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Shiver me timbers! Cox Has No Safe Harbor by Failing to Terminate Pirates

Judge Liam O’Grady of the Eastern District of Virginia has issued his full opinion and order granting partial summary judgment to plaintiff music publisher BMG against cable / ISP-provider Cox Communications. Judge O’Grady found that Cox’s “repeat offender” policy against customers accused of committing copyright infringement by downloading content without authorization using Cox network was insufficient as a matter of law. Cox could not, therefore, take advantage of the “safe harbor” provisions of Sec. 512 to escape secondary liability to BMG.

When Congress passed the Digital Millennium Copyright Act in 1998, it created four safe harbors that protect ISPs such as Cox from direct and indirect liability for copyright infringement when their involvement is limited to certain activities—transitory digital networking communications, system caching, information residing on systems or networks at the direction of users, and information location tools. See 17 U.S.C. §§ 512(a)–(d). As an Internet Service Provider, Cox sought protection as a “mere conduit for transmission” to protect against claims of secondary copyright infringement liability for the unauthorized exploitation of BMG’s copyrights by Cox’ subscribers.

In order for Cox to qualify for this “safe harbor,” however, it must demonstrate that it has “adopted and reasonably implemented, and informed subscribers and account holders of the service provider’s system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network who are repeat infringers.” 17 U.S.C. § 512(i)(1)(A). Court’s have interpreted this requirement to obligate an ISP such as Cox has to “adopt” a policy that is “reasonable.” As the Copyright Act makes clear, for a policy to be “reasonable,” it must provide “for the termination in appropriate circumstances of subscribers … who are repeat infringers.” See Capital Records, LLC v. Escape Media Grp., Inc., No. 12-cv-6646, 2015 WL 1402049, at *9 (S.D.N.Y. March 25, 2015).

Although Cox sought the Court to find that an “infringer” could only be someone adjudicated as such by a court of competent jurisdiction, Judge O’Grady held that an ISP only requires “knowledge” of infringement by a particular user. While this might seem problematic–since the ISP only gains “knowledge” by receiving take-down notices from copyright owners and, as demonstrated by the “Dancing Baby” case (Lenz v. UMG), the copyright owner might be wrong–in practice, as described below, an ISP only takes actions against a subscriber after receiving multiple take-down notices over short periods of time.

Judge O’Grady details Cox’ Abuse Tracking System (“CATS”), which includes graduated responses to complaints about its customers unauthorized access to copyrighted content. In summary, here is CATS

1st Complaint – Cox does nothing
2nd Complaint – Cox sends an email to the customer
3rd Complaint – Cox sends the same email again
4th Complaint – Cox sends the same email again
5th Complaint – Cox sends the same email again
6th Complaint – Cox sends the same email again
7th Complaint – Cox sends the same email again
8th Complaint – Cox suspends the customers account, placing the customer in a “soft-walled garden,” which means the customer’s landing page is a warning message and link to reactive the account
9th Complaint – Cox sends customer back into “soft-walled garden”
10th Complaint – Cox sends customer to a “hard-walled garden,” a landing page that directs the customer to call Cox, during which call the customer can request reactivation
11th Complaint – Cox sends customer back to “hard-walled garden”
12th Complaint – Cox sends customer back to “hard-walled garden,” but now a higher-level Cox customer service rep must be involved for reactivation
13th Complaint – same as #12
14th Complaint – the customer’s account is considered for termination

Mind you, these 14 complaints against a single account-holder had to occur with a 6 month time period! That’s more than one complaint against a single account-holder every 2 weeks!! But it was not the volume of complaints that Cox had to receive before considering termination that caused it to lose the Sec. 512(a) safe harbor. It was the fact even after receiving 14 complaints, Cox never actually ever terminated anyone.

Initially, Cox “pretended” to terminate subscribers, only to reactive them immediately. As described in an email from Cox’ Manager of Customer Abuse Operations,

if a customer is terminated for DMCA, you are able to reactivate them after you give them a stern warning about violating our AUP and the DMCA. We must still terminate in order for us to be in compliance  with safe harbor but once termination is complete, we have fulfilled our obligation. After you reactivate them the DMCA ‘counter’ restarts; The procedure restarts with the sending of warning letters, just like a first offense. This is to be an unwritten semi-policy..

There were numerous other emails imparting similar instructions.

