Tag: copyright

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Copyright Licensing DOJ Uncategorized

Rejection of DOJ Consent Decree Interpretation is a Win for Songwriters

Cross-posted from the Mister Copyright blog.

sheet musicEarlier this month, a federal judge in the Southern District of New York issued an order rejecting the Department of Justice’s (DOJ) interpretation of a consent decree governing the way the performance rights organization Broadcast Music Inc. (BMI) licenses its songs. The ruling was in response to a DOJ statement that the consent decrees controlling BMI and ASCAP should be interpreted to include a “full-work” licensing agreement that would require any entity that controls part of a composition to offer a license for the whole composition. The implications of the DOJ’s evaluation would be disastrous for both artists and the organizations that represent them, and while the judge’s order is likely not the final say in the debate, it represents a strong endorsement of the rights of publishers and songwriters to control their creative works.

PROs and the Consent Decrees

Performance rights organizations (PROs) act as intermediaries between songwriters and parties who wish to perform their copyrighted works publicly. Pooling compositional copyrights and offering “blanket licenses” to users such as bars, stores, gyms, radio and television stations, and Internet music distributors, PROs facilitate access to millions of songs while eliminating the need for individualized negotiations and licensing agreements. PROs also collect royalties from their licensees and distribute them among their member songwriters, composers, and music publishers, providing a workable solution to an otherwise impossibly complex system of individual agreements.

ASCAP and BMI are governed by consent decree agreements that have been in place for over 75 years and were introduced by the Department of Justice to promote competition in the marketplace for musical works. Under the decrees, PROs are encouraged to compete with one another to recruit songwriters and must offer licenses to venues and users on equivalent terms. It’s a system intended to benefit both emerging, unknown songwriters and established artists in order to prevent any one PRO from leveraging undue market influence.

Full v. Fractional Licensing

But even with the support of PROs, complicated licensing issues arise when a musical composition has more than one author or rights owner. In 2014, the Antitrust Division of the DOJ initiated an inquiry into the effectiveness of the consent decrees, soliciting comments from various stakeholders on whether the decrees obligate ASCAP and BMI to offer licenses to an entire work when not all owners of the composition are members of the organization. “Full-work” licenses allow for a song to be licensed provided that one owner consents by way of membership in a PRO, regardless of how much of the composition that party owns or whether the co-owners have conflicting contractual agreements.

Default copyright law treats joint authors of a single work as tenants-in-common, with any co-owner retaining the right to grant a nonexclusive license to the entire work without the consent of other owners, so long as the licensor compensates the other co-owners. As this rule is strictly the default, co-owners are free to agree to alternate arrangements with regard to licensing the underlying work, including one in which an author may only offer a license to the partial interest it holds in the work. This type of agreement, known as “fractional” licensing, requires that a licensee obtain additional licenses from all other rights owners or the PROs representing them.

The comments received by the DOJ as part of its consent decree investigation showed conflicting views on the treatment of multi-owner works. Rightsholders claimed that PROs had never offered full licenses and urged the DOJ to add language to the decree that would confirm this understood feature of the agreement. Music users and licensees, by contrast, argued that full licensing was always part of the deal and also pressed the DOJ to amend the decree to reflect their opinion. These differing opinions were never addressed in past revisions of the decrees because most licensees would obtain blanket licenses from both BMI and ASCAP, which would then charge fees based on their respective market shares, accounting for songs to which they represented only a partial interest.

DOJ Gets it Wrong

With new licensees entering the market in the form of streaming internet services, the DOJ decided it was time to clarify this neglected, but important, part of the decrees. In a statement issued last month, the Department concluded that it would not be in the interest of the public to modify the decrees to permit fractional licensing, insisting that full-licensing was the intent of the decrees and would not upset the rights of co-authors. But despite positioning its statement as an interpretation of the existing decrees, the DOJ statement actually modified a decades-old industry standard while trampling on the rights of creators and rights owners.

Instead of explaining how full-licensing doesn’t violate copyright law, the statement focuses on the “immediate access” to works that would be threatened by fractional licensing. The DOJ repeatedly warns of the consequences of having to secure licenses from multiple owners or authors, claiming it will result in licensees “simply turning off the music.” But the statement seems to confuse the original intent of the decrees with the creation of a system that guarantees immediate access to any song a licensee might want to play. While licensing efficiency is important, respect for the rights of all those responsible for creating a work shouldn’t be discarded for a haphazard licensing mechanism.

The statement goes on to argue that fractional licensing would force licensees and music users to carefully track song ownership and rights information to avoid potential infringement, a process that would be nearly impossible due to the lack of a reliable source of ownership data. But as Register Pallante explains in her response to a request for the Copyright Office’s insight on the licensing of jointly-owned works, full-licensing would impose a much more extreme burden on PROs that would have to ascertain, song-by-song for millions of songs, whether they have the right to grant a full license. These logistical challenges would surely result in higher operational costs that would have to be recouped through higher commissions to PRO members.

In addition to logistical problems, Register Pallante warns of the legal complications that would inevitably result from a full-licensing scheme: “Such an approach would seemingly vitiate important principles of copyright law, interfere with creative collaborations among songwriters, negate private contracts, and impermissibly expand the reach of the consent decrees.”

Songwriters and PROs Strike Back

Not surprisingly, the songwriting community was outraged by the DOJ’s disregard for artists’ rights and criticized the statement for its betrayal of long-accepted and practical licensing mechanisms. Just weeks after the statement was issued, the Songwriters of North America (SONA) – an advocacy group founded by and made up of artists and composers – sued the DOJ, claiming the agency overstepped its authority and that its ruling violated the property rights of songwriters by potentially invalidating private contracts between co-authors and collaborators.

PROs also joined forces to fight the Justice Department’s interpretation of the consent decrees, with ASCAP pursuing legislative reform while BMI took legal action to challenge full-licensing in federal court. In a pre-motion letter to Judge Louis Stanton, BMI warns of the disastrous consequences of the DOJ’s interpretation and urges the court to determine that its consent decree allows for the long-standing industry practice of fractional licensing.

On September 16th, Judge Stanton issued an opinion and declaratory judgment unequivocally rejecting the Justice Department’s interpretation of BMI’s consent decree. The opinion makes clear that “nothing in the consent decree gives support to the Division’s views,” and that because infringements and remedies are not addressed, the decree “neither bars fractional licensing nor requires full-work licensing.”

