Copyhype: A look ahead to 2013

By , January 02, 2013.

Welcome back! I hope all my readers have had a wonderful holiday season and a happy new year. Now that the holidays are over, Copyhype is back to its regularly scheduled programming. I wanted to start things off with a quick look back at 2012 and a quick look forward at 2013.

The following were the most read Copyhype stories during 2012:

Hey, what happened to Wikipedia? (An intro to SOPA)

Was Hollywood built on piracy?

7 mythbusting copyright law articles

Though not the most popular, I personally enjoyed writing the following posts in 2012 and don’t mind highlighting them once more:

The genius of the Hunger Games

Myths from the birth of US copyright part 1 and part 2

Finally, a special shout out to my guest contributors, and some of their wonderful posts, including:

Devlin Hartline’s Nimmer changes his tune: ‘Making available’ is distribution

And Chris Ruen’s The Net Fail Part 1 and Part 2.

A Preview of 2013

The next year already promises plenty of legal and legislative developments in copyright law, a few of which I want to highlight.

The Supreme Court will release its opinion in first sale case Kirtsaeng v John Wiley. I’ve written about Kirtsaeng before, see also More on Kirtsaeng v John Wiley, What Kirtsaeng Won’t Answer, The United States “Odd” Kirtsaeng Argument, and Overturn Quality King? The Court is likely to release its opinion sometime between February and June.

The popular SCOTUSBlog does not include any other copyright-related petitions on its petitions to watch list (the list has a strong track record of selecting which petitions are granted by the Court), but there are several copyright petitions I’ll be keeping an eye on, including the one in Jammie Thomas-Rasset v Capitol Records, dealing with due process review of statutory damages, and Library of Congress v Intercollegiate Broadcasting System, which involved an Appointments Clause challenge to Copyright Royalty Judges (though a cert petition there has not been filed yet). Check out my most recent posts on these lawsuits: End of the Road for Jammie Thomas-Rasset? and Copyright Royalty Board Unconstitutional.

In the lower courts, a group of cases involving broadcast television retransmission and the impact of the Second Circuit’s 2008 Cablevision decision are wending their way through the judicial system. Leading the pack is Aereo, where oral arguments were heard in front of the Second Circuit late last November for an appeal of the district court’s denial of a preliminary injunction, meaning a decision could come later this year. See Aereo takes its tiny antennas to Opposite Town. And just last week, on the west coast, a federal district court came to the opposite conclusion and granted a preliminary injunction against FilmOn, a similar service.

Meanwhile, a set of cases against Dish Networks relating to its Autohop service are in their early stages. The furthest along involves Fox, which a few weeks ago appealed the denial of a preliminary injunction by a New York district court. I wrote a background on these cases at Skipping commercials isn’t infringement, but copying is.

A lawsuit against YouTube for widespread infringement during its early days is back at the district court level, after the Second Circuit ruled on a number of DMCA issues this past April. Most recently, YouTube moved for summary judgment against the various plaintiffs.

Little has been said about Hotfile so far, but developments should be expected this year in the lawsuit filed by major motion picture studios against the filelocker. A ruling on dispositive motions is currently pending in a Florida district court, and a trial date is tentatively scheduled for March. See Copyright Liability for Filelockers: Disney v Hotfile.

On the criminal side, expect slow movement on the US case against Kim Dotcom and Megaupload. An extradition hearing has recently been pushed back to no earlier than August 2013. My last post on this topic came last July in a Megaupload Megaupdate. Be sure to check out TorrentFreak for breaking coverage of every single thing Dotcom tweets.

In Congress, it would appear that the major issue this next year will be royalty rates for webcasting. The next ratesetting proceeding at the Copyright Royalty Board, to set rates for 2015-2020, is fast approaching. Last fall, Pandora backed the Internet Radio Fairness Act, which, among other things, would have changed the standard used by the Board to set rates. At a hearing in November, the House Judiciary Committee appeared skeptical of the bill’s approach, but also expressed a desire to take a broader look at the issue of digital performance of sound recording royalties, seemingly frustrated that the compulsory licensing scheme has required so much legislative attention over the past decade. Some members of the Committee also hinted that the issue of a broader public performance right for sound recording owners was on the table, something that has eluded such copyright owners for decades. See A Brief History of Webcaster Royalties for more background.

What else can we expect from Congress? There have been rumblings of a renewed push for orphan works legislation, and recent events from several conservative-leaning institutions hint at increased attention toward general copyright reform — aided by current European Commission efforts to modernize copyright law.

Much more is obviously in store for the upcoming year. Don’t forget that you can subscribe to Copyhype’s RSS Feed, sign up for email updates, follow me on Twitter, or Like me on Facebook. Here’s to 2013!

Friday’s Endnotes – 12/21/12

By , December 21, 2012.

I want to thank all my readers for another great year of Copyhype and wish everyone the best of the holiday season! I will likely not be blogging over the holidays, but I’ll be back afterward. That is, unless the archaeologists who misinterpreted Mayan writings were correct that the world will end today.

2012 Music Memoriam — Paul Lamere has compiled a list of all the musicians the world has lost in 2012. They will be missed.

The Right Decision: A Treaty Spurned — In international news, last week the US withdrew from a proposed global telecommunications treaty being drafted at the UN. Here is a brief statement from the RIAA supporting that move. “Vesting authority in the ITU, however, is not the solution, particularly given the overt interest of some countries to regulate the Internet in order to censor political speech or to otherwise limit the legitimate expression of views.”

Down by Law: The Year Downloading Took a Dive — SPIN Magazine notes that 2012 continued the recent declining trend of unauthorized downloading, due to a combination of more effective legal enforcement and the development of legitimate online outlets. The article does note, however, that authorized downloading seems to be in decline as well, as streaming sites grow increasingly popular.

Fox Appeals Dish Network Decision; Asks for Restraining Order Against AutoHop Service — As expected, Fox has appealed a California court’s decision to deny a preliminary injunction against Dish Network for its AutoHop service, one which Fox argues infringes on its copyright. The Hollywood Reporter has the full story, as well as a copy of Fox’s opening brief on appeal.

IP and Instagram–a Teaching Moment Perhaps? — The internet was abuzz earlier this week when popular photo sharing site Instagram implemented changes in its terms of service that raised concerns about what it would be able to do with users’ photos. Instagram has since backed off in response to the outcry, but the reaction has led Ellen Seidler to wonder if this would lead to increased recognition of the importance of copyright. Seidler notes that one comment, saying “My photos will not sell without my knowledge and compensation.  I spend time on my pictures” is “essentially what content creators have been saying for a long time in rebuttal to claims that online piracy is OK.”