Cox was more lenient with subscribers illegally downloading copyrighted material because it had little impact on the network; “It does not cause a big problem on the network. Not like spam, Dos attacks, hacking, etc. do.”

In late 2012, Cox abandoned even this illusory termination and simply stopped terminating anyone. BMG introduced evidence that from January 2010 until August 2012, Cox terminated an average of 15.5 account holders a month. Between September 2012 and November 2014, Cox terminated an average of 0.8 accounts per month, notwithstanding the fact that Cox issued 711,000 email warnings and suspensions in response to alleged infringements during this same period. “Cox also admits that of the 22 terminated accounts, 17 of those had also either failed to pay their bills on time or were excessive bandwidth users.”

Again, Judge O’Grady cites to numerous emails in which Cox’ customer service team dismiss knowledge that a subscriber is using the network to access copyrighted content, often because the subscriber is paying Cox a lot of money: “So, the BitTorrent client is running on one of their computers (their child’s, etc.) and they need to uninstall it. This customer pays us over $400/month and if we terminate their service, they will likely cancel the rest of their services. Every terminated Customer becomes lost revenue and a potential Detractor to our Net Promoter Score;” and “This customer will likely fail again, but let’s give him one more change [sic]. [H]e pays 317.63 a month.”

The decision is below:

BMG v Cox Comm. (12!2!15)

SESACed (the saga continues)

A recent order from Judge Jones in the Eastern District of Pennsylvania provides SESAC some much needed relief, but SESAC still faces a difficult trial.  Readers will recall that the RMLC brought Sherman Act claims against SESAC for allegedly anticompetitive behavior.  Specifically, the RMLC alleged three violations:: § 1—Horizontal Price Fixing (Count I), § 1—Group Boycott/Refusal to Deal (Count II), and § 2—Monopolization (Count III). In response, SESAC filed a motion to dismiss.  Judge Jones threw out the § 1 claims, but denied SESAC’s motion regarding the § 2 (monopolization) claim. 

In analyzing SESAC’s motion to dismiss, the court concluded that the RMLC’s “§1 and §2 claims are based on the confluence of four of SESAC’s licensing practices: SESAC’s blanket license (and its refusal to offer other licensing options), its procurement of a critical mass of must-have works, its de facto exclusive dealing contracts with its affiliates and its lack of transparency as to the works in its repertory.”  Breaking down the 3 alleged violations, the court looked first at the § 1 claims (price fixing and refusal to deal) and concluded that the RMLC had failed to adequately plead a violation.

 A hub-and-spoke conspiracy requires agreements between each spoke and the hub and between and among each of the spokes themselves. Howard Hess Dental Labs., Inc. v. Dentsply Intern., Inc., 602 F.3d 237, 255 (3d Cir. 2010) (“In other words, the ‘rim’ connecting the various ‘spokes’ is missing.”). After reviewing the allegations of agreement and the parties’ respective briefs, the court has concluded that plaintiff has failed to allege sufficient facts from which the court can draw a plausible inference of a hub-and-spoke conspiracy between and among SESAC and its affiliates. In particular, the court agrees with defendants that plaintiff has failed to plead the rim of a hub-and-spoke conspiracy by failing to plausibly allege agreements among SESAC’s affiliates.

Turning next to the § 2 claim (monopoly), the court considered that “Plaintiff alleges that SESAC excludes competitors by obtaining a critical mass of must-have works, selling them exclusively in the blanket license format, discouraging direct licensing by refusing to offer carve-out rights and obscuring the works in its repertory.”  The court found the RMLC had “sufficiently pleaded that SESAC’s lack of transparency exacerbates the exclusionary nature of its conduct by forcing radio stations to purchase the SESAC license even if they do not plan to perform the songs in SESAC’s repertory for fear that they may unwittingly air copyrighted content.”  Looks like this claim is going to be decided by a jury…

The order is below:

 

RMLC v SESAC Antitrust Decision

Don’t Fence Me In

An interesting lawsuit was recently filed by a group of radio stations over the digital retransmissions of terrestrial broadcasts.  VerStandig Broadcasting filed a declaratory judgment action against sound recording performance royalty collection society SoundExchange over a specific exception in the Copyright Act that limits the exclusive public performance right in sound recordings to be exclude retransmissions of AM/FM broadcasts within 150 miles of the original over-the-air transmission.  Specifically, Section 114(d) limits the scope of a copyright owner’s exclusive right in the public performance of sound recordings by means of a digital audio transmission.

