Monthly Archives: March 2011

Record Labels Only Get 1 Bite at LimeWire Apple

In May of last year, Judge Kimba Wood granted the record labels’ motion for summary judgment against LimeWire for secondary copyright infringement, to wit LimeWire had induced millions of people to illegally share billions of copyrighted sound recordings.  The case then entered the damages phase and things really got interesting.

The fights have thus far centered around the interpretation of §504(c) of the Copyright Act and the parameters for calculating an award of statutory damages.

The relevant portions of §504(c) Statutory Damages are highlighted below —

(1) … the copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just. For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work.

First, the record labels argued that they were entitled to an award of statutory damages for each single infringed, whether that single also appeared as part of a “compilation” (i.e., CD).  Next, the record labels argued that they were entitled to an award of statutory damages for each work infringed by each direct infringer (in addition to LimeWire).  To put numbers to the arguments, the record labels argued that they were entitled to 10 awards of statutory damages for each CD containing 10 songs (instead of 1) and were entitled to multiply those 10 awards by 1,000,000+ for each user of LimeWire that directly infringed the record label’s copyright by making an unauthorized copy (rather than just 1 award for LimeWire and all of LimeWire’s users).  Unsurprisingly, LimeWire adopted contrary positions.

The practical effect of these differences were summed up by Judge Wood in her recent decision rejecting the record labels interpretation of §504(c) of the Copyright Act as follows: “If Plaintiffs were able to pursue a statutory damage theory predicated on the number of direct infringers per work, Defendants’ damages could reach into the trillions [of dollars]. … The absurdity of this result is one of the factors that has motivated other courts to reject Plaintiffs’ damages theory.”

Judge Wood cites a number of cases supporting her conclusion, including McClatchey
v. Associated Press, No. 3:05-cv-145, 2007 WL 1630261 (W.D. Pa. June 4, 2007) and Bouchat v. Champion Prods., Inc., 327 F. Supp. 2d 537, 552 (D. Md. 2003), aff’d on other grounds, 506 F.3d 315, 332 (4th Cir. 2007).  These cases also involve massive downstream (or secondary) copyright infringement induced by the defendant.  The courts in both cited cases use the same “absurdity of the result” rationale in rejecting the plaintiff’s request that statutory damages be calculated on a per work – per direct infringer basis.

Interestingly, this case mirrors in some respect the file sharing jury verdicts.  While both lines of cases recognize that the purpose of statutory damages in copyright cases is both to (1) to afford copyright owners an easy means of establishing an amount of damages when direct evidence may be difficult or impossible to produce and (2) to deter infringement, the “absurdity” of the result leads the judge to rule in a way most favorable to the infringer, rather than the infringed.  In other words, the specter of billions of dollars in damages wasn’t enough to stop the developers of LimeWire from developing its P2P client enabling millions of users to infringe thousands of copyrights resulting in billions in individual infringements of plaintiffs’ copyrighted works.  Maybe the specter of TRILLIONS of dollars in damages would have (though I doubt it).  This is the same (faulty) logic that Judges Davis and Gertner applied in Capital Records v. Thomas, 06-1497 (D. Minn) and Sony BMG Music Entertainment v. Tennenbaum, 07-11446 (D. Mass.), respectively; i.e., that the jury award was higher than required to deter infringement despite the overwhelming evidence that infringement hasn’t decreased subsequent to the original jury awards.

The briefs and opinion are below.

Plaintiff’s Motion re Singles v. Compilations
[scribd id=51594464 key=key-eirb2r44i8f8q789nlj mode=list]

Defendant’s Response
[scribd id=51594476 key=key-1ys6k5cyw8msv4jgz3by mode=slideshow]

Plaintiff’s Motion re Multiple Awards
[scribd id=51594488 key=key-2gaw56fs3ukn3widotcz mode=list]

Judge Wood’s Opinion
[scribd id=51594494 key=key-2nv7zdi0jnhgmp38jouy mode=list]

Local TV Responds to BMI’s Motion: “We’re Entitled to AFBL”

The TV Licensing Committee, through the named plaintiff in this case, WPIX, Inc., has filed its response to BMI’s motion arguing that it is not required to offer local television stations an adjustable-fee blanket license (“AFBL”) like the one DMX secured this past year.  The argument is decidedly straightforward.

(1) BMI is required to offer any user–including local television stations–a blanket license.