The decision was celebrated by songwriters and PROs as a sensible and informed response to the DOJ’s misguided understanding of the decrees. But while Judge Stanton’s order is now the controlling interpretation of the BMI decree, the Justice Department may appeal the decision, and it’s likely that music licensees will push back with their own lawsuits and legislative efforts. Regardless of future developments, the unprecedented unified effort of PROs, mobilization of artist organizations such as SONA, and clear message by an informed federal court bode well for the protection of creators’ rights and the preservation of sound copyright law.

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Copyright Infringement Trademarks Uncategorized

Criminal Copyright Infringement is Crime of "Moral Turpitude"

Cross-posted from the Law Theories blog.

sheet musicThis past Friday, the Board of Immigration Appeals held that criminal copyright infringement constitutes a “crime involving moral turpitude” under immigration law. The Board reasoned that criminal copyright infringement is inherently immoral because it involves the willful theft of property and causes harm to both the copyright owner and society.

The respondent, Raul Zaragoza-Vaquero, was indicted in 2012 for selling illicit CDs of popular artists including Justin Bieber, Lady Gaga, and Jennifer Lopez over a five-year period. After a three-day trial, the jury found Zaragoza-Vaquero guilty of criminal copyright infringement under Section 506(a)(1)(A), which makes it a crime to “willfully” infringe “for purposes of commercial advantage or private financial gain.” The crime was a felony under Section 2319(b)(1) because it involved the “reproduction or distribution, . . . during any 180-day period, of at least 10 copies or phonorecords, of 1 or more copyrighted works, which have a total retail value of more than $2,500.” Zaragoza-Vaquero was sentenced to 33 months in prison and ordered to pay $36,000 in restitution.

Under immigration law, an alien who has been ordered removed from the United States may ask the Attorney General to cancel the removal order. However, there is an exception for “any alien convicted of . . . a crime involving moral turpitude,” in which case the Attorney General is powerless to cancel the removal. Zaragoza-Vaquero was ordered removed in early 2015, and the Immigration Judge pretermitted his application to have the removal order cancelled by the Attorney General. The Immigration Judge held that criminal copyright infringement is a “crime involving moral turpitude,” thus making Zaragoza-Vaquero ineligible for such cancellation. On appeal, the Board agreed, rejecting Zaragoza-Vaquero’s bid to have the Attorney General consider his removal.

Even though crimes of “moral turpitude” have been removable offenses since 1891, Congress has never defined what the phrase means nor listed the crimes that qualify. That job instead has been left to immigration judges and the federal courts. In 1951, the U.S. Supreme Court noted that “crimes in which fraud was an ingredient have always been regarded as involving moral turpitude.” Indeed, many property crimes have been held to involve “moral turpitude” when committed willfully because there is the criminal intent to defraud the property owner of its rights. “Moral turpitude” has thus been found to exist in numerous crimes against property, including arson, burglary, embezzlement, extortion, blackmail, bribery, false pretenses, forgery, larceny, receiving or transporting stolen goods, and check or credit card fraud.

Crimes against intellectual property have likewise been found to involve “moral turpitude.” For example, the Ninth Circuit held in 2008 that the use of counterfeit marks, in violation of state law, is “a crime involving moral turpitude because it is an inherently fraudulent crime.” The Ninth Circuit reasoned: “Either an innocent purchaser is tricked into buying a fake item; or even if the purchaser knows the item is counterfeit, the owner of the mark has been robbed of its value. The crime is really a species of theft. . . . The commission of the crime necessarily defrauds the owner of the mark, or an innocent purchaser of the counterfeit items, or both.”

Similarly, the Board of Immigration Appeals held in 2007 that trafficking in counterfeit goods, in violation of federal law, is a crime of “moral turpitude.” The Board reasoned that the conviction required the federal prosecutor to prove that the defendant “intentionally trafficked” and “knowingly used a spurious trademark that was likely to confuse or deceive others.” Even though the statute did not require proof that the defendant had the specific intent to defraud, the Board held that such trafficking involved “moral turpitude” because it is “inherently immoral” to willfully exploit the property owner and the public.

Turning back to Zaragoza-Vaquero, the Board defined “moral turpitude” as “conduct that shocks the public conscience as being inherently base, vile, or depraved, and contrary to accepted rules of morality and the duties owed between persons or to society in general.” The Board then noted that trafficking in counterfeit goods has been held to be a crime of “moral turpitude” because it involves (1) “theft of someone else’s property,” (2) “proof of intent to traffic,” (3) “societal harm,” and (4) “dishonest dealing and deliberate exploitation of the public and the mark owner.”

Reasoning by analogy to these trafficking cases, the Board ultimately held that criminal copyright infringement “must also be a crime involving moral turpitude.” Criminal copyright infringement statutes “were enacted to protect a form of intellectual property,” and offenses “must be committed willfully, meaning that a defendant must voluntarily and intentionally violate a known legal duty not to infringe a copyright.” The Board noted that criminal copyright infringement “also involves significant societal harm,” since “piracy” has “harmed the film and recording industries, including actors, artists, and musicians.” It pointed to a recent report by the Government Accountability Office, which found that “intellectual property crimes cause negative effects on health, safety, and lost revenue.”

The Board’s holding that criminal copyright infringement is a crime of “moral turpitude” thus extends the long line of cases finding that crimes against property are inherently immoral when the criminal intentionally defrauds the owner of its rights. While many will surely balk at the suggestion that there’s anything immoral about criminal copyright infringement, I think the Board reached the right conclusion—both in the moral and legal sense. A defendant such as Zaragoza-Vaquero, who for years willfully infringed for profit, has acted in a way that shocks the conscience and has shown a conscious disregard for the rights of others. And while prosecutors need not show the specific intent to defraud in securing such a conviction, the element of willfulness suffices to establish the intent to defraud the copyright owner of its property.

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Copyright Copyright Licensing Copyright Theory Infringement International Law Internet Legislation Uncategorized WIPO

European Union Draws a Line on Infringing Hyperlinks

Cross-posted from the Mister Copyright blog.

a gavel lying on a table in front of booksLast week, the European Court of Justice—the judicial authority of the European Union—issued an anticipated decision in the Sanoma hyperlinking case, declaring that commercial linking with knowledge of unauthorized content constitutes copyright infringement. The opinion comes after years of similar cases in Europe stirred debate over whether linking to pirated works was a ‘communication to the public’ and therefore infringing, and provides a sensible test that protects the works of authors and creators while ensuring the internet remains a bastion of free speech.

