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The U. S. District Court for the Southern District of New York ruled against LimeWire and its parent company, Lime Group, finding them liable for inducement of copyright infringement based on the use of their service by subscribers. 

U.S. District Judge Kimba Wood issued the 59-page decision Wednesday, siding with the 13 record companies that sued Lime Wire LLC and founder and Chairman Mark Gorton through the RIAA claiming copyright infringement and unfair competition.lime_220x147

In finding the company liable, Wood opined that LimeWire had optimized its application to "ensure that users can download digital recordings, the majority of which are protected by copyright," and that the company actively "assists users in committing infringement."  Wood also found that the defendants knew their technology was being used to download copyrighted tunes and took no "meaningful steps" to prevent the infringement. In addition, Lime Wire marketed its software to people "predisposed to committing infringement" and assisted those people, the judge ruled.

Major labels, as represented by the RIAA, were predictably thrilled with the outcome.  "This definitive ruling is an extraordinary victory for the entire creative community.  The court made clear that LimeWire was liable for inducing widespread copyright theft," RIAA chairman and CEO Mitch Bainwol relayed.

Lime Wire Chief Executive George Searle issued a statement saying the company "strongly opposed the court’s recent decision."  The statement continued:

"Lime Wire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission," Searle said.

Searle did not say whether Limewire would appeal the ruling.

The Recording Industry Association of America proclaimed the decision was "an important milestone" in the battle against online copyright infringement, because Gorton was found personally liable, in addition to the company of which mitch-bainwol-riaa he was the chairman.  Personal liability against a corporate director is rare.

"The court has sent a clear signal to those who think they can devise and profit from a piracy scheme that will escape accountability," Mitch Bainwol, chairman and chief executive of the RIAA, said in a statement.

LimeWire, launched in 2000, is one of the largest remaining commercial peer-to-peer services left on the Web. The company claims to have more than 50 million monthly users.  The company has managed to defend itself against major label legal action for years.  

In issuing her opinion, Wood relied heavily on the 2005 Grokster ruling, in which the Supreme Court said that a file-sharing service was liable when customers were induced to use it for swapping songs and movies illegally.  The test established by the Supreme Court in MGM v. Grokster for provider liability is whether the company actively induced users to commit infringing activities.  While LimeWire argued that it did not, Judge Wood noted that the company actively  “markets LimeWire to users predisposed to committing infringement.”

The record companies that sued Lime Wire included Arista, Atlantic, BMG Music, Capital, Elektra, Interscope, LaFace, Motown, Priority, Sony BMG, UMG, Virgin and Warner Brothers.

I really enjoyed being on The Music Row Show on 1510 WLAC last evening with Scott Southworth.  I love their motto, “two guys fumbling their way through the music business, so you don’t have to!” 

If you didn’t catch the show (you should be able to download the podcasts from their website in a few days), Scott and I had a very enjoyabl discussion about the future of the music industry and the idea of the “do it yourself” generation of musicians, artists and songwriters which has become my focus and mantra of late.  I believe that with today’s technological advances – the iPod/MP3 player, ProTools, Macbooks, the Internet etc. – entertainers ScottHeinohave the ability to do it themselves in ways never before possible.  The days when you absolutely needed to record deal to reach the fans is absolutely behind us.  As I said on the show, I do not believe that major labels are a thing of the past.  They have provided us with great music for years and will continue to play a vital, although probably modified, role in the development of new talent.  My point is simply that the alternate pathways are becoming more and more fruitful and plentiful.

During the show I brought up some ideas along these lines that I had read and heard about which involved some not-so-famous musicians/artists who have done just that – found a way to connect with their fans in unique ways and give them a reason to shell out some money for their product.  This idea is not unique to me, it grew out of an analysis of the Nine Inch Nails experimentsby Michael Masnick, who is the editor of the Techdirt blog and gave the keynote address from the 2009 Digital Summit, which you view here.

