Category Archives: Legal

The quality of music in a post-Napster world

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David K. Levine over at Against Monopoly pointed me to a recent paper (PDF) by economist Joel Waldfogel at the University of Minnesota titled “Bye, Bye, Miss American Pie? The Supply of New Recorded Music since Napster”.  As the title implies, Waldfogel investigates the effects of Napster (and its file-sharing progeny) on the music industry:

Economists generally agree that monopolies are bad. Governments grant some of the basic textbook examples of monopolies for intellectual property, in the form of patents and copyrights. Their bad effects – allowing prices above marginal costs and therefore restricting the supply of output – are thought to be justified by their incentive effects on production. But apart from introspection and anecdotes, we don’t really know much about the effects of remuneration incentives on production in the music industry.…Does the prospect of greater rewards bring forth more music? If so, then the past decade, when the ability for sellers to generate revenue from recorded music has fallen as much as half, should be a dry period for music. This is the question we address in this study. [emphasis added]

Noting that other studies have found undiminished musical output (in terms of volume) in the post-Napster world, Waldfogel attempts to measure musical quality using “a time-constant quality threshold based on critics’ retrospective lists of the best works of multi-year time periods”:

Using indices collectively covering the period since 1960, we document that the annual number of new albums passing various quality thresholds has remained roughly constant since Napster, is statistically indistinguishable from pre-Napster trends, and that album supply has not diverged from song supply since iTunes’ revival of the single format in 2003. We also document that the role of new artists in new recorded music products has not diminished since Napster. [emphasis added]

Waldfogel’s findings will unquestionably prove controversial in many circles.  And, to be sure, copyright policy may be based on considerations other that mere economic efficiency (e.g., John Locke’s labor theory or artists’ moral rights).  If Waldfogel’s findings are verified and generally accepted on their own terms, however, the economic policy implications seem clear:

It is easy to see that file sharing simply increases welfare. Producers lose, but their losses – when consumers steal things they used to pay for – are all transfers to consumers, who now enjoy greater surplus (the price they had formerly paid plus the former consumer surplus). In addition to the transfers from producers to consumers, file sharing also turns deadweight loss – circumstances in which consumers valued music above zero but below its price and therefore did not consume – into consumer surplus. In a purely static analysis, eliminating intellectual property rights benefits consumers more than it costs producers and is therefore beneficial for society.

Pivoting toward greater competition

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Ryan Singel over at Wired magazine writes about a new start-up called LawPivot that helps start-ups with their legal questions:

LawPivot’s solution is to create a Q&A site where startups can ask legal questions confidentially and then get recommended lawyers to answer the question, which can lead to the former hiring the latter.

While California-based startups can now ask three free questions a month, LawPivot will soon be charging companies $80 for each question. For lawyers, the benefit is being able to land new clients for themselves or their firms, and to build a reputation — though they don’t get paid to answer a question.

Despite potential ethical issues and haughty dismissals by certain blogs, this certainly is where the legal profession is heading.  In a globalized world with plenty of lawyers looking for work, more competition is inevitable.  Fees are going to go down.

Secondary liability, approaching the limit

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The Seattle Times reported a few weeks ago that Microsoft “is pushing Washington legislators to pass a law making it illegal for manufacturers that use pirated software to sell goods in the state”:

The proposed legislation would create a legal cause of action by making manufacturing companies liable for damages, and it would give the state attorney general and companies the right to pursue injunctions in civil court to stop the manufacturers’ goods from being sold.

For example, if a large Washington store sold T-shirts made from a company in China and the Chinese company uses pirated copies of Excel at an office in Shenzhen, Microsoft could seek an injunction to prevent the manufacturer from supplying T-shirts to be sold in Washington state.

This represents a sweeping change to current intellectual property law. It is one thing to grant monopolies via copyright for “limited Times” in order “To promote the Progress of Science and useful Arts”. It is another thing entirely to extend copyright’s monopoly over physical objects alleged to have been manufactured in another country with the help of pirated software and thus to hold the buyers of those physical objects legally responsible.

To put it concretely:  this isn’t holding the buyers of obviously stolen TV’s out of the back of a pickup truck legally responsible for their purchases.  This is holding GM, maker of that pickup truck, legally responsible because the Chinese manufacturer of one of the parts in the truck’s engine used a pirated copy of Microsoft Outlook to receive emailed purchase orders from GM.

Now that’s secondary liability.

Hat tip to Groklaw, where I ran across this story earlier today.  If you’d like to read more about this, Pamela Jones has written rather extensive commentary, including a hypothesis Microsoft is pushing for this and similar laws in other U.S. states in order to unleash a “litigation storm against Linux” — including derivatives like Android:

The law would make it possible for Microsoft to block Android sales in whatever state passed such laws if it could find some tie between the Android product and some manufacturer of a contracted part in China or wherever who happened to use a pirated version of Microsoft Word — not to make the part but to write up an ad for it. Ephemeral, much? But can you imagine how much litigation could spring from a law like this? How little it would take to keep litigation in the air forevermore? And you don’t have to even prove infringement in China, just allege it to initiate proceedings.

