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Promises to Keep: Technology, Law, and the Future of Entertainment William Fisher July 2, 2003

Promises to Keep: Technology, Law, and the Future of Entertainment William Fisher July 2, 2003. Outline. I. Potential Benefits of New Technologies II. Background: Copyright Law circa 1990 III. Cycles of Innovation and Resistance DAT Recorders / AHRA

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Promises to Keep: Technology, Law, and the Future of Entertainment William Fisher July 2, 2003

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  1. Promises to Keep:Technology, Law, and the Future of EntertainmentWilliam FisherJuly 2, 2003

  2. Outline I. Potential Benefits of New Technologies II. Background: Copyright Law circa 1990 III. Cycles of Innovation and Resistance • DAT Recorders / AHRA • Encryption circumvention / DMCA §1201 • Music Lockers / MP3.com litigation • Webcasting / DPRA-DMCA §114; CARP ruling • Centralized File Sharing / Napster-Scour litigation • P2P / P2P litigation; limited authorized services • CD Burning / CD copy protection IV. Defects of the Resultant System V. Where Do We Go from Here? • Private Property • Regulated Industry • An Alternative Compensation System

  3. Technologies • Downloading: Transmission over the Internet of a digital copy of a recorded musical performance, followed by storage of that file on the recipient’s computer, enabling the music to be replayed repeatedly on demand • Interactive Streaming: At the request of the recipient, transmission over the Internet of a digital copy of a recorded musical performance, which is then “played” but not stored • Noninteractive Streaming: Same process not at the request of the recipient

  4. Distribution of the SRLP of a Typical CD Music Publisher: 4% Recording Artist: 12% Retailer: 38% RC Profit: 1% Manufacturer: 8% Marketing: 8% Distributor: 8% Overhead: 14% A&R: 5%

  5. Functions of Record Companies • A&R (Artists and Repertoire) • Production • Promotion • Distribution • Risk Spreading Rapidly dropping studio costs Less dependence on (expensive) radio promotion Inexpensive distribution through the Internet Fewer “losers”; less need for insurance

  6. Results: increased revenues for writers and artists, decreased prices for consumers, or both Internet Distribution Music Publisher: 4% Recording Artist: 12% Retailer: 38% RC Profit: 1% Manufacturer: 8% Marketing: 8% Distributor: 8% Overhead: 14% A&R: 5%

  7. Benefits (1) Cost Savings (2) Eliminate Overproduction and underproduction (3) Convenience & precision (4) Increase number & variety of musicians (5) Semiotic Democracy Dangers: (1) Threaten Revenues of Creators --fairness --incentives (2) Threaten Moral Rights (3) Threaten Audience Interests in stable culture Internet Distribution of Unsecured Digital Files

  8. Objects of Protection Musical compositions Sound recordings Motion pictures Rights Reproduction Derivative works Distribution Public Performance Copyright Law circa 1990 Exceptions and Limitations • First-sale doctrine • Compulsory licenses jukeboxes; PBS license; cable and satellite retransmissions; “covers” • Fair Use

  9. Figure 2.1: Legal Rights in the Music Industry Composer Assignment of musical-works copyright Publisher Reproduction license Sheet Music Printer Performance license Harry Fox Agency Import license BMI; ASCAP; SESAC Record Importer Synchronization license Recording Artist Mechanical license Blanket licenses Movie Studio Assignment of sound-recording copyright Radio or TV Station Restaurant Record Company payola

  10. Movies Director Composer Actors “Location” owners Screenwriters Record Company releases Novelist Master use license “Work for Hire” agreements Music Publisher Derivative-work license Synchronization and performance licenses Producer Distribution agreement Studio derivative-work licenses Rentals plus performance licenses Advertiser Theatres mechanical license Merchandise manufacturer Compulsory license HBO, Airlines Sales Record company TV Networks Cable company Video Stores

  11. Figure 2.5: Compensation System for Network Broadcasts of Films Studio Advertisers licenses advertising fees license fees TV Networks free programming (with embedded ads) $ product purchases Viewers cost of VCRs VCRs Sony

  12. Holdings of Sony • Manufacturer of a device that can be used to violate the copyright laws is liable for contributory copyright infringement if and only if the device is not capable of significant noninfringing uses • Timeshifting copyrighted programs is a fair use

