. at 1391-92.

Fair use

During oral arguments, Justice Breyer pressed Theodore Olson, attorney for John Wiley & Sons, about the potential liability of downstream users if the first sale doctrine wouldn’t apply to goods manufactured abroad. In response, Olson alluded to the existence of fair use exceptions that would apply. Though I have not seen fair use raised as a defense for unauthorized importation of non-piratical consumer goods, one amici has raised the possibility of its application in its brief in favor of Wiley. The Software and Information Industry Association, arguing that “the Copyright Act contains the flexibility to deal with unforeseen applications of section 602″, says:

In the same way that Congress did not intend to cabin section 602’s application to copies from countries with a shorter term or compulsory licenses, the legislative record provides no evidence that it intended its application to situations where a trademark owner adds a copyrightable insignia or label on goods to protect against their parallel importation into the United States. Amicus SIIA believes that the better way to address the concern raised by these cases is through the fair use defense contained in section 107 of the Act.

Although the Court in dicta suggested that fair use might not be available to the importer who infringed under this circumstance, SIIA respectfully suggests that that is not the case. Fair use is at its core an “equitable rule of reason,” designed to take into account the facts of each case. The flexible and factspecific nature of the defense renders it fully capable of taking into account the practical reality that people do not buy a watch because of an insignia on the back or buy shampoo because of the wording of the instructions. This reality would likely influence a court’s determination of the fourth fair use factor: “the effect of the use upon the potential market for or value of the copyrighted work.”

The fair use doctrine requires that a market for a work be “traditional, reasonable, or likely to be developed” when examining and assessing the effect that a secondary use of a copyrighted work may have on the potential market for or value of that work. In the case of products such as shampoo and watches, there is no economic value severable from the product to which the work is affixed, and no actual or potential market that can be harmed. For example, there is likely no separate licensing market for shampoo labels as the expressive work – the label – has no economic value severable from the product.

This argument is interesting on its surface, though somewhat novel. I’ve been unable to find any cases where fair use has been applied outside the exclusive right of reproduction. There have been cases where a defendant has raised the defense when he was engaged in distribution, but this is always in combination with alleged reproduction. 13See, for example, Kelly v Arriba Soft (336 F.3d 811 (9th Cir. 2003), fair use where defendant engaged in display, reproduction, and distribution. The language of the fair use provision in the Copyright Act itself does not expressly preclude application outside of reproduction, 1417 USC § 107, which, in part, reads, “the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section.” I just don’t know if any court has ever been confronted with its application where there hasn’t been an unauthorized reproduction, as would be the case with an unauthorized importation of a non-piratical work under §602.

Copyright misuse

Whether the defense of copyright misuse exists at all is an open question. It is a court-created doctrine that has only emerged within the past 30-some years. Only a minority of federal circuit courts have even recognized its existence, with some remaining skeptical, and even less have actually applied the doctrine. 15See Michael E. Rubenstein, Extending Copyright Misuse to an Affirmative Cause of Action, 5 Akron Intellectual Property Journal 111 (2011). But when it is recognized, copyright misuse is typically defined as using a copyright to secure control over something not protected by the copyright in a way which is contrary to public policy. 16See, for example, Lasercomb America v Reynolds, 911 F.2d 970, 977 (4th Cir. 1990), the first Circuit Court decision to recognize and apply a defense of copyright misuse.

But despite its shaky foundation as a doctine, the defense of copyright misuse is one of the only defenses to actually defeat a claim of unauthorized distribution under §602 for non-piratical consumer goods.

In Omega v Costco, Omega sought a copyright infringement claim under §602 based on the copyright in its logo, affixed to the back of watches manufactured overseas, which Costco had imported without authorization. Omega succeeded in its claim all the way up to the Supreme Court, which affirmed, without opinion, the 9th Circuit decision that held the first sale doctrine did not protect Costco. But on remand, the district court subsequently granted summary judgment to Costco based on copyright misuse. The court said in its opinion:

Here, Omega concedes the purpose of the copyrighted Omega Globe Design was to control the importation and sale of its watches containing the design, as the watches could not be copyrighted. Accordingly, Omega misused its copyright of the Omega Globe Design by leveraging its limited monopoly in being able to control the importation of that design to control the importation of its Seamaster watches.

Cases that have found copyright misuse have been limited to situations involving antitrust tying agreements and restrictive licensing agreements. However, this is not to say that copyright misuse could not exist in other situations. Indeed, the courts in LasercombPractice Management, and A & M Records all deliberately chose a broad rule for copyright misuse so that the rule could be applied to new situations as they arose. If the contrary were true, then those courts would have made a tying agreement or a restrictive licensing agreement a necessary element of copyright misuse. Finally, “[c]opyright misuse is an equitable defense to copyright infringement, the contours of which are still being defined.”

Omega argues that the Omega Globe Design had multiple purposes. While Omega concedes that one purpose was to control the importation of watches, it argues that another purpose was to promote the creativity and aesthetics of the Omega Globe Design, itself, and to increase the value that the design gives to a watch. While the Omega Globe Design might have its own independent creative and aesthetic values, those aspects of the design are protected by its copyright and are not a defense to copyright misuse.