After Masnick gave a shorter version of this talk at Midem, people complained that Trent Reznick was a product of the record industry and, therefore, the experiment would not necessarily work with independent artists.  So, for thie keynote in Nashville, Masnick added in two examples of independent artists who were sucessfully selling product without the add of the marketing machines:

The first was Josh Freese.  Mr. Freese had a rather significant following of fans and found a very creative and unique way to generate sells of his new album “Since 1972”  from that fan base.  For some laughs, click on the link above and look at the variety of offerings.  A few of my favorite offering is the $50 level which, among other things, buys you a “thank you” phone call from Freese.  The $2,500 level buys you not only an autographed copy of the CD, but a drum lesson from Mr. Freese, a trip to the Hollywood Wax Museum with a member of the Vandals or DEVO, a signed DW snare drum and three items from his closet!  He sold two of these packages!  The $10,000 package includes the autographed CD and Snare Drum, but also includes a day with Freese at Club 33 and Disneyland, after which you get to drive away in his late-model Volvo (you have to drop him back home first)!  No takers on that one yet.

The second is the artist whose name I could not for the life of me remember last night during the radio program, but is Jill Sobule.  When she wanted to record an independent album entitled “California Years” back in 2008, she established the website www.jillsnextrecord.com in order to raise the money necessary to produce the record.  On the website, she offered varying levels of support, from the “Pewter” $50 level, which buys you a “thank you” on the CD liner, all the way up to the $10,000 “Weapons-Grade Plutonium Level” which buys you the right to sing on the album and play cowbell (Good guess Scott!).  Other interesting ideas are the $2,500 Emerald level, which gives your “executive producer” credit on the album or the $5,000 Diamond level which bought you a “house concert” from Jill and the right to charge admission!  She actually sold 2 and 3 of these levels respectively.  Ms. Souble had originally budgeted $75,000 for production and distribution and eventually raised all of that and them some.  For a full tally of the more than $88,000 she raised through this effort, here is her “tote board.”

Masnik’s point in the keynote address, and the model he derived from Trent Resnick’s NIN experiment, is that you must “Connect with the Fans” (or CwF) and give them a “Reason to Buy” (or RtB).  Thus, the equation is CwF+RtB = $$$$$.  This is the point I made on the radio program last evening – artists need to determine who their fan base is and find a way to connect.  Through that effort, the goal is to create an e-mail database of those fans so that you have a way to communicate with them (whether it be by e-mail blast, Twitter, MySpace, Facebook or whatever).  Once you’ve connected, the second step is to find a creative incentive that gives them a reason to buy.   As readers of my blog will remember, I’ve been preaching this stuff for years.  Stay tuned for more ideas!

By guest author, Cory Greenwell, Esquire*

“The customer is always right” has long been a mantra of the business world. Over the last ten years, consumers within the entertainment and software industries have begun to demand instant access to products off all types. Products such as the Apple iPod®, Sony PSP® and the Amazon Kindle® among countless similar products have created an ever-increasing demand for instant access to media content. As a result, the increase of digital distribution of media content has grown, with iTunes alone accounting for more than $5 billion dollars in the US and the industry continues to grow. As a direct result of the increase in volume of the digital distribution of media content, the distribution of physical media, such as compact discs that are customarily subject to sales tax fell sharply in 2007. The paradigm shift has resulted in a major sector of the entertainment industry acquiring virtually tax-freConstitution2e status or consumers.

In the 1992 landmark decision in Quill v. North Dakota, 504 U.S. 298 (1992), the court found that states cannot require out-of-state retailers to collect taxes from customers who live in states where the retailer does not have a related physical presence or “substantial nexus”. The basis for the decision was to give a “safe harbor” for businesses wishing to avoid the burdens of complying with the numerous state tax laws by transacting business online.

Seventeen states, including Tennessee, have updated their tax code and now impose a tax on digital downloads. The legality regarding the taxation of digital media appears to have been resolved in favor of taxation. After Quill, the responsibility rests on the individual consumer to report the transaction on their annual tax return and pay the appropriate amount of sales tax. Some reports indicate that nationwide state and local governments will have lost more than $500,000,000 in uncollected taxes by 2011.

The court in Quill recognized the importance of the emerging e-commerce sector and declared that alternative means to require retailers to collect sales tax, namely that 1) Congress may require retailers to collect sales tax or 2) States may require retailers to collect taxes provided that Congress has provided a mechanism by which to reduce the burden of retailers to comply with the tax laws of the several states.