Of course, Jones is quick to note that the state of Washington’s “protections” do not extend to companies like Red Hat that profit from selling open source support and services.  Under the law, software companies with proprietary licenses like Microsoft

can sue in civil court and the Attorney General can go after the “wrongdoer” US company, if a notice is sent and no amelioration occurs. But if the violation is of an *open source license*, the victim can’t sue anyone under the bill, and the Attorney General does nothing for you. It’s an exception to the law.

Monopolizing orphans

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As numerous outlets are reporting, a federal judge rejected the proposed Google Books Settlement (Wikipedia backgrounder) yesterday, citing a number of concerns:

  1. “Adequacy of Class Notice”
  2. “Adequacy of Class Representation”
  3. “Scope of Relief Under [Federal Rules of Civil Procedure] Rule 23”
  4. “Copyright Concerns”
  5. “Antitrust Concerns”
  6. “Privacy Concerns”
  7. “International Law Concerns”

In this post, I want to comment just on #5 since the court’s discussion of this point focused on the orphan works problem, an issue I analyzed at length just last summer in a journal note (PDF here).

In brief, “orphan works” are creations protected by copyright law but with unclear ownership.  Prospective users of orphan works are in a bind because they cannot ascertain who to ask for permission yet still face the prospect of substantial penalties if an owner eventually surfaces and sues for copyright infringement.  As a result, orphan works remain in legal limbo and rarely are used to their full economic and/or cultural potential.  Orphan works include many (though certainly not all) books that were published during the 20th century (still under copyright) but are now out of print (unclear ownership).

Google sought a way out of this legal limbo so that it could put such books in its database.  Specifically, Google sought to escape the orphan works problem by leveraging the “opt out” structure of this class action lawsuit.  One of the ways that class action lawsuits “work” is by binding a group of people — including those who could have “opted out” of the litigation by filing their own lawsuits but didn’t — to the outcome of the class action.  Here, Google wanted the owners of orphan works (who by definition would not be “opting out”) to be bound by the terms of the settlement.  This would have allowed Google to digitize and distribute those orphaned works.

Writing for the Southern District of New York, Judge Denny Chin expressed concern that the proposed settlement would have given Google too much power over orphan works:

The ASA [Amended Settlement Agreement] would give Google a de facto monopoly over unclaimed works. Only Google has engaged in the copying of books en masse without copyright permission.  As the United States observed in its original statement of interest: “This de facto exclusivity (at least as to orphan works) appears to create a dangerous probability that only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription. The seller of an incomplete database — i.e., one that does not include the millions of orphan works — cannot compete effectively with the seller of a comprehensive product.” And as counsel for the Internet Archive noted, the ASA would give Google “a right, which no one else in the world would have, . . .to digitize works with impunity, without any risk of statutory liability, for something like 150 years.”

(internal citations omitted, emphasis added).

While I certainly share the court’s concern with the prospect of a Google monopoly over orphan works, I also find it rather ironic that the court cited monopoly as one of the “problems” that prevented it from approving the settlement.  After all, copyrights are themselves monopolies; they prevent non-owners from using copyrighted works in a whole host of ways (subject to fair use and certain — often technical — exceptions).  Indeed, courts straightforwardly enforce copyright monopolies every time a copyright owner wins an infringement lawsuit.

If monopolies are such a problem, why do we allow them as the foundation of copyright law?  There are policy-based answers, of course, but it seems strange that Judge Chin didn’t engage in any real policy analysis except to say:

The questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an agreement among private, self-interested parties.

Of course, many would argue that U.S. copyright law and policy essentially is “an agreement among private, self-interested parties” that simply gets ratified by Congress.  Perhaps the litigants here made the mistake of picking the wrong forum.

Living by the sword

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I’ve covered the antics of Righthaven, a copyright-enforcement entity that sues first and asks questions later, before.  From their activities over the past year, it seems clear that Righthaven thinks (at least, it loudly says) it fighting the good fight by vigorously enforcing copyrights in news stories.

Ironically, Steve Green at the Las Vegas Sun thinks that Righthaven is undermining newspapers’ case for copyright protection:

One year ago, U.S. newspapers and broadcasters could feel confident they controlled the news content they created….Then along came Righthaven LLC of Las Vegas, the self-appointed protector of the newspaper industry from such news sharers.

Some 250 Righthaven lawsuits later, Righthaven’s startling achievement is that newspapers now have less — not more — protection from copyright infringers.

Steve’s full analysis is well worth reading, as is his cogent summary of highlights from recent Righthaven-related cases.

Personally, I find this idea that Righthaven may be hurting copyright owners more than helping quite compelling.  Copyright law is often ambiguous, and the precise line between infringement and fair use is unclear.  Whatever else can be said about the merits of a typical Righthaven lawsuit, the sheer number of cases is forcing courts to take a hard look at the policies underlying copyright law and to provide some much-needed clarity.  Insofar as Righthaven’s tactics are, in practice, little better than bullying, judges seem to be doing every thing they can to skew that clarity in favor of Righthaven defendants — and away from established news publishers.