High Volume Of Google’s Copyright Removal Requests Reveals Magnitude Of Piracy Problem, Onerous Burden On Creators — CreativeAmerica on Google’s latest stats, showing it removes over 2.5 million links to infringing content a week: “Google clearly recognizes how onerous the processing of removal requests is for them, but what about the content creators and owners who now spend significant resources and countless hours monitoring Google search results for illegal links to their stolen creative works – only to have another one pop up again? What about independent or up-and-coming filmmakers who don’t have the means to make sure stolen copies of their work are promptly removed?”

It’s Time for Artists to Fight Piracy as Vigorously as They’ve Challenged Pandora — “This is why it’s time for artists to band together to set the story straight. Don’t leave it to the few brave enough to speak strongly on the matter. There needs to be a large, coordinated effort by bands big and small to tell their story–to sign a letter to fans explaining how devastating piracy is to their ability to make music for a living (or at all).”

Freeloading: How Our Insatiable Hunger for Free Content Starves Creativity, by Chris Ruen

By , December 19, 2012.

Piracy turned my genuine love for music into just another fidgety online addiction. It was an exercise in hyper-consumption: quantity over quality, breadth over depth, entitlement over ownership.

Freeloading: How Our Insatiable Hunger for Free Content Starves Creativity, by Chris Ruen

In Freeloading: How Our Insatiable Hunger for Free Content Starves Creativity, Chris Ruen — who previously offered a two part excerpt on this site — recounts his conversion experience from filesharing. While others writing on the subject have approached it from a legal or business perspective, Ruen takes a moral approach, critically examining the effects that everything for free without consequence has had on creativity and culture. But this should not be confused with moralizing, lest you think the book is 255 pages about how unauthorized downloading “is bad, mmkay.” Instead, Ruen explores the nuances of “freeloading” — his term for unauthorized downloading — in the broader context of an age where our real lives increasingly merge with our online selves in the same vein as media critics like Marshall McLuhan and Jaron Lanier.

In particular, Ruen turns to those most affected by the effects of the digital age — the musicians and those in the music industry themselves. The middle third of Freeloading is devoted to interviews with these individuals, and, in my opinion, is what should put the book on the must-read list of anyone in the copyright sphere. The interviews are presented in the subjects’ own words, unfiltered, unedited, and at length. Ruen presents an impressive lineup: Andy Falkous, frontman for Future of the Left. John Beeler, an employee at Asthmatic Kitty Records. James Bradley, owner of Brooklyn record store Sound Fix Records. Matt Wishnow, founder of indie distributor Insound. Ira Wolf Tuton, bassist for Yeasayer. Chris Swanson, co-founder and head of the Secretly Canadian record label. Joe Gaer, co-owner of the Social Registry record label. Todd Patrick, DIY concert promoter. Craig Finn, lead singer of the Hold Steady. Adam Farrell, VP of marketing at the Beggars Group. Kyp Malone, TV on the Radio.

The anarchic idea that, “Oh you take away the monetary system and everything will be, like, groovy”—it’s just not true! There’s always gonna be a hierarchy, no matter what. Okay, no money for music, no money to artists, painters, sculptors…. The idea that all of a sudden there’d be all this new art? No, there wouldn’t be! People are doing as much as they can already.
—Joe Gaer

Ruen begins with a look back at the last ten or so years, dubbing it the “Decade of Dysfunction.” It begins with Metallica taking on Napster in 2000, where drummer Lars Ulrich, though correct, struck the wrong tone to many, resulting in a PR disaster that created the narrative that this was about cool, freedom loving digital natives versus out-of-touch, greedy dinosaurs. This narrative would be solidified a few years later when major record labels began to sue individual filesharers. As Ruen explains, academics like Lawrence Lessig were first to capitalize on this narrative. They were followed by “digital determinists” like Cory Doctorow, who argued, basically, that the internet made morality obsolete. Finally, the web hype-men like Chris Andersen and Mike Masnick came, building on the narrative and promising a new way forward for artists and creators. The “Decade of Dysfunction” culminates, for Ruen, at SOPA. He writes, “Years of haphazard debates, misunderstanding of the issues and demonization of rights holders had left a population of Internet users who were vulnerable to propaganda from a technology industry that was (in the form of search engines and social media) facilitating what felt like their lives.”

The wisdom of copyright is to focus the incentives, like a laser, upon the creative work itself. If our shared interest is the creation of more and better art, then why take away the fundamental legal right that incentivizes it, while setting artists off on a wild goose chase to find the best marketing scheme rather than to write the best song? The only true way of “adding value” to art is to make better art of higher quality.

The latter third of Freeloading is devoted to where we go from here. Unlike some, Ruen is optimistic that the ship can be righted and that it is both worthwhile and necessary to include the ethical and moral implications in any such discussion. And though Ruen argues for the continuing vitality of copyright law, he by no means believes “more copyright is better” (which, based on my experiences, seems more strawman than an actually held view). One of his recommendations toward the end is to limit the term of copyright to fifty years — an idea I personally disagree with on utilitarian and other grounds. But, as with any book like this, the idea is not to aim for one-hundred percent agreement but to provoke thought, and at this, Ruen succeeds.

Highly recommended.

As we approach the meat of this century—so exciting yet equally uncertain—the best chance we have for avoiding the declinist tendencies of Digital Determinism is to hold on, with passionate fury, to the principle that human creativity is valuable and sacred. When we devalue creativity, when we trample upon the rights of artists to distribute their work as they please, we devalue ourselves and trample upon our own right to a better future.

Creative Commons Celebrates Ten Years

By , December 17, 2012.

The Creative Commons organization is celebrating its 10th anniversary this week.

Founded in late 2001 by Lawrence Lessig, Hal Abelson, and Eric Eldred (of Eldred v Ashcroft fame), the organization sought a techno-utopian “legal insurrection” that would “provide an alternative to traditional copyrights by establishing a useful middle ground between full copyright control and the unprotected public domain. Today, the organization struggles for relevance as interest in the principles it embraces continue to decline. 1See, for example, Anil Dash, The Web We Lost (Dec. 13, 2012); Brian Proffitt, GPL, copyleft use declining faster than ever, ITWorld (Dec. 16, 2011).

Perhaps the most visible output of the Creative Commons organization are its various licenses. These licenses are drafted by, but not administered by, the Creative Commons organization. All the licenses require attribution, or credit, of the original author by licensees. The six licenses offer some combination of whether or not the creator allows commercial usage of her works, derivative uses, and a “share alike” provision (where downstream uses must be licensed under the same terms as the original license). Creative Commons also provides marks to indicate that a creator waives all rights to her work, or that a work is in the public domain.