The performance of a sound recording publicly by means of a digital audio transmission, other than as part of an interactive service, is not an infringement … if the performance is part of … a retransmission of a nonsubscription broadcast transmission: Provided, That, in the case of a retransmission of a radio station’s broadcast transmission … the radio station’s broadcast transmission is not willfully or repeatedly retransmitted more than a radius of 150 miles from the site of the radio broadcast transmitter … . 17 U.S.C. § 114(d)(1)(B)(i).

VerStandig claims that when Congress created the retransmission exception, “geo-fencing” technology, which is technology that “determines a recipient’s physical location by comparing a receiving computer’s IP address, WiFi and GSM access point, GPS coordinates, or some combination against a real world map of those virtual addresses,” wasn’t available to limit the recipients of AM/FM broadcasters’ retransmissions.  According to VerStandig, “When data is geo-fenced, only recipients physically located within the authorized locations can access the data over the Internet. Recipients who are physically located outside the geo-fence who attempt to access the data over the Internet receive a message explaining that the data is unavailable.”  Today, according to VerStandig, “Geo-fencing is a proven technology. It is used by the gaming industry to restrict access to online gambling to recipients physically located in jurisdictions where gaming is legal. And it is used by marketers for the direct advertising of products to persons physically located in targeted markets.”

VerStandig sent SoundExchange a letter notifying SoundExchange of VerStandig’s intention to stop paying royalties on performances of retransmissions within 150 miles of the original transmission.  SoundExchange apparently responded by stating that “the 150-mile exemption applies only ‘to retransmissions of broadcasts by cable systems to their subscribers or retransmissions by broadcasters over the air’ and that if the 150-mile exemption ‘did apply to [VerStandig’s] proposed simulcasting’ [VerStandig] would nevertheless need to pay royalties for copies or reproductions of the sound recordings in the FM broadcasts that it live streams.”

With respect to the first argument, the Senate Report on the Digital Performance in Sound Recordings Act appears to reject this conclusion.  The Senate Report says

Section 114(d)(1)(B)(i) (retransmission of radio signals within 150-
mile radius of transmitter)
Under this provision, retransmissions of a radio station within a
150-mile radius of the site of that station’s transmitter are exempt,
whether retransmitted on a subscription or a nonsubscription
basis, provided that they are not part of an interactive service.
This provision does not, however, exempt the willful or repeated
retransmission of a radio station’s broadcast transmission more
than a 150-mile radius from the radio station’s transmitter. The
Committee recognizes that the 150-mile limit could serve as a dangerous
trap for the uninitiated or inattentive. To ensure against
that possibility, section 114(d)(1)(B)(i) provides that a retransmission
beyond the 150-mile radius will fall outside the exemption
only if the retransmission is willful or repeated. The Committee
intends the phrase ‘‘willful or repeated’’ to be understood in
the same way that phrase was used in section 111 of the Act, as
explained in the House Report on the 1976 Act, H. Rept. 1476, 94th
Cong., 2d sess. 93 (1976).
Pursuant to section 114(d)(1)(B)(i)(I), the 150-mile limitation does
not apply when a nonsubscription broadcast transmission by an
FCC-licensed station is retransmitted on a nonsubscription basis by
an FCC-licensed terrestrial broadcast station, terrestrial translator,
or terrestrial repeater. In other words, a radio station’s broadcast
transmission may be retransmitted by another FCC-licensed broadcast
station (or translator or repeater) on a nonsubscription basis
without regard to the 150-mile restriction.

In addition to appearing to generally support VerStandig’s position, the highlighted language appears to capture TuneIn and iHeartRadio’s aggregation of simulcast transmissions.  As I understand it, the bulk of listening of retransmitted terrestrial broadcasts on services like iHeart are people listening to their old home-town station in their new town; e.g., I can listen to KDKA from Pittsburgh here in Oakland.

With respect to SoundExchange’s second argument (i.e., needing a license to make reproductions), this may run head-long into a very interesting fair use defense.  If Congress intended radio broadcasters to retransmit digitally their analog signals without paying a royalty under Sec. 114, could Congress have intended for the record labels to be able to demand a royalty (or sue for statutory damages for copyright infringement) for making ephemeral copies under Sec. 112?  My gut tells me that can’t be what Congress intended, but that might not matter is the law is otherwise unambiguous on this point.