Sanoma involved the popular Dutch news and gossip site GeenStijl, which ran an article in 2011 that included links to an Australian website where copyrighted Playboy magazine photos were made available. The photos were published on the Australian website without the consent of Sanoma, Playboy’s editor and copyright owner of the photos at issues, but taken down after the site was notified of their infringing nature. Despite similar notifications, GeenStijl refused to remove the hyperlinks and actually provided links to another website hosting the unauthorized photos after the Australian website took them down.

Sanoma brought a copyright infringement claim against GS Media, which operates the GeenStijl website, and the Supreme Court of the Netherlands sought a preliminary ruling from the European Court of Justice on whether hyperlinks represent the communication of a work to the public. According to an earlier EU directive, any communication to the public of works protected by copyright must be authorized by the copyright owner. Due to the ubiquity of links and hyperlinks on the Internet, a ruling classifying them as communications to the public would have major ramifications for anyone linking to unauthorized content.

In its judgment, the European Court of Justice found that the concept of ‘communication to the public’ requires individual assessment and laid out the following three factors that must be considered when determining whether a link or hyperlink qualifies.

1) The deliberate nature of the intervention – According to the Court, “the user makes an act of communication when it intervenes, in full knowledge of the consequences of its actions, in order to give access to a protected work to its customers.”
2) The concept of the ‘public’ covers an indeterminate number of potential viewers and implies a large number of people.
3) The profit-making nature of a communication to the public – The Court explains that when hyperlinks are posted for profit, “it may be expected that the person who posted such a link should carry out the checks necessary to ensure that the work concerned is not illegally published.”

Applying these criteria to Sanoma, the Court found that because GS Media runs a commercial website that makes money from advertising, it is undisputed that they posted the hyperlinks for profit, and that it is also undisputed that Sanoma had not authorized the publication of the photos. It also found that because they were notified by Sanoma and continued to repost links after the original source website took down the content, GS Media was aware of the infringing nature of the photos and “cannot, therefore, rebut the presumption that it posted those links in full knowledge of the illegal nature of that publication.” The Court concluded that by posting the links, GS Media therefor effected a ‘communication to the public.’

The Court goes on to detail its desire to maintain a fair balance between the interest of copyright owners and authors and the protection of the interests and fundamental rights of Internet users, “in particular their freedom of expression and of information, as well as the general interest.” After providing the criteria for assessing whether a link qualifies as a communication to the public, the opinion emphasizes the important role hyperlinks play in the exchange and free flow of information over the internet, and clarifies that linking—even to unauthorized content—is not a communication to the public if there is no profit motive or knowledge of the infringing nature of the linked-to works. Even so, it’s important to note that not-for-profit hyperlinking may still be considered a communication to the public if the person posting the link knew or should have reasonably known that the content was posted without authorization.

Perhaps most surprising about the Court’s decree is the relative approval by both copyright owners and supporters of the rights of those posting links. While it speaks to the reasonable approach the Court has taken in determining what qualifies as a communication to the public, it may also represent a hesitation to condemn or praise the order due to a significant ambiguity. It’s not entirely clear who carries the evidentiary burden of proving whether an individual knew or should have reasonably known certain content was posted on the Internet without authorization. If copyright owners and authors are forced to prove a user knew or should have known content was unauthorized every time they attempt to remove links that can appear online incessantly, it could render the new directives ineffectual in protecting creative works.

Regardless of the uncertainly surrounding this burden of proof, the current test seems to strike a balance that holds commercial websites more accountable, while allowing for some flexibility for the general public. With debates over the effectiveness of notice and takedown intensifying in the United States, the EU’s decision on communications to the public should be recognized as workable approach to dealing with infringing hyperlinks. As the United States Copyright Office admits in its 2016 study on the making available right, jurisprudence in the US regarding offering access to content hosted elsewhere on the Internet through hyperlinking is less developed as some foreign jurisdictions. But the study acknowledges the progress made in the EU, and emphasizes the need to include ‘offers of access’ in the crucial making available right.

Despite semantic differences, the EU and the US are both moving towards systems that will impose greater accountability for posting links to unauthorized works. The EU’s directive makes clear that commercial hyperlinking to unauthorized content is indeed a communication to the public and therefor copyright infringement, while ensuring that the free flow of information through general public linking will not be threatened and the Internet will remain unbroken. It’s an approach that represents the greater goals of copyright law around the world, and other jurisdictions should follow the lead of the EU when crafting copyright policies that address the intricacies of the Internet.

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Copyright Copyright Licensing Copyright Theory Infringement Intellectual Property Theory Internet Reasonable Royalty Uncategorized

Despite What You Hear, Notice and Takedown is Failing Creators and Copyright Owners

cameraIn a recent op-ed in the LA Times, Professors Chris Sprigman and Mark Lemley praise the notice and takedown provisions of the Digital Millennium Copyright Act (DMCA) as “a bit of copyright law worth saving.” They argue that Section 512 of the DMCA continues to serve its purpose of balancing the rights of copyright owners and creators with those of Internet service providers (ISPs), while leaving both sides only “slightly disappointed.” Satisfying these two groups is indeed a difficult charge, but it’s simply disingenuous to suggest that creators and copyright owners are satisfied with a system so clearly in need of an overhaul.

As the Copyright Office embarks on its review of the DMCA, supporters and critics of the nearly twenty-year-old doctrine are weighing in on its effectiveness in addressing online infringement. Sprigman and Lemley claim that the “process has worked well for years,” and that the result of shifting more enforcement burden to ISPs “could be a broken Internet.” But for those creators and copyright owners who have their works resurface online just minutes after they are taken down, the Internet is already “broken.” The fact that piracy continues to intensify, despite incredible efforts to have infringing content taken down, shows that notice and takedown is largely ineffective.

As CPIP Senior Scholar Sean O’Connor testified before Congress, the notice and takedown system is not working for any of its intended beneficiaries. The constant game of whack-a-mole renders the system essentially futile for copyright owners and creators, and it creates significant burdens for ISPs that want to comply—especially small to mid-level companies that can’t afford compliance staff. Worse still, by shielding service providers from liability, the DMCA creates perverse incentives where there’s little downside to ignoring infringing content. In fact, reviewing content could lead to an ISP having knowledge of infringement and losing its safe harbor.