(2) Under United States v. Broadcast Music, Inc. (In re Application of AEI Music Network, Inc.), 275 F.3d 168 (2d Cir. 2001) (“AEI“), an AFBL is simply a blanket license with a fee structure that adjusts to reflect the degree to which a licensee has licensed the public performance rights to works within the BMI repertory directly from BMI-member publishers.

(3) Therefore, BMI is required to offer local television stations an AFBL.

As I noted before, BMI’s argument that its consent decree presents a local television station with a Hobson’s choice between a per-program license (that local TV claims does not work for them) and a traditional blanket license, the fee for which does not vary depending on the direct licensing activities of the licensee, is a difficult one.  As WPIX argues, the per-program alternative was inserted in BMI’s consent decree at the demand of the US government as a means of curtailing BMI’s market power, not as a shield behind which BMI can hide when a licensee requests an AFBL.

The brief is below:
[scribd id=51465578 key=key-1uhauvx4e89rv7aopkqg mode=list]

SESAC Antitrust Case Gets a Green Light

The interworkings of performance rights societies are fascinating only to those of us cursed with the responsibilities of negotiating or litigating against them.  However, an antitrust case against SESAC has the makings of a very interesting story.

In 2009, the local television industry filed an antitrust case against SESAC alleging both §1 (combination in restraint of trade) and §2 (monopolization) violations of the Sherman Act.  The local television stations argue that SESAC’s insistence on only issuing a blanket license is a violation of the Sherman Act because the local television stations receive much of their content “in the can” — meaning they cannot remove SESAC songs from their programming.  SESAC moved to dismiss under FRCP 12(b)(6) for failure to state a claim.  Judge Naomi Buchwald of the SDNY denied SESAC’s motion.

In what will excite antitrust wonks and bore the rest of us, Judge Buchwald decides the threshold definitional question of “what is the relevant market?” with an analysis of the “contract power” argument from Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3rd Cir. 1997).  SESAC sought to define the relevant market as public performance rights to all musical works in the SESAC, ASCAP and BMI repertory, even though SESAC has a very small percentage of the overall market.  Because local television stations sign contracts with program producers that forbid them from removing SESAC songs, SESAC argued that these contracts created the problems of which the local television stations complained, not SESAC’s insistence on issuing a blanket license.

Queen City and its progeny stand for the proposition that a “relevant market” can’t be defined by the contractual relationship that gives rise to the antitrust-plaintiff’s claims.  By way of example, in Hack v. President and Fellows of Yale College, 237 F.3d 81 (2d Cir. 2000), unmarried freshman and sophomores below the age of 21 sued Yale for its practice of requiring freshman and sophomores to live on campus.  There the Second Circuit concluded that but for the contract between Yale students and Yale College, the students could have purchased housing from any seller in New Haven, CT.  In other words, where “an antitrust defendant’s alleged market power arises solely from a contractual provision limiting a plaintiff’s ability to purchase a product in what would otherwise be a competitive market” there is no antitrust violation.

In this case, however, Judge Buchwald concluded that the relevant market was the SESAC repertory because while the contracts that the local television stations signed with program producers forbid them from removing any songs (including SESAC works), those contracts did not require that they purchase the public performance rights only through a SESAC blanket license.  Having defined the relevant market, Judge Buchwald then discusses the numerous (unsuccessful) antitrust cases against ASCAP and BMI on which SESAC relied in further claiming that it was immune to antitrust scrutiny.  There, Judge Buchwald noted that in each case those decisions were reached only after a fully trial on the merits and not at the pleading stage.  She also noted that ASCAP and BMI operate under consent decrees that prohibit some–if not all–of the actions of which the local television stations complain.

I really hope this goes to trial as I am fascinated to see what comes out in discovery.

The opinion is below:
[scribd id=51423968 key=key-kh7s0s2ukolu51jcv7z mode=list]

Illegal File Sharing Is Good! Who Knew???

The record industry has been telling us that illegal file sharing is responsible for the decline in music sales.  Now comes a report from a couple of economists from the London School of Economics that concludes the

“Decline in the sales of physical copies of recorded music cannot be attributed solely to file-sharing, but should be explained by a combination of factors such as changing patterns in music consumption, decreasing disposable household incomes for leisure products and increasing sales of digital content through online platforms.”

So there, record industry!  The decline in recorded music sales from over $26 billion in 2000 to under $16 billion last year cannot be attributed “solely” to the millions of people illegally sharing billions of your songs over the same period.  Its also because people are spending more of their “music money” on live performances (tell that to Live Nation).  Oh, and people are poorer.