The Creative Commons licenses are just one of many public copyright licenses. Such licenses owe their origins to, and are most often used for, free and open source software. Though there are distinctions between “free”, “open source” and “public”, it is likely that the majority of such licenses are public. 2See Jordan Hatcher, Open Licenses vs Public Licenses, Open Knowledge Foundation Blog (Oct. 15, 2010), “I haven’t done a full survey, but the majority of open licenses (in terms of popularity) probably also fit the definition of public licenses”. The distinctive feature of public copyright licenses — what sets them apart from negotiated or private licenses — is that permission to use the work under the terms of the license is given ex ante to anyone in the public. In this fashion, public copyright licenses are similar to “clickwrap” or “browsewrap” license agreements.

But the organization, which has raised around $30 million over the past decade, 3Tax returns from 2002-2010 show total contributions and grants of $25,994,142. Though I was unable to find more recent returns, adding the average yearly contributions and grants for two years to this total would put the estimated total through 2012 at $31,770,618. does more than just draft these licenses. Creative Commons is involved with a number of initiatives to provide greater public access to scientific research, educational tools, and government data.

But today I want to focus on the licenses and how they have been handled in courts.

Creative Commons in Courts

The Creative Commons wiki includes a page devoted to case law from all over the world involving Creative Commons licenses. Several of these cases only involved Creative Commons licenses collaterally. 4These include SGAE v. Luis and SGAE v. Fernandez. One would note the small number of cases across the globe in the past 10 years. The dearth of litigation over Creative Commons licenses should not be surprising, as their very nature suggests that the majority of licensors are uninterested in pursuing legal remedies for uses of their works.

Commentary on cases involving Creative Commons licenses seem to indicate a concern over whether courts would have trouble enforcing the terms of the licenses, but as the cases below indicate, courts have had no such trouble, treating the licenses the same as any other copyright license.

Curry v. Audax — In one of the first cases confronting the enforceability of a Creative Commons license, a Dutch court enjoined a tabloid in 2006 from future reproduction of photos taken by Adam Curry, a former MTV VJ, which had been uploaded to his Flickr account. The BY-NC-SA license was accepted as valid by the court without discussion, and despite the tabloid’s argument that it was misled by the notice “This photo is public” accompanying the images. However, the court denied monetary damages to Curry. It found that the tabloid had failed to disclose a copy of the Creative Commons license with the photo, but since it had included a traditional copyright notice (“Photos © Adam Curry”), there was no evidence of harm arising from the failure of disclosure. The court also did not find harm arising from the commercial use of the photos in part because the photos are freely available online.

Jacobsen v. Katzer — Though this 2008 US case did not involve a Creative Commons license — it instead dealt with the free and open source Artistic License — the Federal Circuit’s decision is likely applicable to Creative Commons licenses. Indeed, the court referred to CC licenses at several points in its opinion. What’s notable about this decision is that it is one of the few court decisions involving public licenses that includes substantive discussion of their enforceability. Here, Jacobsen had written software that allowed model train enthusiasts to control their trains via computer and released the software under the Artistic License. Katzer was alleged to have copied portions of this software for his own non-free software program in violation of the terms of the License. Jacobsen moved for a preliminary injunction against Katzer, which was denied by the District Court after it held the violation was a breach of contract rather than copyright infringement, which creates no presumption of the irreparable harm necessary for a a preliminary injunction. The Federal Circuit reversed the District Court’s ruling, finding that violating the terms of the Artistic License was copyright infringement, not breach of contract. Broadly speaking, this holding is better for creators, as the remedies for copyright infringement better align with their goals.

Chang v. Virgin Mobile — The black eye of the Creative Commons organization, this litigation began when mobile phone company Virgin Australia used a photograph taken from Flickr in an advertising campaign. The photo was of a minor girl and uploaded by her church counselor, who published it under a CC BY license. Creative Commons itself was named in the complaint for negligence regarding its license, but they were voluntarily dismissed from the action. The District Court ultimately dismissed the suit for lack of personal jurisdiction. Nevertheless, the suit raises significant questions. Chang alleged invasion of privacy alongside copyright infringement; had the suit gone forward, Virgin may have faced liability under this cause of action even if it had complied with the CC license. I say “black eye” because this case highlights the ease one may find one’s works being used contrary to one’s wishes under a CC license. In addition, it showcases the pitfalls of the license, namely, the absence of any help from the Creative Commons organization and the lack of a forum selection clause.

Gerlach vs. DVU — A German court granted a preliminary injunction in October 2010 against a “German far-right” political party for copyright infringement. 5See German court enforces Creative Commons license for more background. The copyright owner had uploaded a photo to Wikipedia under a CC BY-SA license. The political party copied the photo onto its own website but did not include attribution or a copy or link to the license deed. The court accepted the enforceability of the Creative Commons license without comment. The Creative Commons wiki notes that presumably, had the political party complied with the license terms, the use would have been legal.

Lichôdmapwa v. L’asbl Festival de Theatre de Spa — In October 2010, a Belgian court held a theater company liable for infringing the copyright of a musical work licensed under Creative Commons. As in the above case, the Judge upheld the validity of the CC BY-NC-ND license without discussion, noting only that Dutch, Spanish and American courts have upheld their validity. It found that the theater had violated three of the license’s terms: the use was commercial since the company used the work in an advertisement, the company had modified the work contrary to the prohibition on derivative works, and the company had failed to provide attribution.

Avi Re’uveni v. Mapa inc. — An Israeli court, in 2011, found a book publisher liable for copyright infringement of photographs uploaded to Flickr and released under a CC BY-NC-ND license. However, it appears (I’m unable to locate an English version of the opinion) that there was no discussion of the license’s text; according to one report, the court concluded “It was simply an infringement of copyright. Period.” What’s more, the court noted that failure to attribute was a violation of moral rights, making any fair use defense inapplicable.

No. 71036 N. v. Newspaper — This little discussed case originates from a Rabbinical court in Israel in 2011. I’m not familiar with Rabbinical law, and no English translation of the court decision seems to be available, so I’m relying solely on the Creative Commons wiki for the facts. The dispute here was between a photographer who had posted photos online under a CC BY-SA license and a newspaper which had reprinted them without attribution. The court treated the CC license as any other copyright agreement and found that the newspaper was liable because of a religious/moral obligation to adhere to the license’s terms and the copyright laws of Israel.

Using Creative Commons licenses

Should creators use Creative Commons licenses? The idea behind the licenses is a good one: copyright gives creators the choice of how and when to exploit the products of their labor. But unfortunately, despite the ease in using the licenses — or perhaps because of this ease — creators and users should take note of some concerns raised about them that urge caution.

Noted copyright scholar Jane Ginsburg raises some of these concerns in her 2009 article Public Licenses: The Gift That Keeps on Giving. In 2007, ASCAP addressed some of the defects in the licenses in its article 10 Things Every Music Creator Should Know About Creative Commons Licensing. Others who have examined these licenses include the Copyright Alliance in What is a Creative Commons License? and attorney Chris Castle, who has written on specific concerns for musicians and co-writers.