The Complaint is here.

SESACed Part Deux

Judge Engelmayer (SDNY) has denied SESAC’s motion for summary judgment in the antitrust lawsuit brought by the Television Music License Committee (“TMLC”), in which the TMLC claims that SESAC and its affiliates have violated §§ 1 and 2 of the Sherman Act by combining to unlawfully restrain trade and by conspiring to monopolize the market for the performance rights to the musical works within SESAC’s repertory.  His order can be found here.

The TMLC alleges that SESAC has violated the Sherman Act by (1) removing the incentive for a station to acquire a direct license by offering no fee credit against the cost of its blanket license for music the licensee has separately acquired from the copyright owner; (2) making its per-program license economically non-viable by revising the formula by which the cost for that license is calculated so that it invariably exceeds the cost of the blanket license; (3) promising its key affiliates—composers whose music is so ubiquitous that a station effectively cannot avoid—large upfront payments, and in return requiring these affiliates to enter into supplemental agreements that effectively bar them from offering direct licenses; and (4) refused to disclose the full contents of its repertory to impede stations from making independent licensing arrangements,

A central question to answer is whether local television stations could do without a SESAC license.  Judge Engelmayer concluded they cannot.

For a number of practical reasons, to assure that it has the legal right to broadcast all the music contained in its third-party programs and commercial announcements, a local station generally must acquire licenses from all three PROs.  For one, the sheer volume of music broadcast by a station across its third-party programs makes it likely that this music will draw upon the repertories of ASCAP, BMI, and SESAC. For another, stations are contractually prohibited from altering, removing, or substituting alternatives for, the music embedded in third-party programming.  A station cannot strip out, or excise, music contained within the repertory of a PRO with whom it wishes not to contract. It also may be difficult, or even impossible, for a station to identify, at the time it buys the rights to air a program, all music embedded in that program, let alone the PRO to whose repertory each musical work belongs. … Finally, the alternative sales channel for music performance rights that conceivably might have developed—in which the right to perform embedded music would be secured by the producer and sold to the station along with the third-party program—has not so developed. … But, as a matter of what plaintiffs call “longstanding industry practice,” performance rights to embedded music are generally not conveyed along with the program.

One interesting feature of SESAC’s relationship with certain members is penalties for engaging in direct licenses with licensees.  For example, certain SESAC affiliate’s that received advances or other guaranteed money (sometimes well over $1 million a year) would suffer large monetary penalties for issuing a direct license; e.g., for one composer, the penalty is $500,000 for the first direct license to be issued, with penalties for issuing additional direct licenses escalating to $1 million.  Other SESAC affiliates are required to forfeit to SESAC all royalties obtained under a direct license.  Other SESAC affiliates are required to refer any request for a direct license to SESAC and issue a direct license only if SESAC does not reach an agreement with the affiliate, and then only “at a rate no less than SESAC’s current licensing rates.”  Unsurprisingly, the music of the SESAC affiliates subject to these supplemental agreements is in high demand by television stations, including the composers of music embedded in the programs “Seinfeld,” “Will & Grace, “Less than Perfect,” “Reba,” “Grey’s Anatomy,” “Boston Legal,” “Ally McBeal,” “The Good Wife,” “The Bachelor,” “Ugly Betty,” “In Plain Sight,” “Monk,” “GCB,” and “Medium,”  While the number of composers subject to these special terms is numerically small, “together account for between 43 and 50% of SESAC’s total royalties.”

SESAC attempted to argue that there was no evidence of collusion because its affiliate agreements did not specifically state that SESAC would pool all licenses and only offer a blanket license to licensees.  Judge Engelmayer rejected this arguments as equivalent to arguing that “McDonald’s, to get the point across to customers, needed to state explicitly that it intended to continue in the future to offer the Big Mac.”

Judge Engelmayer’s ruling opens the path for the TMLC’s case to go a jury, which has to be a frightening thought for SESAC, especially on the heels of the ED Pa Report and Recommendation of the Magistrate Judge in the Radio Music License Committee’s antitrust suit against SESAC.  I will be interested to see how this plays out.