  13. Audio Home Recording Act (1992) • Serial Copyright Management System • Tax and Royalty System • Safe Harbor for Noncommercial Coping

  14. AHRA 1008 • “No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.”

  15. Objects of Protection Musical compositions Sound recordings Motion pictures Rights Reproduction Derivative works Distribution Public Performance Copyright Law circa 1990 Exceptions and Limitations • First-sale doctrine • Compulsory licenses jukeboxes; PBS license; cable and satellite retransmissions; “covers” • Fair Use • AHRA

  16. DVDs: CSS SDMI RealMedia copy-protection switch Ebook reader Circumvention DeCSS; Smartripper Felten Streamripper Sklyarov Encryption Initiatives

  17. Anti-Circumvention: §1201 • Prohibitions: • Circumventing access-control technology – §1201(a) • Manufacturing or “trafficking” in technology that circumvents access controls – §1201(a) • Manufacturing or “trafficking” in technology that circumvents technological protections for rights of copyright owners – §1201(b) • Exceptions include: • Reverse engineering in order to achieve interoperability §1201(f) • Encryption research • Ambiguous reference to the survival of fair use – §1201(c) • Biennial rulemaking establishes limits to ban on acts of circumvention – §1201(a)(1)(C)

  18. Anti-Circumvention: §1201 • Civil Remedies: • Injunctions • Impoundment and/or destruction of devices • Damages (treble for repeat offenders) • Attorneys’ fees, costs • Criminal penalties (for willful violations for commercial advantage or personal gain) -- §1204 • First offense: up to $500,000 and 5 years in prison • Second offense: up to $1M and 10 years in prison

  19. Streambox (WD Wa 2000) • Streambox “VCR” mimics authentication procedure of RealMedia files and disables copy-protection switch • Held: violation of §§1201(a) & (b) • Sony doctrine not applicable

  20. Links to Illegal Material Visitor Site #1 advertising 2600 Magazine advertising Web page Web page Decryption Program ? Web page Web page Plaintiff

  21. Reimerdes (SDNY, August 2000) • Providing a link to a website that, in turn, enables visitors to download copies of encryption-breaking software = “trafficking” in violation of §1201(a)(2) • Claim that purpose was to create Linux DVD player not credible • §1201 trumps fair use • Reverse-engineering exemption does not justify public sharing of the information

  22. Reimerdes (CA2, 11/28/2001) • Uphold issuance of the injunction • §1201, as applied, does not violate 1st amend: • Content neutral • Advances a “substantial governmental purpose”: assisting copyright owners in preventing access to their “property” • Does not burden more speech than necessary for that purpose • Other constitutional challenges were not properly raised at trial: • §1201 exceeds Congress’ power under Commerce Clause and Art. 1, Sec. 8, Clause 8 • §1201 unconstitutionally curtails “fair uses”

  23. Felten • Sept. 2000: SDMI issues challenge to break watermark prototypes • Felten breaks codes, proposes to publish results • RIAA sends Felten a letter, suggesting that publication “could subject you and your research team to actions under the DMCA” • June 2000: Felten brings declaratory judgment action against RIAA, SDMI, and U.S. in NJDCt • Defendants insist they have no intention to sue • August 2001: Felten presents results at a conference • November 2001: Suit dismissed because of absence of “case or controversy”

  24. Sklyarov • Adobe’s eBook Reader prevents copying of electronic books • Sklyarov developed for ElcomSoft a program that enables the copying of eBook files • Sklyarov (temporarily in U.S. for Def Con conference) arrested and indicted in NDCal for violating §1201(b) – and “aiding and abetting” a violation; Elcomsoft charged with conspiracy • Dec. 2001: Charges against Sklyarov are dropped • Feb. 2002: Prosecution argues DMCA applies globally

  25. UMG Recordings v. MP3.com • Nonpermissive copying violates §106 • No fair-use defense: • Copying was for a commercial purpose; not transformative • Copied material is highly creative • Songs copied in their entirety • Undermines legitimate “potential market” • Settlements with 4 of the plaintiffs • Finding of “willful infringement” of Universal • 5/2001: Universal buys MP3.com for $372m