Chief among the concerns raised in these articles is the fact that Creative Commons licenses are irrevocable, that the licenses allowing derivative works remove the ability of copyright owners to prevent objectionable derivative works (for example, modification of works by political parties or interest groups that a creator disagrees with), and the fact that the Creative Commons organization merely provides licenses and does not help in any way with enforcement or administration of the licenses. Other licensing entities and collecting societies do indeed monitor uses of specific licenses they administer to ensure compliance and administer royalties.

There are concerns for users of Creative Commons licenses as well. As noted above, the licenses have a number of terms, like the requirement that the license language itself is copied or linked to, that many currently do not comply with. And several of the cases dealing with CC licenses have involved situations where these conditions have not been met. Second, the onus is on the user to ensure that the work is indeed licenseable. Though the terms of the CC licenses include a warranty that the licensor is authorized to release the work under the license, the organization itself does not verify this. There is nothing stopping someone from slapping a CC license on a work without authority, or ensuring that any underlying works can be licensed in such a manner. Finally, a CC license only covers copyright. Works may require other permissions — for example, photographs or videos that include people may implicate rights of publicity or privacy that are not covered by the license.

In the end, creators should approach Creative Commons licenses with the same amount of diligence as any other deal offered to them. Whether or not the license is appropriate is a decision for the individual creator.

References

References
↑1 See, for example, Anil Dash, The Web We Lost (Dec. 13, 2012); Brian Proffitt, GPL, copyleft use declining faster than ever, ITWorld (Dec. 16, 2011).
↑2 See Jordan Hatcher, Open Licenses vs Public Licenses, Open Knowledge Foundation Blog (Oct. 15, 2010), “I haven’t done a full survey, but the majority of open licenses (in terms of popularity) probably also fit the definition of public licenses”.
↑3 Tax returns from 2002-2010 show total contributions and grants of $25,994,142. Though I was unable to find more recent returns, adding the average yearly contributions and grants for two years to this total would put the estimated total through 2012 at $31,770,618.
↑4 These include SGAE v. Luis and SGAE v. Fernandez.
↑5 See German court enforces Creative Commons license for more background.

Friday’s Endnotes – 12/14/12

By , December 14, 2012.

The Constitutional and Historical Foundations of Copyright Protection — Debates over copyright have been in vogue recently in DC. This week, the Center for Individual Freedom released a paper from legal heavyweights Paul Clement, Viet Dinh and Jeffrey Harris exploring the origins of copyright in the US, which unfortunately have often been obscured in these debates. As the paper explains, “copyright was seen not merely as a matter of legislative grace designed to incentivize productive activity, but as a broader recognition of individuals’ inherent property right in the fruits of their own labor.”

Music and Copyright in the Digital Era: DAVID BYRNE in conversation with CHRIS RUEN — Last week, the New York Public Library presented a conversation between Talking Heads frontman and author David Byrne and Chris Ruen (whose new book, Freeloading, is out now and who contributed guest posts this week here). Audio of the fascinating discussion is currently available, with video expected soon.

The “Common Law Property” Myth in the Libertarian Critique of IP Rights (Part 1) — Legal scholar Adam Mossoff responds to a certain critique of copyright that claims copyright is somehow different from other forms of property because copyright was established by statute while other property arose organically through the “common law”. On the contrary, many of our most fundamental forms of property were created through statute, like the Statute Quai Empotores of 1290, which hastened the end of feudalism by creating freely alienable title to land. Mossoff follows up with a Part 2.

How music recommendation works — and doesn’t work — Brian Whitman, co-founder of music data company the Echo Nest, presents an excellent overview of music recommendation, the current state of the art, and what lies ahead.

Attorney Don Passman on the Future of Digital Music  — ASCAP’s Etan Rosenbloom sits down to chat with Don Passman, author of the widely popular and useful All You Need to Know About the Music Business, which was recently updated to its eighth edition.

Mythbusting Part 2: How Important is Income from Live Performance? — The Future of Music Coalition presents data from its study on artist revenue streams to dispel a common myth. Many assume that touring and live performances make up the bulk of musician income, but the FOMC has found that, on average, this revenue stream only accounts for about 28% of income. According to the FOMC, while some artists reported higher percentages, touring is rarely the sole source of income for any musician. The non-profit group adds, “Touring itself has its own caveats; touring costs money, it’s not very scalable, and it requires constant output. And, for some musicians, playing live is simply not part of their career structure.”

Invasion of the cyber hustlers — “Disruption”, “openness”, “crowdsourcing”, “sharing”, “social”. Author Steven Poole, writing at the New Statesman, critiques the “cybertheorists” who endlessly spout these buzzwords. “What sells, to the cyber-fanatic’s intended audience, is ludicrous utopian fantasy, silicon Panglossianism.”

Copyright and the Takings Clause

By , December 10, 2012.

This past Thursday, the Cato Institute held a forum called Copyright Unbalanced: From Incentive to Excess to discuss the current state of copyright law and issues raised by the Institute’s recently released book with the same title. The panel discussion featured the book’s editor, Jerry Brito of the Mercatus Center, Mitch Glazier of the RIAA, and one of the book’s contributors, law professor Tom Bell.

Much could be said concerning the event and book. I’d like to focus in on one specific point.

Tom Bell says in the book that “to change the way that people think about copyright, we have to change the way they talk about it.” To do so, he proposes banishing the conception of copyright as “property” and instead consider it a “mere privilege”, capable of all sorts of capricious intervention by the government. Bell argues that copyrights do not “deserve” to be called property. What accounts for all this property-talk throughout history?1For just one example, see Myths from the Birth of US Copyright for evidence that the Founding Fathers primarily conceived copyright as a property right. According to Bell, “bad philosophy.”

He next provides several examples that purport to distinguish a copyright from other forms of property. Today I want to focus on one specific example Bell provides to distinguish copyright from more deserving forms of property: that “copyright does not qualify for just compensation under the Fifth Amendment’s takings clause.” Bell is correct in noting that “the exact question remains as yet unlitigated,” but how does the rest of his analysis stack up?

Does the Takings Clause Apply to Copyright?

The “Takings Clause” of the Fifth Amendment prohibits Congress (and the States through the Fourteenth Amendment)2Chicago B & QR v Chicago, 166 US 226 (1897). from taking private property for public use, without just compensation. Literally, the government cannot take private property, unless it is for public use, and the government provides just compensation. The clause has been broadened over time: today, it applies not only to an actual taking of legal title to property, but also to regulations that impact the economic use of property in such a way that they can be characterized as a “taking.”3See Penn Central Transport v New York City, 438 US 104, 124 (1978). But, on its face, the clause requires some interest in “property.” It is here Bell makes his argument: if copyright is, indeed, “property”, then the government should be limited by the Fifth Amendment in what it could do.