Now that the Copyright Office’s review is underway, it’s somewhat strange to see some supporters claim that all is well. But has anything actually changed since the Office announced its study?  Of course not. The whack-a-mole problem remains, and the knowledge standards are still interpreted broadly to disproportionately favor ISPs. When one side says the system is working and the other side says it’s broken, the truth is that the system is not working well for everyone. Sprigman and Lemley can claim that the DMCA is “worth saving” only by downplaying the true plight of creators and copyright owners.

A concrete example of this struggle comes from the comments filed by Universal Music Group (UMG) as part of the Copyright Office’s study. UMG describes the painstaking efforts devoted to protect just one artist’s creative work. In October of 2014, UMG and Big Machine Records launched a joint offensive to protect Taylor Swift’s “1989.” A staff of UMG employees dedicated 100% of their time and resources to manually search for infringements on YouTube, SoundCloud, and Tumblr, and through March of 2016, they had sent over 66,000 DMCA takedown notices. Despite their considerable efforts, over 500,000 links to the album were identified, and “1989” was illegally downloaded nearly 1.4 million times from torrent sites.

Of course, this type of effort would be impossible to replicate for any works other than those that attract such massive attention. For most artists, the burden of monitoring the Internet and sending takedown notices would fall entirely on their shoulders, with no guarantee of putting a stop to the theft of their works. Sprigman and Lemley ignore these problems, instead claiming that since copyright owners sent “more than 500 million takedown requests just to Google last year,” we know that the “system is a powerful tool against pirated content.” That would be great, if true, but the reality is that those notices barely made a dent.

Sprigman and Lemley claim that the “genius of the DMCA” is that it “enables entertainment companies to turn piracy into legitimate revenue.” They give the example of “YouTube’s Content ID system,” which “gives copyright owners the opportunity to ‘claim’ their work and share in any advertising revenue rather than pull it off the site.” From the perspective of creators and copyright owners, the only “genius” of this system is that YouTube can legally present them with an unfair choice—suffer infringement and get nothing or monetize and get next to nothing.

While Sprigman and Lemley praise the “more than $1 billion” paid out by YouTube, the real question is how much more copyright owners and creators would have been paid in a properly functioning market. YouTube is consistently teeming with infringing videos—one recent report revealed that over 180 million infringing videos had been removed in 2014 alone. And the artists that YouTube’s largess supposedly benefits are loudly complaining about their exploitation. If Content ID is so great, why are so many creators and copyright owners upset with the arrangement? The monetization Google offers to copyright owners and artists is less than half of the royalties paid out by streaming services like Pandora, an amount that artists have denounced as already inequitable.

In her excellent piece on the fictions of the Content ID system, Grammy-winning artist Maria Schneider exposes Content ID as a way for Google to cash in by actually legitimizing and perpetuating piracy. She explains that a majority of creators that opt for monetization realize miserable percentages of ad revenue, and the continued illegal uploading of their music and content drives billions of users to YouTube’s platform. YouTube has turned the weakness of the DMCA into a system that exploits artists while offering embarrassingly lower royalty rates than what would be negotiated in a free market.

The current situation is untenable, and if change means “breaking” the Internet, then we should pull out the pickaxes and get to work. A system of notice and staydown, rather than just takedown, would help alleviate the constant and seemingly ineffectual vigilance required by the current system. By removing all copies of a protected work and blocking inevitable re-postings, ISPs would honor the original purpose of the DMCA while actually doing their part to earn the protection of the safe harbor provisions. Only by ensuring that targeted works do not resurface will ISPs respect the rights of those without whose content they would cease to exist.

How anyone can honestly say that the current notice and takedown system is working for copyright owners and creators is mystifying given the constant calls for reform from creators and the numerous critical comments filed with the Copyright Office. The incredible magnitude of takedown notices sent and the seemingly unstoppable reappearance of infringing works online are a clear signal that the system is completely failing those it was meant to protect. Creators and copyright owners deserve a better chance at protecting the fruits of their labors, and the DMCA needs to be changed so that it truly is a system “worth saving.”

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Copyright Innovation International Law Uncategorized

The European Union Extends Copyright in Design—and Critics Balk (Yet Again)

dictionary entry for the word "innovate"The European Union recently decided to support the productive labors of designers by extending legal protections of their works in all areas of copyright, design, and patent law. Just as past legislation in the United States extending copyright terms was attacked with histrionic allegations that this was merely rent-seeking behavior by politically powerful corporations, the EU’s extension of protections for designs have come under similar attack. In the US, the specter of Disney trying to keep “the Mouse” alive has become a stale trope trotted out in opposition to any sensible copyright protections. Thus, it is not a surprise that the same trope is being used to attack the EU’s new law. In both cases, the attack misses its target because it is rooted in a false assumption about why property rights are secured to innovators and creators.

First, a word about the change in European Union law. This law is important both in making creators’ rights more effective throughout the EU and in bringing those rights closer in harmony with EU intellectual property (IP) law as a whole. As of July 28, 2016, the Copyright, Designs and Patents Act extends the copyright for a designer’s work from 25 years to 70 years. (A six-month grace period in the UK has been granted to allow retailers to clear their stock of works that might be in question under the new Act.)

According to David Woods, a British lawyer, the EU’s changes aligned its copyright laws with those governing literature and music, providing uniform legal protections for all products of creative labors. Further, as Mr. Woods properly points out, “[t]he intent of the change to the legislation is to stop ‘exact’ copies of existing industrially designed artistic works”—a measure that he predicts will result in the closure of websites producing bargain basement, mass-produced copies of furniture, “as after all, this was their business model.” In sum, the legislation is directly aimed at illegal internet operations whose deliberate “business model” is to steal the fruits of the labors of those working in the design industries.

This copyright legislation secures to creators their highly-valued furniture design and thwarts piracy. As in the protection of all property rights, this spurs creativity and sustains livelihoods of professional creators. This is an example of how securing property rights of all types is a key requirement in a growing innovation economy and flourishing society.