  26. “Live 365”

  27. Examples of “Folk” Webcasters • Makossa Jukebox (offering “100% Cameroonian ethnic music: makossa, bikutsi, manganbeu, assiko and other freestyles”) • Pagan Paradise Samhian (offering “a magical mix of neo-Pagan, XTC, Tull, McKennitt, Yes, Mediaeval Baebes, Genesis, Heart, Rush [and] traditional folk”) • Radio Free Boonie (offering a “one-hour show for the 0 to 4 crowd and their respective grownups”)

  28. Objects of Protection Musical compositions Sound recordings Motion pictures Rights Reproduction Derivative works Distribution Public Performance Copyright Law circa 1990 digital audio transmission Exceptions and Limitations • First-sale doctrine • Compulsory licenses jukeboxes; PBS license; cable and satellite retransmissions; “covers” • Fair Use • AHRA • DPRA Limitations (114)

  29. Types of Digital Audio Transmissions of Sound Recordings • Level 3: Copyright Owners may refuse to issue licenses – or may demand freely negotiated fees • Level 2: Copyright Owners must accept “compulsory licenses” set by an Arbitration Panel • Level 1: Exempt transmissions

  30. Librarian of Congress, 2/24/2002

  31. CARP Ruling, 2/20/2002 • Suppose HipHop.com distributes ad-free popular music to (on average) 10,000 listeners, 24 hours a day • Aprx. 15 songs per hour • 360 songs per day • 131,400 songs per year • 1,314,000,000 performances per year • Performance fee: $919,800 per year • Ephemeral fee: $80,942 per year • Total: $1,000,742 per year

  32. User User User User User6 User7 User8 User1 Library Library Library Library User User User5 User9 Napster Website Library Library Directory Index User User User User4 User3 User2 Library Library Library

  33. A&M Records v. Napster, Inc. • Claim: contributory copyright infringement; vicarious copyright infringement • Napster’s defenses: • DMCA §§512(a), 512(d) • AHRA §1008 • Sony defense • Copyright misuse

  34. A&M Records v. Napster, Inc. • 7/26/00: Judge Patel rejects all of the defenses, grants preliminary injunction against “facilitating … copying, uploading … plaintiffs’ … compositions and recordings” • 7/27/00: CA9 stays the injunction • 2/12/2001: CA9 modifies and remands • 3/5/2001: Patel issues modified injunction • 6/28/2001: New Napster software with file ID technology; old software is disabled • 7/2002: Napster goes offline • 1/2002: Patel permits discovery on copyright-misuse issue; settlement discussions intensify • 2/2002: Settlement fails; case resumes • 5/2002: Bertelsmann buys residue of Napster

  35. Fasttrack User 1 User 2 User 9 Central Server User 3 User 8 SuperNode SuperNode User 7 SuperNode User 4 User 6 User 5 Adapted from Webnoize

  36. Peer-to-Peer Copying Systems • MPAA/RIAA suit • MPAA/RIAA suit (Cal) • Dutch court enjoins software downloads; sale to Sharman Networks (Australia); investigation by APRA • RIAJ & JASRAC suit; April 2002 injunction • RIAA suit in NY; settlement Parent technology: Gnutella • Aimster/Madster • Kazaa/Morpheus-Music City/ Grokster/Altnet • 80,000,000 downloads • 3.6 billion downloads in January 2002 • Audiogalaxy • 30,000,000 downloads • Japan MMO

  37. Authorized Services Secure (nontransferrable) short-term digital downloads and streaming Subscription fees, $10-$25 per month Limits on permanent downloads and CD burning slowly lifting • MusicNet • EMI, AOL Time Warner, BMG, RealNetworks • Pressplay • Sony, EMI, Vivendi Universal (MP3.com), Yahoo • Listen.com • Subscription streaming, $10 per month • [Ongoing civil investigation by USDOJ]

  38. Copy-Protected CDs • Rapidly spreading experiment in US • 10,000,000 CDs produced by Midbar so far • Similar initiative in Japan • Consumer backlash • Philips, owner of patents on much of CD technology, protests deviations from Red Book standards • Likely shift toward DVD-Audio