One could look toward the Supreme Court to see if it is. Indeed, in 1998, four Supreme Court Justices stated that “The ‘private property’ upon which the [Takings] Clause traditionally has focused is a specific interest in physical or intellectual property.” [Emphasis added.]4Eastern Enterprises v Apfel, 524 US 498, 554 (Dissent, J. Stevens, J. Souter, J. Ginsburg, and J. Breyer).

That may not be satisfactory enough, since it, though a descriptive statement, is not binding precedent.

We can look instead to another case, where a majority held that trade secrets are property and subject to the Takings Clause (citing, among others, William Blackstone and John Locke):

This general perception of trade secrets as property is consonant with a notion of “property” that extends beyond land and tangible goods and includes the products of an individual’s “labour and invention.”

Although this Court never has squarely addressed the question whether a person can have a property interest in a trade secret, which is admittedly intangible, the Court has found other kinds of intangible interests to be property for purposes of the Fifth Amendment’s Taking Clause. That intangible property rights protected by state law are deserving of the protection of the Taking Clause has long been implicit in the thinking of this Court:

“It is conceivable that [the term `property’ in the Taking Clause] was used in its vulgar and untechnical sense of the physical thing with respect to which the citizen exercises rights recognized by law. On the other hand, it may have been employed in a more accurate sense to denote the group of rights inhering in the citizen’s relation to the physical thing, as the right to possess, use and dispose of it. In point of fact, the construction given the phrase has been the latter.” 5Ruckelshaus v Monsanto, 467 US 986, 1002-03 (1984).

The Court later adds:

The right to exclude others is generally “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” With respect to a trade secret, the right to exclude others is central to the very definition of the property interest. Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data. That the data retain usefulness for Monsanto even after they are disclosed—for example, as bases from which to develop new products or refine old products, as marketing and advertising tools, or as information necessary to obtain registration in foreign countries—is irrelevant to the determination of the economic impact of the EPA action on Monsanto’s property right. The economic value of that property right lies in the competitive advantage over others that Monsanto enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.

Patents and copyrights would also be included in this analysis since they enjoy at least as much status (if not more) as property than trade secrets.6In Kewanee Oil v Bicron Corp., 416 US 470, 497 (1974) (J. Douglas & J. Brennan dissenting)., two Supreme Court Justices stated off-hand that, contrary to this case, “A trade secret, unlike a patent, has no property dimension.” So it would follow that a subsequent decision saying trade secrets do in fact have a property dimension for Fifth Amendment purposes implies patents and copyrights certainly fall within the Clause’s scope.

Zoltek v US

Bell, however, relies on Zoltek v US, a 2006 Federal Circuit Court decision, as his sole support for the claim that “copyright does not qualify for just compensation under the Fifth Amendment’s takings clause.”7442 F.3d 1335.

But I don’t think the case suggests what Bell says it suggests. In Zoltek, the Federal Circuit rejected the Takings Clause claim of a patent owner whose patent was infringed by the US Government. Not because patents are not Fifth Amendment “property”, but because patent owners already have a remedy against the United States for infringement (the same holds true for copyright infringement).8See 28 USC § 1498(a), (b).

The court did not expand its holding past the issue of infringement by the federal government—that is, one cannot draw from the court’s decision the general case, that any interference in a patent or copyright is not subject to the Takings Clause, from the specific case, that infringement by the United States involves a “taking.” (It’s also worth noting that the court’s decision drew a vigorous dissent both in its original decision and in its denial for rehearing.)9464 F.3d 1335Â(2006).

Contrary Case Law

Much more fatal to Bell’s claim that a solitary Circuit Court decision “strongly suggests” copyright is not subject to the Takings Clause is the existence of decisions from five other Circuit Courts that suggest otherwise.

In a 1989 case, the First Circuit was confronted with a situation similar to the one in Zoltek, except here the alleged infringement was done by the state of Massachusetts rather than the federal government, raising the issue of sovereign immunity under the Eleventh Amendment.10Lane v First National Bank of Boston, 871 F.2d 166 (1st Cir. 1989). Ultimately, the court held that the Copyright Act did not abrogate sovereign immunity for copyright infringement, but noted that not all was lost for the copyright owner. Massachusetts had separate statutes that allowed tort claims against the state and claims for compensation when private property is confiscated. Said the court:

The statutory scheme manifests a recognition that where private property is taken for public use, a constitutional right to just compensation attaches. Since a copyright is property, [the plaintiff] may very well be able to sue in state court on a state-law claim for essentially the harm that she contends the Commonwealth has perpetrated. And if she exhausts State remedies and establishes that the Massachusetts legal system affords her no just compensation for the wrongful confiscation of her property, the Takings Clause of the federal Constitution might at that point enable her to pursue a damage remedy in federal court.11Id. at 174.

A few years prior, the Second Circuit was confronted with a dispute over the validity of a work-for-hire contract.12Roth v Pritikin, 710 F.3d 934 (2nd Cir. 1983). The agreement was entered into right before the Copyright Act of 1976 went into effect, while the work at issue, and the subsequent dispute, did not arise until shortly after the Act became law. The Copyright Act of 1976 changed the rules governing the work-for-hire doctrine, and under the circumstances of this case, the difference between the old rule and the new rule would result in a different outcome.

Said the court:

Although the language of the Act, its legislative history and rules of statutory interpretation are sufficient answers to Roth’s claim, we note, en passant, adoption of her interpretation of § 301 would, in addition, raise a serious issue concerning the Act’s constitutionality. An interest in a copyright is a property right protected by the due process and just compensation clauses of the Constitution. The agreement between Roth and the appellees, pursuant to which Roth surrendered any rights she might otherwise have obtained in the copyright, was valid when it was entered into, and a subsequently enacted statute which purported to divest Pritikin and McGrady of their interest in the copyright by invalidating the 1977 agreement could be viewed as an unconstitutional taking. Resolution of this issue is not required for our holding, and will have to wait for an appropriate case.

Moreover, the district court failed to make any findings relevant to this question, and accordingly, we do not decide whether retroactive application would, in fact, violate constitutional restrictions. Even the spectre of a constitutional issue concerning the proper application of the “takings clause”, however, is sufficient cause to construe the statute to provide for exclusively prospective relief, particularly in the absence of any clear congressional mandate to the contrary.13Id. at 939.