Who could object to this? Surprisingly, some ersatz advocates for property rights, such as some libertarian academics like Alex Tabarrok. Tabarrok recently attacked the new EU design law with the tread-worn criticism that one hears from ideologically committed IP skeptics: “The point” of the revamped EU regulations, he declares, is “not to spur creativity but to protect the rents of a handful of people whose past designs turned out to have lasting value.” (One can hear the echoes of the rhetorically appealing, but false, claim that Disney was solely responsible for capturing Congress in keeping Mickey Mouse under legal wraps.)

In the abstract and without regard to recognizing how property rights function in the free market, Tabarrok’s criticism might seem plausible. But there’s a key mistake in it. The fallacy over which Tabarrok stumbles is assuming that the sole purpose of copyright is only to spur the creation of new works—no more, no less. According to Tabarrok, copyright is merely a carrot dangled in front of creators, who like Pavlov’s dog are supposed to be sparked into creative activity. Certainly, this is a function of IP rights, as it is with all property rights—promising to secure the fruits of productive labors, whether in a farm, books, or inventions, spurs people to create more of these valued assets.

But, like all property rights, copyright is not merely an incentive to create. All property rights serve the central function of securing to their owners the free use and disposition of the property, which is what leads to contracts and other exchanges in the free market that enhance everyone’s lives. Thus, copyright is vital to sustaining creators’ rights in reaping the rewards of their creative and valuable labors—when the works are disseminated in the market and purchased by consumers for their enjoyment and use.

Ironically, Tabarrok hints at this when he says, in what is meant to derogate copyright extension, that “the actual argument for copyright runs—We have lots of popular designs and we need to keep selling them at a high price.” Indeed, the argument for copyright as such could be restated in the same way: “we have lots of popular designs and we should be allowed to sell them at the price they command in the market,” irrespective of whether that price seems “high.”

Tabarrok looks to support his argument with the example of mid-century design classics, such as Charles Eames chairs and Arco lamps. These works have become familiar to the public through the sale of replicas sold by furniture retailers, such as Design Within Reach in the US and Swivel in the UK. Another classic example is the Barcelona chair, an exquisite and iconic work designed by Ludwig Mies van der Rohe. While the officially licensed version of the Barcelona chair sells at the Conran Shop in the UK for around £5,755, a replica can be found on websites such as Swivel for around £455.

The stark difference in price illustrates vividly why high-level furniture and “lifestyle” designers such as Sir Terence Conran, and fashion designers such as Stella McCartney, support the new EU law: their professional livelihood—their ability to benefit from specialization and division of labor, which Adam Smith taught us is the key to a flourishing free market—rests on their ability to profit from the fruits of their creative labors in a commercial economy. Their right to sell their designs at the prices they seek in the marketplace does not preclude the design and dissemination of new, original articles of design that are inspired by the inimitable works of the mid-century moderns referenced by Tabarrok. But their property rights should preclude the sale of pirated knock-offs, which bring nothing to the table in terms of originality, inspiration, or hard work and are simply cheap copies.

It is not surprising that Tabarrok and others of his ilk continue to resort to ill-founded and unsubstantiated attacks upon IP rights on the dubious grounds that at some point these rights do not directly encourage innovation. This is highly misleading, because the same can be said about all property rights. This rhetorical move also makes it seem like Tabarrok is on the “pro” side of creation and innovation, which is dissembling rhetoric at its best.

Tabarrok’s critique, however, rests on a misconceived view of the function of property rights as solely incentivizing creation. Patents and copyrights are property rights, and like all property rights, they do not merely incentivize creation and innovation. They serve the important function of enabling creators to earn a livelihood from their productive labors by securing to them the same rights of all property owners to control the conditions in which their property is sold in the marketplace. This reflects the longstanding economic principle that a growing free market and flourishing society requires securing to property owners the fruits of their labors – surely a central tenet of libertarianism!

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Administrative Agency Commercialization Copyright Copyright Licensing Infringement Innovation Internet Legislation Supreme Court Uncategorized

Letter on FCC Set-Top Box Regulation Once Again Confuses the Issue

Washington, D.C. at nightLast week, a group of law professors wrote a letter to the acting Librarian of Congress in which they claim that the current FCC proposal to regulate cable video navigation systems does not deprive copyright owners of the exclusive rights guaranteed by the Copyright Act. The letter repeats arguments from response comments they  filed along with the Electronic Frontier Foundation (EFF), accusing the Copyright Office of misinterpreting the scope of copyright law and once again bringing up Sony v. Universal to insist that copyright owners are overstepping their bounds. Unfortunately, the IP professors’ recurring reliance on Sony is misplaced, as the 30-year-old case does not address the most significant and troubling copyright violations that will result from the FCC’s proposed rules.

In 1984, the Supreme Court in Sony held that recording television shows on a personal VCR was an act of “time-shifting” and therefor did not constitute copyright infringement. The court also ruled that contributory liability requires knowledge, and such knowledge will not be imputed to a defendant based solely on the characteristics or design of a distributed product if that product is “capable of substantial noninfringing uses.” But while this precedent remains good law today, it does not apply to the real concerns creators and copyright owners have with the FCC’s attempt to redistribute their works without authorization.

The FCC’s proposed rules would require pay-TV providers to send copyrighted, licensed TV programs to third parties, even if the transmission would violate the agreements that pay-TV providers carefully negotiated with copyright owners. A different group of IP scholars recently explained to the FCC that by forcing pay-TV providers to exceed the scope of their licenses, the proposed rules effectively create a zero-rate compulsory license and undermine the property rights of creators and copyright owners. The compulsory license would benefit third-party recipients of the TV programs who have no contractual relationship with either the copyright owners or pay-TV providers, depriving creators and copyright owners of the right to license their works on their own terms.

This unauthorized siphoning and redistribution of copyrighted works would occur well before the programming reaches the in-home navigational device, a fact that the authors of the recent letter to the Librarian of Congress either don’t understand, or choose to ignore. Creators and copyright owners are not attempting to “exert control over the market for video receivers,” as the letter suggests. The manufacture and distribution of innovative devices that allow consumers to access the programming to which they subscribe is something that copyright owners and creators embrace, and a thriving market for such devices already exists.

As more consumers resort to cord cutting, countless options have become available in terms of navigational devices and on-demand streaming services. Apple TV, Roku, Nexus Player and Amazon Fire Stick are just a few of the digital media players consumers can choose from, and more advanced devices are  always being released. But while the creative community supports the development of these devices, it is the circumvention of existing licenses and disregard for the rights of creators to control their works that has artists and copyright owners worried.