Since the Quill decision, twenty-two states including Tennessee have joined together under the “Streamlined Sales Tax Agreement” to create a uniform tax code to reduce the burden of complying with the law of the several states. Among other things, the SSTA have created uniform rules regarding digital media. The National Conference of State Legislatures has called for Congress in its next session to review the Sales Tax Fairness and Simplification Act (H.R. 3396) which gives those states that have complied with the Streamlined Sales Tax Agreement the authority to require out-of-state retailers to collect sales tax for online purchases.

Rather than waiting on Congressional action, New York has attempted to circumvent the requirement of a physical location within the state by interpreting their law to include any “affiliate”. In the case of Amazon, affiliates include anyone who advertises on the website. This interpretation, if adopted by the several states, would negate the benefit of the safe harbor by exposing the online retailer to liability throughout the nation.

In conclusion, as the law presently stands, states may tax digital media, however it cannot require out of state retailers to collect taxes. If Congress adopts the legislation proposed by the members of the Streamlined Sales Tax Agreement as anticipated, the Quill case no longer prevents states from requiring retailers to collect sales tax.

Cory Greenwell *Jonathan “Cory” Greenwell is an intellectual property lawyer who practices in Louisville, Kentucky at the firm of Greenebaum Doll & McDonald.  Cory is the co-founder of the website Backseat SandBar and was featured on the WFPK 91.9 feature, “Off the Record.”

Kris Kristofferson and Fred Foster once penned one of my favorite lyrics in the song Me and Bobby McGee, i.e., “freedom’s just another word for nothing left to lose.”  The sentiment is perhaps appropriate for the ongoing war that is being waged against copyright laws as we know them.  The latest battle in this war was fired by the esteemed Lawrence Lessig, famous lawyer and copyright scholar, in his new book Remix: Making Art & Commerce Thrive in the Hybrid Economy.

Remix Lawrence Lessig The main goal of the book is the demolishment of existing copyright laws, which Lessig has described as Byzantine.  He believes our current copyright laws are futile, costly and culturally stifling. The "hybrid economy" is described by Lessig as one in which a “sharing economy” coexists with a “commercial economy.”  See this very humorous interview by Stephen Colbert.  He gives examples such as YouTube, Flikr and Wikipedia, which rely on user-generated "remixes" of information, images and sound to illustrate his point.  This “hybrid economy,” in Lessig-speak, is identical to what he calls a "Read/Write (RW)" culture — as opposed to "Read/Only (RO)" — i.e., a culture in which consumers are allowed to "create art as readily as they consume it."  Thus, the “remix” to which he refers is the concept of taking another persons copyrighted work and “making something new” or “building on top of it.”  This is what us less-published copyright lawyers like to refer to as a derivative work!  And that is the crux of Lessig’s problem:  the copyright law DOES in fact make provision for this type of creative endeavor, provided that the creator of the derivative work gains the permission of the copyright owner.  This is that with which Lessig seeks to do away.

In the Colbert interview, Lessig drolly points out that 70% of our kids are sharing files illegally and that the “outdated” copyright laws are “turning them in to criminals.”  This reminds me just a bit of what my Daddy used to tell me: just because everybody’s doing it doesn’t make it right!   Or, as Colbert blithely responded, “isn’t that like saying arson laws are turning our kids into arsonists?”  The obvious conclusion is that perhaps the law is simply not the problem.

Colbert then comically crosses out Lessig’s name on the cover of his his advance copy of Lessig’s book, draws a picture of Snoopy inside, and then questions Lessig as to whether the book was now his (Colber’t’s) work of art, to which Lessig says “that’s great,” we “jointly” own the copyright.  That’s a point to which Lessig’s publisher, Penguin Press, would surely not acquiesce.  In the final retort to Lessig, Colbert makes the point that he likes the current system, and I quote, “the system works for me.”  I might add that the system seems to be working extremely well for Lawrence Lessig as well.  Lessig is making a fortune exploiting the very system he criticizes as antiquated – the very essence of free speech, I suppose, but in the final analysis, a bit disingenuous.

While I do admire Professor Lessig for working toward a solution to a perceived problem, it’s very difficult to believe that tearing down the entire system of copyright laws in order to accommodate a large percentage of prepubescent teenagers who are too cheap to pay for their music is the appropriately measured response we need in this instance.   Call me crazy.