The Second Circuit again noted the possibility that the Takings Clause applies to copyright in CCC Information Serv. v Maclean Hunter Mkt. Rep.1444 F.3d 61 (2nd Cir. 1994). There, the creator of a database of used car valuations (CCC) sought a declaration that its copying and republishing of used car values from a competitor was not copyright infringement. It argued, in part, that since the competitor’s used car valuations were incorporated by reference into several state insurance regulations, the compilation of values had “passed into the public domain.” The Second Circuit disagreed, saying:

We are not prepared to hold that a state’s reference to a copyrighted work as a legal standard for valuation results in loss of the copyright. While there are indeed policy considerations that support CCC’s argument, they are opposed by countervailing considerations. For example, a rule that the adoption of such a reference by a state legislature or administrative body deprived the copyright owner of its property would raise very substantial problems under the Takings Clause of the Constitution. 15Id. at 74.

The Ninth Circuit relied in part on CCC Information to uphold the validity of a copyright in Practice Management Info. v American Medical Ass’n, quoting approvingly the Second Circuit’s Takings Clause discussion.161212 F.3d 516, 520 (9th Cir. 1997).

The Fifth Circuit has had occasion to weigh in on this issue of copyright and the Takings Clause. Like several of the cases already discussed, Chavez v Arte Publico Press concerned tensions between the Copyright Act and the Eleventh Amendment’s protection of state sovereign immunity.17157 F.3d 282 (5th Cir. 1998). Here, an author alleged copyright infringement and breach of contract against the University of Houston, a state institution. During its discussion, the Circuit Court stated, “Copyrights are indeed a species of property, but the extent to which they are protectable against the states raises troubling issues.” Citing to the Supreme Court’s holding in Ruckelshaus that trade secrets are property protected by the Takings Clause, the court said, “By analogy, copyrights constitute intangible property that, for some purposes at least, receives constitutional protection.” The court ultimately held, however, that one of those purposes does not include copyright infringement by a State.

Finally, the Sixth Circuit also appears to have taken the view that copyrights may be subject to the Takings Clause. In a non-precedential opinion, it affirmed the dismissal of a copyright infringement claim against the National Science Foundation because the plaintiff had failed to register his work with the Copyright Office before bringing suit.18Cawley v Sw’earer, 936 F.2d 572 (6th Cir. 1991). But not without expressing “some doubt as to the grounds for dismissal.” The source of this doubt stemmed from constitutional concerns; as the court noted, “the Copyright Act does not preempt the Fifth Amendment’s Takings Clause.”

In short, it’s reasonable to conclude that the Takings Clause would apply to copyrights—the opposite of what Bell claims. This is obviously but one point in the larger work of Copyright Unbalanced. I may look at other points raised in the book at a later date, but for now would suggest to anyone reading it to approach it with a skeptical eye.

References

References
↑1 For just one example, see Myths from the Birth of US Copyright for evidence that the Founding Fathers primarily conceived copyright as a property right.
↑2 Chicago B & QR v Chicago, 166 US 226 (1897).
↑3 See Penn Central Transport v New York City, 438 US 104, 124 (1978).
↑4 Eastern Enterprises v Apfel, 524 US 498, 554 (Dissent, J. Stevens, J. Souter, J. Ginsburg, and J. Breyer).
↑5 Ruckelshaus v Monsanto, 467 US 986, 1002-03 (1984).
↑6 In Kewanee Oil v Bicron Corp., 416 US 470, 497 (1974) (J. Douglas & J. Brennan dissenting)., two Supreme Court Justices stated off-hand that, contrary to this case, “A trade secret, unlike a patent, has no property dimension.” So it would follow that a subsequent decision saying trade secrets do in fact have a property dimension for Fifth Amendment purposes implies patents and copyrights certainly fall within the Clause’s scope.
↑7 442 F.3d 1335.
↑8 See 28 USC § 1498(a), (b).
↑9 464 F.3d 1335Â(2006).
↑10 Lane v First National Bank of Boston, 871 F.2d 166 (1st Cir. 1989).
↑11 Id. at 174.
↑12 Roth v Pritikin, 710 F.3d 934 (2nd Cir. 1983).
↑13 Id. at 939.
↑14 44 F.3d 61 (2nd Cir. 1994).
↑15 Id. at 74.
↑16 1212 F.3d 516, 520 (9th Cir. 1997).
↑17 157 F.3d 282 (5th Cir. 1998).
↑18 Cawley v Sw’earer, 936 F.2d 572 (6th Cir. 1991).

Friday’s Endnotes – 12/07/12

By , December 07, 2012.

TV Broadcasters Tell Appeals Court to Shut Down Aereo — Eriq Gardner has an excellent rundown of last week’s arguments in front of the Second Circuit regarding the case against Aereo, which argues it’s not a cable system because it uses lots of little antennas instead of one big antenna.

Flexible exceptions to copyright have negative economic costs, says study — Barry Sookman points to a recent paper that highlights flaws in a widely-cited study purporting to put a dollar sign on how much exceptions and limitations to copyright add to the economy.

A Q&A With Beck Hansen, Author of Song Reader — This McSweeney’s interview with Beck about his latest release — released not on MP3 or CD, but on sheet music — is fascinating and engaging, especially when he talks about the different approach to songwriting that the medium required.

Too Loud & It All Sounds The Same? Why Researchers Were Wrong On Pop — “After scientists earlier this year claimed to have proved that music has been sliding a path of diminishing returns and actually does all sound the same, musicologist Stephen Graham points out why pop music is probably as exciting now as it was in 1955.”

(Another) Misleading Study (Sort of) Claiming Piracy is Good for the Movie Biz… — Ellen Seidler takes a closer look at a recent survey that has claimed the shutdown of MegaUpload last January actually had a negative effect on the film industry.

“The Funniest People I Know Are Women”: Director Paul Feig on The Heat, Bridesmaids and Freaks and Geeks — Great interview at The Credits, which is quickly becoming a source of top-notch stories about films and the people behind them.

 

Does Copyright Involve Scarcity?

By , December 05, 2012.

Among the arguments against copyright law is the argument that copyright is not a property right. The “robust history” of describing copyright in terms of property 1See Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson, 79 Southern California Law Review 993, 1004 (2006); Myths from the Birth of US Copyright. is simply wrong, say proponents of this argument. One line of such arguments claims that property rights are only justified to resolve conflicts over scarce goods. Because expressive works protected by copyright are not scarce — that is, one person’s use of a book, song, or film does not diminish another person’s ability to use that same work — the necessary condition for legitimate property rights is not met.

It is this view of copyright that seems to have informed the recently retracted Republican Study Committee policy brief on copyright law. The brief rejected the characterization of copyright as property right and instead characterized it as a monopoly privilege antithetical to free market principles.

I want to suggest an argument today that counters this conception of copyright. It is, in fact, concerned with scarcity. The error comes from mistaking the actual right at issue — the right to copy (hence, “copy right”) — with the actual right at issue with tangible goods, typically a right to possess.

Property is, at its heart, the set of rules concerning the relationship between individuals and things, and is one of the foundational legal doctrines, along with contract and tort law. Because property is conceptual, it, by definition, is not barred from being applied to intangible goods.