 

 

Warner Seeks Settlement with Artists over Digital Royalties

Plaintiffs’ class action counsel filed papers on Tuesday asking Judge Seeborg of the Northern District of California to approve the settlement of the class of recording artists to whom Warner allegedly underpaid royalties for digital download sales by applying the ‘sales’ rate structure instead of the more artist-friendly ‘license’ rates, relying on F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010), in which the 9th Circuit concluded that Eminem was entitled to a 50% royalty for digital downloads under the ‘license’ language in his recording contract.

The settlement comprises a retrospective (limited to the statute of limitations on copyright claims of 3 years) and prospective aspects.

Retrospectively, artists will receive their pro-rata share of a fund Warner will establish $11.5mm (less the $2.8mm the lawyers will take home) based on that artist’s percentage of revenue generated by Warner by digital downloads, which the parties stipulated is $381,510,000.  So the artists are getting their prorata share of about 3% of the revenue Warner generated from downloads.  I’d call that a win for Warner.

Prospectively, class members that file the appropriate paperwork will receive up to a 5% bump in royalty rate, however, no artist will see her royalty rate exceed a ‘Royalty Cap’ of 14% nor see her royalty rate fall below the Royalty Floor of 10%.  Given that Eminem got 50% from Universal under the F.B.T. case, I’d call this another like a win for Warner.

The motion for approval of settlement can be found here.

SESACked

Magistrate Judge Lynne Sitarski of the Eastern District of Pennsylvania has issued her report and recommendation regarding the motion for preliminary injunction filed by Radio Music License Committee (RMLC) against performing rights organization (PRO) SESAC, Inc., seeking to prevent SESAC from instituting a rate increase during the pendency of the RMLC’s antitrust suit against SESAC for violations of Secs. 1 and 2 of the Sherman Act.  While Mag. Judge Sitarski denied the RMLC’s motion, the RMLC is probably still thrilled with her R&R.

I described here the antitrust suit filed by the local television broadcasters against SESAC for antitrust violations.  That suit was filed in the Southern District of New York and has SESAC’s motion for summary judgment pending.  A companions case was filed by the RMLC in the Eastern District of Pennsylvania.  In that case, the RMLC sued SESAC for violations of Sections 1 and 2 of the Sherman Act.  Specifically, Section 1 claim, “an antitrust plaintiff must plead the following two elements: (1) that the defendant was a party to a contract, combination … or conspiracy and (2) that the conspiracy to which the defendant was a party imposed an    unreasonable restraint on trade.”  Section 2 of the Sherman Act by using “de facto exclusive contracting practices to create a market artificially insulated from competition.” “Liability under section 2 requires: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

When SESAC sought to increase the royalty rate applicable to RMLC member stations for CY 2014, the RMLC filed a motion for preliminary injunction to block the rate increase.  Ultimately, Judge Sitarsky concluded that remedies in the form of monetary damages could make the RMLC whole (if the RMLC is successful at trial) and denied the motion for an injunction.  In reaching her decision, however, Judge Sitarsky indicated she thinks the RMLC has established a prima facie case of a likelihood of success on the merits.

A key part of her reasoning was the inability of RMLC-member stations to license around SESAC because the exact scope of SESAC’s repertoire is unknown (some might say ‘hidden’).  This opacity around catalog information is important for at least two reasons.  First, not knowing what is within and without the SESAC repertoire impact Judge Sitarsky’s analysis of the applicable ‘market’ against which the RMLC’s antitrust allegations will be directed.

According to Judge Sitarsky:

The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” Queen City Pizza v. Domino’s Pizza, 124 F.3d 430, 436 (3d. Cir. 1997) (cited cases omitted). Interchangeability implies that one product is roughly equivalent to another for the use to which it is put. Id. When assessing reasonable interchangeability, factors to be considered include price, use, and qualities. Id.. Reasonable interchangeability is usually present when there is “cross-elasticity of demand” between the product itself and the substitutes for it.  Cross-elasticity of demand is present when the rise in the price of a good would cause the demand for substitutable goods to increase.

Because stations “cannot substitute non-SESAC performance rights for SESAC performance rights if SESAC charges above-competitive license fees,” Judge Sitarsky concluded that the “RMLC has produced sufficient evidence to make a prima facie showing that the relevant product market is the market for SESAC’s blanket license.”

This lack of transparency is also important to the court’s determination that direct licensing was an option for RMLC-member stations.  For example, Judge Sitarsky differentiated the SESAC case from the case involving CBS’ antitrust claims against ASCAP and BMI of the 1970s and 80s.