References   [ + ]

1. Parker A. Howell, Cheaper Watches and Copyright Law, 7 Washington Journal of Law, Technology & Arts 237, 244 (2012).
2. K Mart v Cartier, 486 U.S. 281, 295 (1988) (Brennan, J., concurring).
3. See, for example, Viva R. Moffat, Mutant Copyrights and Backdoor Patents: The Problem of Overlapping Intellectual Property Protection, 19 Berkeley Technology Law Journal 1473 (2004).
4. For example, Moffat notes that one of the main concerns with extending trademark protection into the copyright arena is that trademark’s potentially perpetual duration runs counter to copyright’s limited term. When the situation is reversed, as here, and copyright protection is extended into the trademark arena, this concern vanishes.
5. First sale defense raised

John Wiley & Sons v Kirtsaeng, 654 F.3d 210 (2nd Cir. 2011) (books)
Microsoft v Technology Enterprises, 805 F.Supp.2d 1330 (SD Fla. 2011) (software)
Pearson Education v Kumar, No. 1:07-CV-9399 (CSH) (D. Conn. 2010) (books)
Pearson Education v Arora, 717 F.Supp.2d 374 (SDNY 2010) (books)
Pearson Education v Liu, 656 F.Supp.2d 407 (SDNY 2009) (books)
Pearson Educaction v Liao, 2008 WL 2073491 (SDNY 2008) (books)
Omega v Costco, 541 F.3d 982 (9th Cir. 2008), aff’d without opCostco v Omega, 131 S.Ct. 565 (2010) (watches)
Microsoft v Intrax Group, No. C 07-1840 CW, 2008 WL 4500703 (ND Cali. Oct. 6, 2008) (software)
Microsoft v Cietdirect.com, No. 08-60668-CIV, 2008 WL 3162535 (SD Fla. Aug. 5, 2008) (software)
Microsoft v Big Boy Distribution, 589 F.Supp.2d 1308 (SD Fla. 2008) (software)
Swatch SA v New City, 454 F.Supp.2d 1245 (SD Fla. 2006) (watches)
UMG Recordings v Norwalk Distributors, 2003 U.S. Dist. LEXIS 26302 (CD Cali. 2003) (phonorecords)
Lingo Corp v Topix, 2003 WL 223454 (SDNY 2003) (electronic language translator)
Quality King v L’anza Research, 523 US 135 (1998) (hair care products)
Denibcare USA v Toys’R’Us, 84 F.3d 1143 (9th Cir. 1996) (diapers)
DAISA v Costco, 97 F.3d 377 (9th Cir. 1996) (figurines)
Summit Technology v High-Line Medical Instruments, 922 F.Supp. 299 (CD Cali. 1996) (medical devices)
Parfums Givenchy v Drug Emporium, 38 F.3d 477 (9th Cir. 1994) (perfume)
Parfums Givency v C&C Beauty Sales, 832 F.Supp. 1378 (CD Cali. 1993) (perfume)
Red Baron v Taito, 9 U.S.P.Q.2D (BNA) 1901 (1988) (video games — Double Dragon) (first sale doctrine applied as a defense against unauthorized importation of nonpiratical work first manufactured overseas)
BMG v Perez, 952 F.2d 318 (9th Cir. 1991) (phonorecords); Neutrogena v United States, 7 USPQ.2d (BNA) 1900 (D SC 1988) (cosmetic products)
Sebastian Int’l v Consumer Contact (PTY), 664 F.Supp. 909 (D NJ 1987), rev’d 847 F.2d 1093 (hair care products)
Original Appalachian Artworks v JF Reichert, 658 F.Supp. 458 (ED Pa. 1987) (soft sculptured dolls — Cabbage Patch Kids)
Hearst v Stark, 639 F.Supp. 970 (ND Cali 1986) (books)
Cosmair v Dynamite Enterprises, 226 USPQ (BNA) 344 (SD Fla. 1985) (cosmetic products)
Columbia Broadcasting v Scorpio Music, 569 F.Supp. 47 (ED Pa. 1983), aff’d without op, 738 F.2d 421 (3d Cir. 1984) (phonorecords).

No first sale defense raised

Microsoft v EEE Business, 555 F.Supp.2d 1051 (ND Cali. 2008) (software)
UMG Recordings v Disco Azteca, 446 F.Supp.2d 1164 (ED Cali. 2006) (phonorecords)
U2 Home Entertainment v Lai Ying Music & Video Trading, No. 04-CIV-1233 (DLC) (SDNY 2005) (motion pictures)
Enesco v Jan Bell Marketing, 992 F.Supp. 1021 (ND Ill. 1998) (figurines — Precious Moments)
TB Harms v Jem Records, 655 F.Supp. 1575 (D. NJ 1987) (phonorecords)
Selchow & Righter v Goldex, 612 F.Supp. 19 (SD Fla. 1985) (game board and rules — Trivial Pursuit)
Goebel Porzellanfabrik v Action Industries, 589 F.Supp. 763 (SDNY 1984) (figurines — Hummel)
CBS Inc v Pennsylvania Record Outlet, 598 F.Supp. 1549 (WD Pa. 1984) (phonorecords)

6. Barton Beebe, An Empirical Study of US Copyright Fair Use Opinions, 1978-2005, 156 University of Pennsylvania Law Review 549 (2008), surveying 306 published opinions on fair use from 1978 to 2005.
7. 17 USC § 102.
8. Feist Publications v Rural Telephone Service, 499 US 340, 346 (1991).
9. Kitchens of Sara Lee v Nifty Foods Corp, 266 F.2d 541, 544 (2nd Cir. 1959).
10. 664 F.Supp. at 913.
11. OddzOn Products v Oman, 924 F.2d 346 (DC Cir. 1991).
12. 832 F.Supp. at 1391-92.
13. See, for example, Kelly v Arriba Soft (336 F.3d 811 (9th Cir. 2003), fair use where defendant engaged in display, reproduction, and distribution.
14. 17 USC § 107, which, in part, reads, “the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section.”
15. See Michael E. Rubenstein, Extending Copyright Misuse to an Affirmative Cause of Action, 5 Akron Intellectual Property Journal 111 (2011).
16. See, for example, Lasercomb America v Reynolds, 911 F.2d 970, 977 (4th Cir. 1990), the first Circuit Court decision to recognize and apply a defense of copyright misuse.