Sony has become a rallying cry for those arguing that copyright owners are attempting to control and stymie the development of new devices and technologies, but these critics neglect the substantial problems presented by the transmission of digital media that Sony couldn’t predict and does not address. In the era of the VCR, there was no Internet over which television was broadcast into the home. In 1984, once a VCR manufacturer sold a unit, they ceased to have any control over the use of the machine. Consumers could use VCRs to record television or play video cassettes as they pleased, and the manufacturer wouldn’t benefit from their activity either way.

The difference with the current navigation device manufacturers is that they will receive copyrighted TV programs to which they’ll have unbridled liberty to repackage and control before sending them to the in-home navigation device. The third-party device manufacturers will not only be able to tamper with the channel placement designed to protect viewer experience and brand value, they will also be able to insert their own advertising into the delivery of the content, reducing pay-tv ad revenue and the value of the license agreements that copyright owners negotiate with pay-TV providers. The FCC’s proposal isn’t really about navigational devices, it’s about the control of creative works and the building of services around TV programs that the FCC plans to distribute to third parties free of any obligation to the owners and creators of those programs.

The authors of the letter conflate two distinct issues, misleading influential decision makers that may not be as well versed in the intricacies of copyright law. By stubbornly comparing the copyright issues surrounding the FCC’s proposed rules to those considered by the Supreme Court in Sony, they craftily try to divert attention away from the real matter at hand: Not what consumers do with the creative works they access in the privacy of their own homes, but how those works are delivered to consumers’ homes in the first place.

It’s curious that after many rounds of back-and-forth comments discussing the FCC’s proposal, proponents of the rules still refuse to address this primary copyright concern that has been continuously raised by creators and copyright owners in corresponding comments, articles, and letters (see also here, here, here, and here). Perhaps the authors of the recent letter simply do not grasp the real implications of the FCC’s plan to seize and redistribute copyrighted content, but given their years of copyright law experience, that is unlikely. More probable is that they recognize the complications inherent in the proposal, but do not have a good answer to the questions raised by the proposal’s critics, so they choose instead to cloud the issue with a similar-sounding but separate issue. But if they truly want to make progress in the set-top box debate and clear the way for copyright compliant navigational devices, they’ll need to do more than fall back on the same, irrelevant arguments.

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Copyright Infringement Internet Uncategorized

The Dangerous Combination of Content Theft and Malware

Cross-posted from the Mister Copyright blog.

circuit boardMalware, short for malicious software, has been used to infiltrate and contaminate computers since the early 1980s. But what began as relatively benign software designed to prank and annoy users has developed into a variety of hostile programs intended to hijack, steal, extort, and attack. Disguised software including computer viruses, worms, trojan horses, ransomware, spyware, adware, and other malicious programs have flooded the Internet, allowing online criminals to profit from illicit activity while inflicting enormous costs on businesses, governments and individual consumers.

Purveyors of malware target unsavory websites to embed and distribute their programs, often making deals with those in the business of disseminating stolen content. Content theft websites that appear online through legitimate hosting and content delivery systems are frequently riddled with devious malware that infect the computers of users looking to download or stream pirated music, movie and television shows.

Last week, the Digital Citizens Alliance (DCA) published a report detailing how US tech companies are allowing cyber criminals to use their services to perform a myriad of illegal exploits. Enabling Malware focuses on how stolen content is being used as bait to infect users’ computers and how domestic hosting and content delivery companies are permitting online criminals to profit from the spread of dangerous malware.

Employing the expertise of Internet security firm RiskIQ, the report found that 1 in 3 content theft websites expose users to infectious malware and that visitors are 28 times more likely to encounter malware on content theft sites than mainstream, legitimate websites. And although these nefarious websites are usually created and maintained by overseas operators, they rely on North America hosting companies to function.

It’s a tricky partnership because while the hosting companies are not breaking the law by allowing disreputable websites to make us of their services, they are facilitating criminal networks whose activities could have catastrophic consequences. The report likens these service companies to landlords who turn a blind eye to the illegal activity of a renter. The issue is the same one being examined by the Copyright Office in its DMCA 512 study: When does a service provider have the requisite knowledge of illicit activity to trigger a duty to address the problem?

But while Section 512 of the DMCA hopes to combat copyright infringement online, the introduction of malware to content theft sites has consequences more far-reaching and dire than the dissemination of stolen works. Once malware infiltrates a system and hackers are able to take over, the results can be disastrous. The report details a wide range of criminal activity that can result from malware infection including the theft of bank credentials and credit card information that is then subsequently sold online, locking computers and demanding ransoms to return access, and hijacking webcams to film users without consent. The report warns:

[T]hese companies are now contributing to a growing issue for Americans: the threat of computer infections, the rise of identity theft and loss of financial information. The U.S. Department of Justice reports that 16.2 million U.S. consumers have been victimized by identity theft, with financial losses totaling over $24.7 billion.

According to the study, one of the most notorious companies enabling the websites that spread malware is CloudFlare. Marketing itself as a global content protection and security service provider, CloudFlare actually conceals a website’s true hosting information, inserting their network information instead. This allows for notorious content theft websites to mask information related to their actual hosting companies, making it more difficult to identify those complicit in their illegal activity.

Employing CloudFlare’s services are websites like Putlockerr.io, which offers a wide array of pirated movies for download. But when a user attempts to watch a movie via Putlocker, they download more than pirated content. After a user clicks to watch a movie, they are redirected to a new site that prompts them to download a new video player in order to view the content. This download is in fact a mechanism to deliver the malware that will wreak havoc on their system.

One of the worst distributors of malware identified by RiskIQ was watchfreemoviesonline.top. According to the study, the websites malware exposure rate was 32 percent and baited users into downloading the infectious software by offering popular movies like Captain America: Civil War in advance of its theatrical release. Watchfreemoviesonline.top uses Hawk Host, a company offering services similar to CloudFlare, to hide information about their actual hosting affiliations.

The Digital Citizens Alliance contacted both CloudFlare and Hawk Host to inform them of the findings of the RiskIQ report, and received differing responses. After being presented with clear evidence of the shady and illegal activities of watchfreemoviesonline.top, Hawk Host acknowledged that the site violated their terms of service and told the DCA that the site would come down. Hawk Host also agreed to meet with DCA researches to further discuss the RiskIQ report.