The instant case is distinguishable from CBS I because the SESAC blanket license is the sole source of the performance rights that radio stations need. This is because radio stations are unable to obtain a bundle of direct licenses acquired on an individual transaction basis for the music in SESAC’s repertory because they cannot determine what such a bundle  would entail. That is: only SESAC knows each and every song that comprises its repertory.

the inability of radio stations to conclusively determine what songs are SESAC songs precludes them from obtaining individual licenses from the composers, and foregoing a SESAC license. In other words, a SESAC blanket license is not reasonably interchangeable with a bundle of direct licenses permitting the use of SESAC’s repertory because the individual songs in SESAC’s repertory cannot be conclusively determined. While SESAC permits direct licensing by its affiliates, it is the entire bundle that a radio station needs to avoid infringement, and what constitutes the entire bundle is unknown.

Because the access to direct licenses was a key determination in the US Supreme Court that the ASCAP and BMI blanket licenses weren’t antitrust violations, this conclusion of Judge Sitarsky, if adopted by the District Judge, could have significant impact on whether SESAC’s blanket license can survive antitrust scrutiny.

Judge Sitarsky’s report and recommendation is here.

Santa Claus Is Comin’ To EMI

In 1934, John Frederick Coots and Haven Gillespie wrote the song “Santa Claus Is Comin’ to Town.”  They conveyed the copyright to Leo Feist, Inc., a prominent music publisher at the time.  The copyright in the song was covered by the 1909 Act, which provided for a 28 year initial term followed by a second 28 year renewal term.  In 1951, Coots and Gillespie entered into a new agreement granting Feist the renewal term, such that when the original term ended in 1962, Feist remained the copyright owner for the renewal term (until 1990).  Coots’ heirs claim the song still generates $1mm per year in royalties, in which they share 25% (half of the half of the writers’ share).

The 1909 Act has been extensively amended over the years, beginning in 1976.  Two significant changes involve (1) the duration of copyright and (2) the rights of authors to terminate transfers.

With respect to copyright duration, the 1976 Act provided for a term of 75 years for all works created before January 1, 1978, which would include Santa Claus Is Comin’ to Town.  In 1998, the Sonny Bono Act the term was extended another 20 years, meaning Santa Claus Is Comin’ to Town enjoys a 95 year term–from 1934 to 2029.

The 1976 Act completely changed the way in which authors could regain control of their works.  Rather than 2 separate terms, the 1976 Act has a single term, but a right to terminate any transfer after a certain period of time.  For works created before January 1, 1978, Sec. 304(c)(3) of the Act provides for termination of any transfer of copyright ownership “can be effected at any time during the period of five years beginning at the end of the fifty-six years from the date the copyright was originally secured, or beginning January 1, 1978, whichever is later.” In this case, 56 years after 1934 is 1990.  Because the Bono Act extended the term of copyright by another 20 years, there is a second termination provision in Sec. 304, which allows for termination to be effected “during a period of 5 years beginning at the end of 75 years from the date the copyright was originally secured.”  But only where the author had not previously exercised a termination right.

Importantly, Sec. 304(c) has a recordation formality: a copy of any notice of termination must be recorded with the Copyright Office “before the effective date of termination, as a condition to its taking effect.”

On September 24, 1981, pursuant to Section 304(c), Coots sent Feist a notice to terminate the 1951 Agreement, selecting October 23, 1990 as the effective date of termination.  On November 25, 1981, Coots’ attorney, M. William Krasilovsky sent the 1981 Notice to the Copyright Office for recordation.  For you collectors of copyright trading cards, William Krasilovsky is the author of This Business of Music (now in its 10th edition), one of the most respected books on the music industry.  However, on May 7, 1982, the Copyright Office sent Krasilovsky a letter, stating, “[p]ursuant to our telephone conversation of March 1, 1982, we are returning [the 1981 Notice] to you unrecorded.” Only Krasilovskywas copied on the letter. The 1981 Notice was never later recorded with the Copyright Office.