Here are several good critiques of Lessig’s work and ideas here for further exploration of this issue:

The Future of Copyright, by Lawrence B. Solum (download PDF from this page)

Lessig’s call for a “simple blanket license” in Remix, by Adam Thierer

Copyright in the Digital Age, by Mark A. Fischer

By Jennifer Bendall, Executive Director of musicFIRST

Did you know that every time you hear your favorite artist’s hit songs over the airwaves he or she doesn’t receive a single penny from the radio stations broadcasting the song? Sounds crazy, right? While AM and FM music broadcasters rightly pay the writers of these songs, they refuse to compensate the performing artist as the performer of the song.

In fact, AM and FM music radio stations earn a cool $16 billion a year in advertising revenue without compensating the artists and musicians who bring MusicFirstmusic to life and listeners’ ears to the radio dial.

The fight for a fair performance right on radio has been going on in the U.S. for more than 80 years. Frank Sinatra was a leader in this fight 20 years ago, and his daughter Nancy carries the legacy today. In 2008, Nancy Sinatra testified before a House subcommittee on behalf of the musicFIRST (Fairness in Radio Starting Today) Coalition, telling members of Congress about the life of an artist:

Imagine struggling in your job, perhaps for years, to make the best product you can – a product made of your blood, sweat and tears. Now imagine people taking that product to use to build their own hugely successful businesses. Just taking it – no permission, no payment, and no consequence.

A fair performance right is not only beneficial for the musicians and artists behind the music, but also for the U.S. economy. Currently, the U.S. is the only member of the 30-country Organization of Economic Cooperation and Development (OECD) that does not fairly compensate performing artists when their songs are played on the radio. This puts the U.S. in the company of countries such as Iran, China and North Korea who don’t pay royalties to performers for their intellectual property. Plus, since we don’t have a performance right here in the U.S., artists lose out on the royalties collected overseas for the play of American sound recordings.

The musicFIRST Coalition, a group of artists, musicians and music community organizations, supports the creation of a performance right on AM and FM radio. The Coalition formed in June 2007 to ensure that all performers – from aspiring and local artists, to background singers and well-known stars – are fairly compensated when their music is played on the radio. On February 4, 2009, bipartisan legislation – the “Performance Rights Act” – was reintroduced in the House and Senate. MusicFIRST supports this measure and plans to remain at the forefront of the fight for fair pay for airplay.

AM and FM radio remains the lone holdout in providing a fair performance right for artists and musicians. All other music platforms – Internet radio, satellite radio and cable television music channels – pay a fair performance royalty for the use of music. It’s time that radio broadcasters are held to the same standard.

Eighty years is far too long for AM and FM radio stations to refuse to compensate performers for their work. Let this be the year fairness is provided to the talented performers who bring to life the music of our lives.

My special thanks to guest author of today’s article, Jennifer Bendall, and Lindsay Dahl for making this article happen.  For more information about musicFIRST and the great work they’re doing, go to www.musicfirstcoalition.org, or click on the picture above.

The interview that I gave to DigimusicTV.com is becoming viral.  Metacafe has it in three parts:

Barry Shrum Entertainment Attorney Part 1 

Barry Shrum Entertainment Attorney Part 2 

Barry Shrum Entertainment Attorney Part 3 

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

When is a work “Fixed” According to Section 101

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

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

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

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

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

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

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

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

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

When is an infringer not an infringer?

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

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

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

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

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

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

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

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

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

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

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

When is work “publicly performed”?

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

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

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

To perform or display a work “publicly” means — 

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

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

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

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

the transmit clause directs us to identify the potential audience of a given transmission, i.e., the persons “capable of receiving” it, to determine whether that transmission is made “to the public.”

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Used by Permission.  All rights reserved

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

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

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

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

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

Endnotes

(1) Holman v Apple, Inc.

(2) Smith v Apple, Inc.

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

You say you want a revolution

Well, you know

We all want to change the world . . .

 

You say you’ve got a real solution

Well, you know

We’d all love to see the plan

You ask me for a contribution

Well, you know

We are doing what we can

 

But if you want money

for people with minds that hate

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

 

Don’t you know it’s gonna be alright?

 

-John Lennon

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

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

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

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

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

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

This in one ruling that should be very interesting.

 

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