But some have made the argument, explored in more detail below, that property rights are only legitimate when they apply to scarce goods, ie, goods where one person’s use prevents its use by someone else. Property rules originated to resolve conflict over such rivalrous goods, so if a certain good is not rivalrous, then recognizing a property right in it is not justified.

What is Property?

In his 1990 article What is Property?, 213 Harvard Journal of Law & Public Policy 775 (1990). libertarian scholar Boudewijn Bouckaert provides an account of scarcity, saying it both explains and justifies property rights. While the concept of scarcity is discussed by earlier philosophers and legal theorists, the modern “law and economics” view places scarcity front and center as a rationale for these rights.

Scarcity is defined by Bouckaert as arising “when two or more persons consider one good as a means for the satisfaction of their wants and when the use they intend to make of it is incompatible.” But he prefaces this by noting that scarcity likely involves a “dimension beyond mere allocation” — solving allocative scarcity would require a “super-individual authority” to divvy up how and when competing individuals could use a certain good. So, we’re concerned primarily with distributive scarcity, which is unavoidable and leads to three possible outcomes, according to Bouckaert: “(1) permanent conflict–the assignments of scarce means are the result of the use of violence, ruse, and tactical games; (2) resignation–a resource becomes the object of competition, both parties withdraw, and such withdrawal means isolation and a massive drop in world population; (3) rules–assignments of power over scarce resources to individuals, groups, families, the government, and so forth.”

Bouckaert distinguishes between natural scarcity, which occurs prior to any social or political institutions, and artificial scarcity, which is the result of arrangements by such institutions. In the “law and economics” view, the first justifies property rights, but the second requires its own justification.

For purposes of this article, I will assume this argument is valid. But I do want to point out that the argument that property rights require scarcity is a minority view, one that has not escaped its share of criticism. Philosopher David Faraci, for example, has asked Do Property Rights Presuppose Scarcity? and concludes that the argument has thus far been under-motivated. Faraci notes that many dominant theoretical views of property appeal to values beyond the conflict-resolution inherent in the scarcity view of property rights. IP scholar Robert Merges rejects this “historical-essentialist” concept of property outright, in favor of a more “broad and roomy” conception whose “origins do not imply constraints of limits.” Merges sees a “powerful logic” in property, and its “restless capacity” to morph and adapt throughout its history to different arenas provides a robustness that makes as much sense to apply to intangibles as to physical property. 3Robert P. Merges, Justifying Intellectual Property, pp. 4-5 (Harvard University Press 2011).

Though whether or not copyright is considered “property” may seem like a matter of semantics, it does have implications for the proper role and scope of copyright law. If copyright is redefined as being something other than property — a “mere privilege” or an economic monopoly, for example — it is easier to argue that it is inconsistent with free market principles rather than being the mechanism for establishing a functioning market that fosters investment and dissemination of creative and expressive works.

Property in the Copy Right

Property is sometimes defined as including the right “to possess, use, enjoy, and dispose of a thing.” Possession is often considered one of the most basic of rights held by property owners. It is this right that is typically discussed when dealing with scarcity: only one person can possess a good at any given time.

Copyright, however, is not concerned with possession. Indeed, things get pretty metaphysical real fast if you start talking about how one can have possession over the intangible expression of an idea. Copyright instead is concerned with copying, which can be considered a specific form of using the property. 4Public performance and public display could similarly be mentioned here, though I leave them out for readability sake.

Copying, the act, should be distinguished from the copy, which is the material object that includes the expressive work in fixed form. These copies are treated as any other form of personal property. In fact, the US Copyright Act expressly distinguishes between copies and copying and notes that the right to copy is not the same as ownership in the resulting copies. 517 USC § 202, “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.”

The act of copying an expressive work, like the act of possessing a physical item, is rivalrous. Your copying of an expressive work diminishes my ability to copy an expressive work.

Odds and Ends

Now, in order to support this argument, one would need to include several additional claims.

First, we need to assume that we are dealing with a finite limit on the amount of copying that can occur. Expressive works are, after all, potentially infinitely reproducible — and, when they exist digitally, those copies can be made at near-zero cost.

But I think this focuses on the wrong thing. We could, in theory, reproduce any given work infinitely. But in practice, we don’t. A few weeks ago, Psy’s “Gangnam Style” music video became the most viewed video ever on YouTube, with over 800 million views and counting. Eight hundred million is a big number, but it’s still far less than infinity. Even the Bible itself, one of the most widely printed books for hundreds of years, has been printed an estimated six billion times.

So even given the fact that if we had an infinite amount of storage space and an infinite amount of time, we could infinitely reproduce any given work, I don’t think that is relevant. As a practical matter, we are always dealing with a naturally (and economically) scarce ability to copy an expressive work.

Second, we could assume that productive use of resources is inherent to any property system. This is apparent from the very term “law and economics”, where the law prong is concerned with resolution of conflict over scarce resources but the economics prong deals with creating value. Generally, we’re not driven to conflict merely because we are all Gollums, obsessing over our precious things. We seek them because of the value they can provide in producing wealth. Historically, copying has been one of the primary methods (though certainly not the only method) of extracting value from expressive works.

Finally, a caveat.

By saying that copying is rivalrous, I don’t mean to suggest that this rivalry exists anywhere near a 1:1 relationship. That is, I’m definitely not suggesting that “every download is a lost sale” or anything like that. It is simply an act that can be incompatible between two or more people. This is similar to possession: scarcity in this sense doesn’t imply a requirement that the use of a scarce good by two or more people has to occur at the same time or wholly deprive one of the use of the good. For example, if I use your hammer while you’re asleep, you haven’t “lost” anything. There simply has to be that potential for incompatible uses prior to any application of property rules.

References

References
↑1 See Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson, 79 Southern California Law Review 993, 1004 (2006); Myths from the Birth of US Copyright.
↑2 13 Harvard Journal of Law & Public Policy 775 (1990).
↑3 Robert P. Merges, Justifying Intellectual Property, pp. 4-5 (Harvard University Press 2011).
↑4 Public performance and public display could similarly be mentioned here, though I leave them out for readability sake.
↑5 17 USC § 202, “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.”

Friday’s Endnotes – 11/30/12

By , November 30, 2012.

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

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

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

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

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

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

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

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

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

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

A Brief History of Webcaster Royalties

By , November 28, 2012.

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

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

The Digital Performance Right for Sound Recordings

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

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

This changed somewhat in 1995, when Congress passed Digital Performance Right in Sound Recordings Act (DPRA). Though it didn’t give sound recording owners a full public performance right, it did give them the exclusive right “to perform the copyrighted work publicly by means of a digital audio transmission.” 117 USC § 106(6).