On April 6, 2004, Gloria Coots Baldwin, Patricia Bergdahl, and Christine Palmitessa (Coots’ heirs) sent EMI, which had purchased Feist, a termination notice (the “2004 Notice”), pursuant to Section 304(d) seeking to terminate Coots’ transfer effective in 2009 (1934 plus 75 years),  EMI filed a motion for summary judgment on the grounds that (a) the 1981 termination was ineffective because the notice was never recorded in the Copyright Office and (b) the 2004 notice was ineffective because it was a second attempt to terminate a transfer, which Sec. 304(d) does not allow.  Judge Scheindlin of the Southern District of New York agreed with EMI and granted its motion.  Her decision is here.

 

Google Books is (Rap) Genius!

Google Books and Rap Genius

Judge Denny Chin, formerly of the SDNY and now the Second Circuit, has issued his opinion in the Google Books case.  (Judge Chin kept a few of his cases when he moved up to the appeals court.).  For those unfamiliar with the case, in 2005 Google undertook to digitize entire libraries of books, scanning the entire book in optical text recognition format.  Many of the books Google scanned were under copyright and Google never sought permission from copyright owners prior to making its digital copies.  Several authors filed a purported class action suit against Google. 

After Judge Chin rejected a proposed settlement in 2011, the parties filed cross motions for summary judgment, with Google arguing that its digitization of entire books as ‘fair use’ under § 107.  Judge Chin agreed with Google and granted its summary judgment.

Because they typically are the most relevant in deciding a fair use claim, I focus on the first and last of the 4 fair use factors provided in § 107: whether the use is transformative and whether the use reduces the market for the original.  Judge Chin found both of these factors weighed in Google’s favor.

Judge Chin determined that “Google’s use of the copyrighted works is highly transformative. Google Books digitizes books and transforms expressive text into a comprehensive word index that helps readers, scholars, researchers, and others find books. … The use of book text to facilitate search through the display of snippets is transformative.”  Judge Chin compared Google Books to providing thumb-nails of images, citing approvingly Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007) and Bill Graham Archives v. Darling Kindersley Ltd., 448 F.3d 605 (2d Cir. 2006). 

The display of snippets of text for search is similar to the display of thumbnail images of photographs for search or small images of concert posters for reference to past events, as the snippets help users locate books and determine whether they may be of interest. Google Books thus uses words for a different purpose — it uses snippets of text to act as pointers directing users to a broad selection of books.

Judge Chin focused on the fact that Google’s scanning “transformed book text into data for purposes of substantive research, including data mining and text mining in new areas, thereby opening up new fields of research.” 

I wonder if Judge Chin would have made the same conclusion based on the scanning of a single book.  Or even scanning several hundred books.  It appears that his logic stems from the fact that millions of books were scanned, thereby enabling the searching that made the scanning transformative in the first place.  This is at least suggestive that massive copying might be transformative, where limited copying might not be.  As discussed below with respect to Rap Genius, I can imagine ways in which Judge Chin’s decision might influence business models that involve digitizing and indexing copyrighted works.

With respect to the last § 107 factor—the effect of the copying on the market for the original—Judge Chin concluded that “a reasonable factfinder could only find that Google Books enhances the sales of books to the benefit of copyright holders. An important factor in the success of an individual title is whether it is discovered … Google Books provides a way for authors’ works to become noticed, much like traditional in-store book displays.”  Because “Google provides convenient links to booksellers to make it easy for a reader to order a book … there can be no doubt but that Google Books improves books sales.”  I didn’t review the motions for summary judgment, so I don’t know if there was evidence (empirical or anecdotal) presented regarding Google Books actual impact of sales, but this seems like a pretty bold statement if it lacks evidentiary support.  Given that many books were on sale prior to Google Books, it seems at least some evidence could have been presented showing either an increase or decrease in sales of particular titles after the introduction of Google Books.

For those who pay attention to this kind of thing, Judge Chin was the district court judge who originally granted summary judgment in favor of the copyright owners in the Cablevision case.  Judge Chin’s decision was overturned by the Second Circuit in what became a bellwether for technology companies designing services that transmitted copyrighted works.  Judge Chin was the dissenting vote in the Aereo case, where the Second Circuit upheld the principles articulated in Cablevision.  I find it interesting that Judge Chin is so sure that services like Cablevision’s remote DVR and Aereo’s rebroadcast of over-the-air television transmissions are infringing technologies, while Google Books is not. 

The Google decision is here.