None of this bodes well for the music business in recapturing the Halcyon Days of the CD boom.  But maybe the CD boom was an aberration…

Anyway, the report is below:
[scribd id=51217629 key=key-1n2pvou7pc9wa5sbta2e mode=list]

Google Book Settlement Rejected

Then federal district judge and now appeals court judge Denny Chin has rejected the Amended Settlement Agreement in the Google book-scanning case: The Authors Guild v. Google, Inc. 05-cv-08136-DC (March 22, 2010, SDNY).

[ASIDE: You may recall Judge Chin from his decision in the Cartoon Networks v. Cablevision case regarding whether Cablevision’s remote DVRs created unlicensed copies of television broadcasts; Judge Chin’s affirmative answer to this question was overturned on appeal.]

Anyway, the present case, which has nothing to do with music, involves Google’s efforts to digitally scan all of the books in the world, whether the copyright owner of the book agrees or not.  Google set out copying books without first seeking permission back in 2004.  It was sued by a class of authors and publishers who objected to Google’s unauthorized copying.  Settlement discussions ensued and the resulting Amended Settlement Agreement obtained.  The parties filed a motion under FRCP 23 for the court to approve the class settlement.

In rejecting the settlement agreement, Judge Chin appeared to focus on a couple of key points.

First, the scope of the settlement agreement appeared to go far beyond the original dispute, which was focused on whether Google could reveal “snippets” of books in response to search requests.  The Amended Settlement Agreement extended to Google’s use of entire digitized books.  As Judge Chin noted:

“The ASA would release claims well beyond those contemplated by the pleadings. This case was brought to challenge Google’s use of “snippets,” as plaintiffs alleged that Google’s scanning of books and display of snippets for online searching constituted copyright infringement. Google defended by arguing that it was permitted by the fair use doctrine to make available small portions of such works in response to search requests. There was no allegation that Google was making full books available online, and the case was not about full access to copyrighted works. The case was about the use of an indexing and searching tool, not the sale of complete copyrighted works.”

“The ASA would grant Google the right to sell full access to copyrighted works that it otherwise would have no right to exploit.  The ASA would grant Google control over the digital commercialization of millions of books, including orphan books and other unclaimed works.  And it would do so even though Google engaged in wholesale, blatant copying, without first obtaining copyright permissions.”  (Emphasis added)

I think this was the critical factor for Judge Chin: how do you reward Google’s behavior?

Second, the settlement agreement uses an “opt-out” format, meaning everyone is assumed to have consented to Google’s copying unless they provide notice to Google that they do not.  That appears to be contrary to the plain language of the Copyright Act, which provides that copyright owners have exclusive rights that can only be transferred through some instrument.  As Judge Chin stated, “The notion that a court-approved settlement agreement can release the copyright interests of individual rights owners who have not voluntarily consented to transfer is a troubling one.”

Finally, Judge Chin expressed deep concerns about the antitrust implications of the settlement, which would give Google exclusive rights in so-called “orphan works” to which other services—who had pursued copyright owners for permission to use their works—would not have access.  Connecting the dots, Judge Chin seemed troubled by the notion that Google would adopt a business plan of wholesale copyright infringement and then, through settlement with an “opt-out” class of copyright owners, gain a significant competitive advantage in the market.

The opinion is below.
[scribd id=51382817 key=key-1dsjhaev1ygvj1dqz4x3 mode=list]

Fall Class Announced

I’m pleased to report that my Music Law Seminar at the University of Texas School of Law will meet again this Fall on Tuesday afternoons from 3:30 – 5:20.  No classroom has been assigned yet.

No Doubt Beats Activision

In an opinion provided below, a California state appeals court has ruled in favor of the band No Doubt in their lawsuit against Activision over the videogame Band Hero.

No Doubt entered into a license agreement with Activision under which the band would appear in the videogame.  The license required that Activision obtain prior approval for any use of the band’s likeness.  The band spent in a full-day motion capture photography session at Activision’s studios so that the band members’ Band Hero avatars would accurately reflect their appearances, movements, and sounds.  No Doubt came to learn, however, that their avatars could be “unlocked” at various levels of the videogame, enabling players to make Gwen Stefani sing with a man’s voice and make the band sing other artist’s songs.  No Doubt protested to Activision that these features were beyond the scope of their permission, but Activision released the videogame anyway.

No Doubt sued in California state court.  Activision argued that No Doubt’s right of publicity claim was barred–pursuant to California’s anti-SLAPP statute–because Activision’s use of No Doubt’s likeness was protected by the First Amendment.  The district court ruled in favor of No Doubt and Activision appealed.