Unfortunately, the DCA’s interaction with CloudFlare was not as encouraging. In response to an email informing the company of the findings of the RiskIQ report, CloudFlare responded with a vague comment disclaiming any responsibility for the content of their client websites.

In the past few years, there’s been progress among service companies’ accountability efforts, with many refusing to deal with criminal websites. Payment providers like PayPal and Visa have stopped permitting illicit websites to use their services, and online advertisers have vowed to stop dealing with infamous content theft sites. But in order to eradicate content theft sites and the malware they propagate, the companies that help veil their identities and enable criminal activity must be help accountable.

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Copyright Infringement Internet Uncategorized

Advertiser Pledge Sets Example of Accountability in the Fight Against Piracy

Cross-posted from the Mister Copyright blog.

cameraIt should come as no surprise that popular websites make money by hosting advertisements. Anyone surfing the web has undoubtedly been bombarded with ads when visiting certain sites, and for websites that offer free services or user experiences, advertisements are often the only way to generate revenue. Unfortunately, websites that promote and distribute pirated material also attract advertisers to help fund their illicit enterprises, and despite a recent push for awareness and response to these sites, legitimate advertisers, search engines, and domain name registrars continue to enable them to profit from flagrant copyright infringement.

A 2014 study by the Digital Citizens Alliance found that ad-sponsored content theft is a big and growing business. Even after a year that saw the shutdown of some of the most notorious file-sharing websites, an examination of 589 illicit websites found aggregate annual advertising revenues of $209 million. Premium brand advertising also rose from 89 observed brands in 2013 to 132 to in 2014.

The transition from downloading to streaming as the preferred method of consuming entertainment has led to content thieves taking advantage of higher advertising rates, as the cost of advertising during a video stream is far greater than a traditional display ad. Additionally, the Digital Citizens Alliance stresses that websites are easily able to ditch a domain name targeted by authorities and set up shop under a new one, contributing to the never-ending whack-a-mole nature of online piracy:

The content theft industry’s low barriers to entry and the ability of operators to switch domains quickly make it easy for new sites to fill the void left by those that do get shut down, and to evade enforcement.

The presence of recognizable brand advertisements on websites involved in illegal activity does damage far beyond lining the pockets of those distributing the unauthorized works. When users visit a website in search of music, a television show, or movie, and they see the creative work (or links to the work) displayed alongside professional, recognizable advertisements, the advertisements lend legitimacy to the website. This can be especially dangerous for younger or less-informed users who have no idea that downloading or streaming the creative works through one of these websites is copyright infringement that will ultimately harm creators and artists.

The confusion these ad placements create is similar to the misperceptions furthered by search engines and domain name registrars that have made little effort to preclude pirate websites from taking advantage of their services. Despite promises to remove them from their search results, Google continues to display links to pirate websites alongside legitimate links in its results, often displaying the illicit links at the very top of the search results.

Filmmaker and artists’ rights activist Ellen Seidler recently exposed Google’s unwillingness to remove links to websites that distribute unauthorized creative works when she ran a simple Google search for her film And Then Came Lola. As she relates, not only was the film’s official website nowhere to be found among the first page of results, the list was made up of many websites offering pirated versions of the film. Sadly, most people searching for Ellen’s movie would not be able to immediately distinguish between legitimate and illicit links and would likely be steered towards a pirate website.

Domain name registrars have also added to the confusion surrounding the legitimacy of certain infamous pirate sites by allowing them to play domain name musical chairs and evade prosecution. The Pirate Bay—one of the most notorious file-sharing websites—has operated using domain names from 14 different countries, jumping from domain to domain name to stay online in the face of prosecution. Copyright Alliance CEO Keith Kupferschmid warns against providing sanctuary to sites like The Pirate Bay, revealing that the website recently returned to its original .org domain run by the U.S.-based Public Interest Registry (PIR):

It is shocking that a domain name registry in the United States – one that is dedicated to “the public interest” – is allowing a blatantly illegal site to have a home on the .org domain. This is especially disturbing given that the operators of The Pirate Bay have been found guilty of criminal copyright infringement, The Pirate Bay domain names have been seized or suspended around the globe, and even its co-founder, Peter Sunde, has walked away from it.

Despite these alarming trends in the facilitation of pirate websites, there have been some recent initiatives to deter companies from doing business with illicit websites. One notable initiative is the Trustworthy Accountability Group (TAG). A joint effort by the Association of National Advertisers (ANA), the American Association of Advertising Agencies (4A’s), and the Interactive Advertising Bureau (IAB), TAG was formed “to create transparency in the business relationships and transactions that undergird the digital ad industry, while continuing to enable innovation.” In 2015, TAG announced the launch of the Brand Integrity Program Against Piracy—an effort to help advertisers and advertising agencies keep their ads off websites that promote or distribute counterfeit goods or pirated content.

TAG’s mission has resonated with both advertisers and ISPs, demonstrated by a recent announcement that dozens of leading ad agencies, as well as Google and GoDaddy, have taken TAG’s Anti-Piracy Pledge. The Pledge includes a vow to curb the placement of digital advertising on websites associated with the unauthorized distribution of materials and lists the following actions that companies can take to ensure compliance:

(i) directly employing the services of validated Digital Advertising Assurance Providers;

(ii) directly employing advertising placement services that carry the TAG logo “Certified Against Piracy”; and/or

(iii) placing online advertisements through Advertising Agencies that do business exclusively with advertising placement services that carry the TAG logo “Certified Against Piracy

TAG created Digital Advertising Assurance Providers (DAAPs) as part of its Brand Integrity Program to help advertisers identify and weed out websites that do not meet their brand standards. The DAAPs are validated technology companies that the advertisers can employ to gauge the level of risk they are comfortable with and then eliminate websites and other properties that do not meet the advertisers’ standards for risk of infringement.

It’s difficult to measure how harmful advertising on illicit websites is to creators and copyright owners, but it’s not a stretch to presume that without ad revenue, many pirate sites would lose their incentive to operate. In her call to action to marketers, Hannibal executive producer Martha De Laurentiis lays out the destructive effect piracy has on the creative community:

It forces companies to either shrink their production budgets or commit to fewer, less risky projects. And ultimately, it harms audiences by limiting the types of stories that creatives can tell.

De Laurentiis explains that these pirate sites bring in millions in advertising dollars a year, and because they don’t pay for distribution rights for the creative works they steal, profit margins are estimated at around 90%. Potential profits of this scale are irresistible to those behind the pirate sites, but with a little vigilance and responsibility these incentives could be eliminated.