So, what does Google Books have to do with Rap Genius?  I recently read that Rap Genius has signed a license with music publisher Sony ATV.  If you’ve checked out Rap Genius, you might wonder why it felt the need to get a license from a music publisher.  I would argue it is a highly transformative service—a la Google Books.  It is a searchable database of lyrics (though, unlike Google Books, it provides the entire lyrics, whereas Google Books only provides up to 90% of a text).  But in addition to transcribing the lyrics, Rap Genius annotates the lyrics with possible explanations of what the writer meant.  Rap Genius’ annotations include space for comments, so people can provide their own thoughts regarding the meaning of their favorite rap lyrics. 

For example, check out Nas’ song “The World Is Mine.”  I’ve listened to that song 100 times, and I love this line because of the way Nas emphasizes “PIPE” at the end – “The fiend of hip-hop has got me stuck like a crack pipe.”  According to Rap Genius, this line either refers to “fans are fiending for his music, or if he himself is compelled to write rhymes.”  Rap Genius also tells me that this line is a “subtle shout out to Nas’ one time mentor, Rakim who was known as the Microphone Fiend.”  If Google Books is transformative—and all Google is doing is digitizing books—then Rap Genius should clearly be transformative—digitizing lyrics AND providing annotations.

Nas The World Is Mine

All of this got me to thinking about a draft article by Ben Depoorter & Robert Kirk Walker’s called Copyright False Positives, an electronic copy of which is available at: http://ssrn.com/abstract=2337684.  Depoorter and Walker argue that (a) the scope of copyright protection cannot be determined a priori, (b) copyright infringement entails statutory damages, and (c) defending copyright infringement claims is expensive.  Because of these factors, copyright owners may over-enforce their copyrights, leading to “copyright enforcement false positives, where rights holders erroneously believe that their interests in a particular work extend beyond the bounds of what is actually protected.  These false positives often “motivate copyright owners to seek enforcement of rights that are nonexistent or outside the scope of copyright. Such misguided enforcement actions impose significant social costs…”

Two of these significant social costs are obvious in our examples.  First, in the Google Book case, Google had to spend millions of dollars litigating what a federal district judge ultimately determined was a fair use of copyrighted works.  Second, in the Rap Genius case, the website took a license rather than risk the very litigation expenses Google was able to afford, even though Rap Genius’ use of the copyrighted works is arguably transformative.  In both instances, society is worse off, but in one instance a publisher is better off.

Source Code

A recent draft article came across SSRN about the origins of copyright in the US.  For those new to the copyright game, there are some who argue that the US copyright system is based on the premise that authors have a ‘natural’ right in the fruits of their labor and copyright merely codifies such right.  There are others–who I think have the better end of the argument–that argue that copyright in the US is derived from English law, which is entirely statutory (the Statute of Anne, to be exact).  Why is this debate important?  Because, according to Liam Séamus O’Melinn (Northern Ohio University), “the theory of common law copyright can be stated in a way that seems to make sense to modern sensibilities, in terms of a past in which the invention of the printing press connected needy authors with a broad reading public.”  By postulating that the printing press (the technological advancement) benefited the author and the public, the common law copyright theory suggests that copyright is the precursor to technological change.  Of course, as we’ve seen over the last 50 years, copyright owners have attempted to squash any changes in technology that might upset their absolute control over the distribution of their copyrighted works–from VCRs to MP3s.

O’Melinn’s article is entitled “The Ghost of Millar v Taylor” (an apparent play on the title of an article by John Whicher, “The Ghost of Donaldson v. Becket,” in which Whicher argued that there existed a common law copyright in England that influenced American jurisprudence).  O’Melinn argues that there is no evidence that there existed any concept of a copyright in English common law and provides some very compelling evidence, including a very interesting discussion of Benjamin Franklin’s trips to London around the time the Donaldson v. Becket case was winding its way through the British legal system.

While O’Melinn’s article would be interesting to Revolutionary War-era history buffs, why should copyright students worry about this debate?  The answer, as O’Melinn’s explains,

The eventual triumph of copyright for records marked two important events in the history of copyright law. It launched us into the age of the sound recording, which may seem a distant matter of legal history, but the law remains very much trapped in that age. The vinyl long playing record that was the first beneficiary of the extension of federal copyright law to records has become technologically irrelevant (my apologies to audiophiles), but the law has worked desperately to protect the property interests of the holders of that antiquated technology, to reserve the benefits of recorded music to those who controlled the apparatus in the previous century, and to deny those benefits both to the public and to the holders of new means of transmission.

The draft can be found here.