  39. Defects of the Current Regime • High transaction costs • Price to consumers of access to recorded music remain high • No “celestial jukebox” • Encryption and ephemeral downloads reduce flexibility, curtail “fair use” and impede semiotic democracy • Continued concentration of music industry reduces consumers’ choices • Limited effectiveness: P2P threatens artists’ revenues

  40. "Besides, what's Plan B?” -- Alan McGlade, Chief Executive of MusicNet, July 1, 2002

  41. Outline I. Potential Benefits of Internet Distribution II. Background: Copyright Law circa 1990 III. Cycles of Innovation and Resistance • DAT Recorders / AHRA • Encryption circumvention / DMCA §1201 • Music Lockers / MP3.com litigation • Webcasting / DPRA-DMCA §114; CARP ruling • Centralized File Sharing / Napster-Scour litigation • P2P / P2P litigation; limited authorized services • CD Burning / CD copy protection IV. Defects of the Resultant System V. Where Do We Go from Here? • Private Property • Regulated Industry • An Alternative Compensation System

  42. “No black flags with skull and crossbones, no cutlasses, cannons, or daggers identify today’s pirates. You can’t see them coming; there’s no warning shot across your bow. Yet rest assured the pirates are out there because today there is plenty of gold (and platinum and diamonds) to be had. Today’s pirates operate not on the high seas but on the Internet, in illegal CD factories, distribution centers, and on the street. The pirate’s credo is still the same--why pay for it when it’s so easy to steal? The credo is as wrong as it ever was. Stealing is still illegal, unethical, and all too frequent in today’s digital age. That is why RIAA continues to fight music piracy.” Website of the Recording Industry Association of America

  43. Private Property • Theory: • Clarify and enforce the property rights of the creators of music; • Rely upon Coasean bargains and the emergence of private collective rights societies to overcome transaction costs (Merges)

  44. In Real Property Right to exclude Injunctive Relief Criminal Trespass Prohibition of burglary tools Privilege of self-help tracks right to exclude Copyrights Add full public-performance right for sound recordings Eliminate compulsory licenses Lower “willful requirement and increase enforcement of criminal copyright infringement CBDTPA Curtail DMCA and add Ploof-style liability Features of Private Property

  45. SSSCA; CBDTPA • Security Systems Standards and Certification Act; ConsumerBroadband and Digital Television Promotion Act • Would make it “unlawful to manufacture, import, offer to the public, provide or otherwise traffic in any interactive digital device that does not include and utilize certified security technologies that adhere to the security system standards” • Private sector has 12 months to agree on a standard • If fail, standard selected by National Institute of Standards and Technology

  46. SSSCA; CBDTPA • “The term ‘interactive digital device’ means any machine, device, product, software, or technology, whether or not included with or as part of some other machine, device, product, software, or technology, that is designed, marketed or used for the primary purpose of, and that is capable of, storing, retrieving, processing, performing, transmitting, receiving, or copying information in digital form.” • Would apply to PCs, hard drives, CD-Rom drives, TVs, set-top boxes, CD players, MP3 players, video game consoles, other digital appliances

  47. Benefits: • Media companies, confident in their ability to make money in the new environment, would accelerate Internet distribution • Associated socioeconomic advantages and cost savings • Emergence of refined and flexible private licensing societies (cf. ASCAP) would overcome transaction-cost barriers to licensing (Merges) • The price system would provide creators precise signals concerning the tastes of consumers (Goldstein) • Enable musicians to break free of record companies

  48. Disadvantages • Critical and transformative uses of recordings would be curtailed, threatening semiotic democracy • Erosion of “end-to-end” principle • Facilitate price discrimination – on balance, pernicious in this context

  49. Benefits Increased profits stimulate inventive activity Reduced deadweight losses Egalitarianism (progressive redistribution of wealth; broader access to creative works) Reduction of costs associated with cruder 2nd-degree PD Harms Increased “granularity” of social life Invasions of privacy Threats to transformative uses Radically increased profits cause increased rent-seeking within music and film industries Effects of Increased Price Discrimination

  50. Threats to “End-to-end” • Proprietary control over the pipes • E.g., AT&T’s exercise of control over its cable modem system • Standardization and “dumbing down” of the computers located on the ends • Results: • Greater proprietary control over digital content • Curtailment of both competition and innovation

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