The co-chairs of the International Creativity and Theft-Prevention Caucus, Senator Orrin Hatch, Senator Sheldon Whitehouse, Congressman Bob Goodlatte, and Congressman Adam Schiff, recently praised TAG for its promotion of the Anti-Piracy Pledge, and it seems like the movement for more responsibility in digital advertising is gaining traction. But domain name registrars and search engine services need to follow the example set by advertisers and establish accountability and awareness in their sectors. Only when these services refuse to aid websites that distribute stolen copyrighted works will real progress be made in the fight against digital piracy.

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Copyright Infringement Internet Uncategorized

Capitol Records v. Vimeo: Courts Should Stop Coddling Bad Actors in Copyright Cases

Here’s a brief excerpt of my new post that was published on IPWatchdog:

Here’s where we are after Capitol Records v. Vimeo: A service provider can encourage its users to infringe on a massive scale, and so long as the infringement it encourages isn’t the specific infringement it gets sued for, it wins on the safe harbor defense at summary judgment. This is so even if there’s copious evidence that its employees viewed and interacted with the specific infringing material at issue. No jury will ever get to weigh all of the evidence and decide whether the infringement is obvious. At the same time, any proactive steps taken by the service provider will potentially open it up to liability for having actual knowledge, so the incentive is to do as little as possible to proactively “detect and deal” with piracy. This is not at all what Congress intended. It lets bad faith service providers trample the rights of copyright owners with impunity.

To read the rest of this post, please visit IPWatchdog.

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Administrative Agency Copyright Infringement Innovation Internet Uncategorized

IP Scholars to FCC: It’s Not About "The Box"

Washington, D.C. at nightThis past April, we joined other IP scholars in explaining how the FCC’s proposed set-top box rules would undermine the property rights of creators and copyright owners. In reply comments filed last month, the EFF and a group of IP academics argued that the proposed rules would not implicate any copyright owners’ exclusive rights. Yesterday, we filed an ex parte letter with the Commissioners pointing out why this is wrong. The full letter is copied below.

Dear Chairman Wheeler and Commissioners Clyburn, Rosenworcel, Pai and O’Rielly:

On April 22, 2016, the undersigned intellectual property law scholars submitted comments to the FCC in response to the notice of proposed rulemaking in the matter of “Expanding Consumers’ Video Navigation Choices; Commercial Availability of Navigation Devices.” Our comments expressed concerns with the proposed rules’ harmful impact on the property rights of creators and copyright owners. Specifically, we warned that the Commission’s proposed rules would undermine the exclusive property rights guaranteed to copyright owners under the Copyright Act by severely limiting their ability to determine whom to license their property rights to and on what terms. In so doing, the proposed rules risk fundamentally disrupting the vibrant creative ecosystem that those property rights support.

Together with the Electronic Frontier Foundation (EFF), another group of intellectual property law academics submitted reply comments framed as a rebuttal to the many comments that dutifully explained how the Commission’s proposed rules would violate copyright law and imperil the property rights of creators and copyright owners. The EFF/professors offer “observations” on copyright law and conclude that “the proposed rules are consistent with copyright in both letter and spirit.” To reach this conclusion, the EFF/professors broadly defend navigational devices, arguing that “products and services that touch copyrighted works do not infringe copyright, and do not require a license,” and that the “devices and services under the proposed rules” would be non-infringing just like televisions and VCRs.

Surprisingly, despite claiming that the proposed rules are consistent with copyright law, the EFF/professors fail to address the primary copyright concern raised by us and by many other commenters. By focusing on the navigational devices themselves, rather than on how creative works are delivered to those devices, the EFF/professors perform a sleight of hand that masks the real problem. The issue is not what consumers do with the creative works they receive in the privacy of their own homes—the issue is how those creative works are delivered to consumers’ homes in the first place.

The creative works that pay-TV consumers watch on their televisions come from multiple sources, including satellite, cable, and telephony-based transmissions. These transmissions are public performances or public distributions, and as a result, they must be licensed. Ignoring this simple principle of copyright law, the Commission would require pay-TV providers to send copyrighted works to third parties even if doing so exceeds the scope of pay-TV providers’ licenses with copyright owners. By forcing pay-TV providers to exceed the scope of their licenses, the proposed rules would undermine the property rights of creators and copyright owners, effectively creating a zero-rate compulsory license to the benefit of third parties that have no contractual relationship with either copyright owners or pay-TV providers that copyright owners license their works to. Furthermore, the Commission seeks to create this zero-rate compulsory license despite lacking any authority to do so; the Communications Act certainly does not give the Commission authority to amend the Copyright Act and create a new compulsory license for copyrighted works.

The reply comments of the EFF/professors do not address this concern at all. Committing the bulk of their reply to a broad discussion articulating their principles for copyright law, the EFF/professors fail to respond to the distinct copyright issues that inevitably result from this newly-created compulsory license. It is unclear why the EFF/professors do not address this issue, as it was echoed again and again in the comments to which they purport to respond. Because the proposed rules would brazenly undercut copyright owners’ property rights, we believe it is important to call attention to the inability of the EFF/professors to even mention this fundamental problem in their response.

Put simply, the proposed rules would take away the ability of creators and copyright owners to license their works on their own terms. It would give third parties all of the benefits afforded to pay-TV providers by their agreements with copyright owners without the burdens of paying a license or agreeing to the underlying contract terms. This isn’t about “the box,” and it isn’t about what consumers do with the creative works they receive in their homes. The issue is what goes into “the box,” and more importantly, how it gets there. That the EFF/professors ignore this primary issue speaks volumes. The fact that third parties currently need a license from copyright owners to do the very things the proposed rules would countenance demonstrates that the rules would undermine the property rights of creators and copyright owners.

The EFF/professors properly note that the “ultimate goal” of copyright is to benefit the public good. What they fail to understand is that by securing to artists and creators property rights in the fruits of their labors, copyright serves the interests of creators and the public alike, fulfilling its constitutional purpose and forming the bedrock of our creative economy. We urge the Commission to consider and address—as the EFF/professors do not—how the proposed rules inappropriately interfere with the property rights of creators and copyright owners and the damage they stand to cause to our diverse and vibrant creative marketplace.

To download our letter to the FCC, please click here.