In affirming the district court’s decision, the appeals court applied the rule in Comedy III Productions, Inc. v. Gary Saderup, Inc. (2001) 25 Cal.4th 387, 406, regarding whether the use of a celebrity’s likeness is sufficiently transformative to implicate First Amendment protections.  Quoting Comedy III, the court stated “Another way of stating the inquiry is whether the celebrity likeness is one of the ‘raw materials’ from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question. We ask, in other words, whether a product containing a celebrity’s likeness is so transformed that it has become primarily the defendant‟s own expression rather than the celebrity‟s likeness.”

In this case, the court found that No Doubt’s avatars were exact replicas of the band members and were the central focus of the videogame.  “That the avatars can be manipulated to perform at fanciful venues including outer space or to sing songs the real band would object to singing, or that the avatars appear in the context of a videogame that contains many other creative elements, does not transform the avatars into anything other than exact depictions of No Doubt’s members doing exactly what they do as celebrities.”

The opinion is below:
[scribd id=49885929 key=key-26bm21aqiz1gfcodtnt mode=list]

BMI Requests Ruling It Is Not Required to Offer an Adjustable-Fee Blanket License to Local Television

In the “saw this coming” category, BMI has filed a motion in the SDNY requesting a ruling that its Consent Decree does not require it to offer an adjustable-fee blanket license (“AFBL”) to local television broadcasters.  In late 2009, the Television Music License Committee (“TMLC”), which represents approximately 1,200 local television broadcasters in their negotiations with BMI, ASCAP and SESAC over the licensing of public performance rights for the music contained in all programming that isn’t supplied to the local broadcasters by ABC, CBS, NBC and Univision, filed a rate case against BMI seeking an AFBL like the one DMX has secured.  See WPIX, Inc. v. Broadcast Music, Inc., 09-civ-10366-LLS (S.D.N.Y.)

In its February 16 filing, which is provided below, BMI argues that its Consent Decree requires it to provide a per-program license to broadcasters but not to non-broadcasters and to provide an AFBL to non-broadcasters, but not to broadcasters.  According to BMI, because Sec. VIII(B) of its Consent Decree deals specifically with granting a per-program license to broadcasters, the operative language in Sec. XIV(A) regarding providing a license to “any, some, or all” of BMI’s repertory–the basis on which the Second Circuit concluded that BMI was obligated to provide an AFBL to the non-broadcaster applicant in United States v. Broadcast Music, Inc. (In re AEI Music Network, Inc.), 275 F.3d 168 (2d Cir. 2001)–does not apply to broadcasters.  According to BMI, when it agreed to modify its Consent Decree to add Sec. XIV in 1994, it did not intend to modify its obligations under Sec. VIII, which was part of the original 1966 version.

The significant hurdle over which BMI must leap, however, appears to be the logic underlying the AEI decision.  There, the Second Circuit reversed Judge Stanton’s ruling at the SDNY and found that an AFBL was a blanket license that differed only in way its fee is calculated.  BMI acknowledges that it still provides a blanket license to local television broadcasters, in addition to the per-program license it also offers.  BMI is apparently arguing that because it offers this per-program license, under which local television broadcasters can reduce fees to BMI by directly licensing some or all of its music needs, the fact that the Second Circuit concluded that an AFBL is exactly like a traditional blanket license but for its fee structure is irrelevant.  In other words, BMI only has to offer ONE form of license under which fees can be reduced through direct or source licensing.  For non-broadcasters, which aren’t entitled to a per-program license, BMI has to offer the AFBL.  For broadcasters, which are entitled to the per-program license, BMI doesn’t have to offer the AFBL–the per-program license is enough.

Unfortunately for BMI, Judge Stanton is still the presiding judge in the BMI rate court, so he will hear this motion.  Since Judge Stanton ruled in BMI’s favor in 2000 when this issue was litigated by a non-broadcaster only to be overruled by the Second Circuit in 2001, I’ll bet he will follow the safe route and cite the AEI decision as the applicable precedent and let the Second Circuit distinguish if they want.  I’ll also bet the Second Circuit won’t distinguish because the rationale of the AEI decision is the same here: the TMLC is requesting a blanket license–which BMI acknowledges it has to provide–that differs only in the manner in which fees are calculated.

BMI’s motion is here:
[scribd id=49882463 key=key-2e9kep3ljkhffy7nt036 mode=list]