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

Any other type of transmission under DPRA required direct licensing from sound recording owners, which led to the first dispute. Non-subscription webcasters — webcasters who relied on advertising or other forms of revenue — disagreed with the recording industry over whether they were exempt from DPRA. 2In the matter of rate setting for digital performance right in sound recordings and ephemeral recordings, Report of the Copyright Arbitration Royalty Panel, No. 2000-9, 8 (2002). This led to Congress revisiting the digital performance right in the Digital Millennium Copyright Act (DMCA) a few years later (the same Act that created safe harbors for online intermediaries, among other things).

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

One quick note: the DMCA also expanded the term “interactive service” to include services “that are specially created for a particular individual.” 3H.R.Rep. No. 105-796, at 87 (1998) (Conf.Rep.). In 2001, a group of record labels then under the umbrella of BMG sued internet radio provider Launch Media for copyright infringement, alleging that its service, which, like Pandora, allows listeners to create “custom” radio stations based on genre or artist, was required to obtain direct licenses from BMG because it was an “interactive service” under the DMCA. 4Arista Records v Launch Media, 578 F.3d 148 (2nd Cir. 2009). The 2nd Circuit disagreed with the labels, holding that Launch Media was not an “interactive service” under the definition of the statute.

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

Webcaster I

The Copyright Office announced in November 1998 the beginning of the voluntary negotiation period for the first round of licensing, which would cover through the end of 2000. 567 FR 45239. No private agreement was reached, so a CARP proceeding was commenced, and, because of procedural delays, was consolidated with a proceeding on licensing for the next period, through 2002.

The CARP reached its determination on royalty rates February 2002 (informally referred to as “Webcaster I”), which was revised and published by the Librarian of Congress on July 8, 2002. 6Id. Among its determinations, the LOC accepted the Panel’s rejection of a “percentage of revenue” rate in favor of a “per performance” rate. It noted:

A key reason for rejecting the percentage-of-revenue approach was the Panel’s determination that a per performance fee is directly tied to the right being licensed. The Panel also found that it was difficult to establish the proper percentage because business models varied widely in the industry, such that some services made extensive music offerings while others made minimal use of the sound recordings. The final reason and perhaps the most critical one for rejecting this model was the fact that many webcasters generate little revenue under their current business models. As the Panel noted, copyright owners should not be ‘‘forced to allow extensive use of their property with little or no compensation.’’ 7Id. at 45249.

The LOC adopted the Panel’s tiered rate structure for different classes of licensees. Webcasters and commercial broadcasters would pay $0.0007 per performance, non-commercial broadcasters $0.0002. The LOC also designated SoundExchange, a non-profit organization established by the RIAA in 2000 and later spun-off as an independent entity in 2003, as a Designated Agent for collecting and distributing royalties under the compulsory license. 8Id. at 45267.

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

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

Through this Act, Congress also replaced the ad hoc Copyright Arbitration Royalty Panel with the current system of three standing Copyright Royalty Judges. Judges were to be appointed by the Librarian of Congress and serve staggered six year terms. The Act established qualifications for the Judges. “Each judge must be an attorney with at least seven years of legal experience. The Chief Copyright Royalty Judge must have at least five years experience in administrative hearings or court trials and may hire 3 full-time staff members. Of the other two CRJs, one must have expertise in the area of copyright law and the other economics.” 9Robin Jeweler, CRS Report Report for Congress, The Copyright Royalty and Distribution Reform Act of 2004, Order code RS21512 (2004).

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

Webcaster II

The first rate determination proceeding for digital performances conducted by the new Copyright Royalty Board (CRB) concerned license rates for 2006-2010, but despite the changes Congress had made, this proceeding (“Webcaster II”) played out in much the same way as Webcaster I. Notice announcing commencement of the proceedings was published by the CRB February 2006. The Board announced its final determination on March 2007. 1072 FR 24084. Again, the CRB rejected a percentage of royalty rate for a per performance rate. 11In doing so, the CRB stated in a footnote:


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

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

Several webcasters again raised objections to the rate determinations in Webcaster II. A petition for rehearing was filed but denied by the CRB, and appeals were filed by several parties for review in the DC Circuit Court. In a 2009 opinion, the DC Circuit affirmed nearly all of the CRB’s determination. 12Intercollegiate Broadcasting System v Copyright Royalty Board, 574 F.3d 748. The exception was the court’s remand of the CRB’s omission of a cap on minimum fees for commercial webcasters.

And as in Webcaster I, webcasters turned to Congress, which responded with the Webcaster Settlement Act of 2008. 13Pub. L. No. 110-435, 122 Stat. 4974. The Act was essentially a rewrite of the Small Webcaster Settlement Act of 2002 and encouraged the private negotiation of alternative licensing rates. The timeframe for these negotiations was extended by Congress the following year through the Webcaster Settlement Act of 2009. 14Pub.L. 111−36, 123 Stat. 1926.

Following these Settlement Acts, settlements with webcasters in a wide variety of segments of the webcasting market were reached — eight total agreements resulting in around a dozen different royalty schedules. 15See Notification of Agreements Under the Webcaster Settlement Act of 2008, 74 FR 9293 (March 3, 2009), Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 FR 34796 (July 17, 2009), Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 FR 40614 (August 12, 2009. The “Pureplay” agreement, for example, which Pandora operates under, set a per play rate lower than the one set by the CRB or 25% of gross revenues, whichever is greater. In nearly all cases, these agreements set royalty rates through 2015.

Webcaster III

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

The CRB rejected, however, Intercollegiate’s proposal for different rate structures for “small” and “very small” noncommercial webcasters. Intercollegiate appealed the CRB’s determination to the DC Circuit and also raised a collateral attack on the constitutionality of the appointment of the Copyright Royalty Judges. Just this past July, the DC court held (wrongly, in my opinion) that the appointment of Copyright Royalty Judges violated the Appointments Clause. 16Intercollegiate Broadcasting v Copyright Royalty Board, 684 F.3d 1332 (DC Cir. 2012). It remedied the infirmity by striking statutory language that limited the ability of the Librarian of Congress to remove Judges and vacated Webcaster III. The existing settlement agreements were unaffected by this decision.

Webcaster IV?

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

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

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

The Competing Standards

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

§ 801(b)(1) was created as part of the Copyright Act of 1976. Draft bills establishing the agency to administer the new statutory licenses created by the Act originally provided only that the rates be “reasonable.” 1773 FR 4080. Some concerns were raised about the constitutionality of delegating rate-setting authority under such a vague standard. In response, Congress added four factors to guide the setting of rates. Prior to the DPRA, the Copyright Royalty Tribunal — the precursor to the CARP — had only applied this standard in two other proceedings: the 1980 Jukebox License Proceeding and the 1981 Mechanical License Proceeding.

The standard requires that royalty rates be set in order—

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

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

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

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

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

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

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

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

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

References

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

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

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