It is ironic that Righthaven’s own actions are starting to set precedents that are undermining the legal foundations for copyright’s protection of news stories.  If I were a publisher with an expansive view of copyright law, I’d be furious at Righthaven.

IP enforcement, spying, and reasonableness

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Today’s posts have touched on who should enforce IP rights and what that that enforcement should look like.  Recent comments by Ed Black, President & CEO of the Computer & Communication Industry Association (CCIA — Wikipedia backgrounder), address both of these issues in the context of the White House’s Intellectual Property Enforcement Coordinator’s recent white paper:

The government has shown how its zeal leads to carelessness [previously covered here] in its unprecedented efforts to widely seize domain names for IP enforcement, which ICE undertook this year. Sites were wrongfully shut down based on allegations the user was engaged in criminal conduct deemed lawful by their courts. We are concerned the same low threshold will be used in making decisions to spy on U.S. citizens.

Some in Congress and the White House have apparently decided that no price is too high to pay to kowtow to Big Content’s every desire, including curtailing civil liberties by expanding wiretapping of electronic communications. Even the controversial USA PATRIOT Act exists because of extraordinary national security circumstances involving an attack on our country.  Does Hollywood deserve its own PATRIOT Act?

This new punitive IP agenda follows just weeks after dictators spying on citizens online was the lead story in every major newspaper.  Perhaps the obvious hypocrisy caused someone to decide to wait to announce the U.S. goal of expanding our government’s powers to spy online.   A screenwriter could almost market this plot as a comedy – if it weren’t so serious.

Maybe we should be grateful our government only wants to make streaming a song or movie a felony with potential prison time as punishment.  What’s next corporal punishment?

This is the latest indication of the extent to which the content industry has infiltrated this administration and managed to turn the Administration’s IP agenda into a policy which protects old business models at the expense of consumers, citizens’ rights and our most innovative job creating industries.

To be sure, Mr. Black speaks as the head of a trade group, advocating for his clients’ interests.  Nonetheless, we’ve covered advocates for the content industry and the broadband industry before.  I think it is important to remember (1) that both sides of the IP debate can make sweeping — sometime unprovable — assertions and (2) there are usually two sides to every story.

Broadly speaking, I have to agree with Mr. Black’s concern with the disconnect between official condemnations of “dictators spying on citizens online” and “the U.S. goal of expanding our government’s powers to spy online.”  As illustrated only a few months ago, the line between vigorous copyright enforcement and totalitarianism can be a thin one indeed.  As Harold Feld of Public Knowledge put it recently over on the LA Times:

In the virtual world, the real but mundane problem of shoplifting undergoes a Hollywood-esque transformation into “piracy,” causing the entertainment industry and folks in Washington to lose all perspective. Consider that Rep. Howard Berman (D-Valley Village) proposed a bill in 2002 to allow record companies to hack into your computer to search for illegal downloads. And how did Berman justify the equivalent of an electronic strip search? “There is no difference between pocketing a CD in a Tower Records and downloading copyrighted songs from Morpheus,” Berman told the crowd of aghast tech executives. “Theft is theft.” True, theft is theft. But I suspect Berman would have objected to an amendment allowing Tower Records to break into your home to recover a stolen CD.

Whatever you think of Mr. Black’s rhetoric — even hyperbole — I think most people would agree that truly draconian IP enforcement is not worth the terrible price it exacts.  Now we just need to reach a consensus on exactly how much is too much…

LA piracy debate

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The LATimes just posted the second round of its “piracy Dust-Up” (you can read the first round here), and I thought I’d pull two quotes.

The first is from Harold Feld, the “legal director of Public Knowledge, a Washington-based digital rights advocacy group”, who points to the hidden costs of copyright enforcement:

It’s easy to understand 9 million illegal downloads of “The Social Network,” and hard to understand how the new regulations Sony wants will raise the price of your broadband subscription and your iPod while keeping you from doing cool things on your iPhone.  As the crowning insult, there is no evidence that these new rules would actually make a dent in the illegal downloading problem, or that marginally reducing illegal downloads would translate into an increase in legal sales.

The second is from Andrew Keen, “the author of the upcoming Digital Vertigo: An Anti-Social Manifesto...[and] an advisor to Arts and Labs, a coalition of entertainment and technology companies”:

Rather than worrying about doing “cool things on our iPod,” shouldn’t we instead be trying to craft legislation guaranteeing that 21st century artists have the opportunity to make a living selling their books, their recorded music and their movies?

Here’s the thing that I don’t understand:  in 2006, Keen accused Larry Lessig of being “an intellectual property communist”.  Yet if I understand this debate correctly, it is Keen who wants to focus on ways of “guaranteeing that 21st century artists have the opportunity to make a living” and who is unconcerned whether or not people can do “cool things on [their] iPod[s]”.

Last time I checked, “guaranteeing” certain people paychecks is strongly associated with communism.  It is innovation of the sort that allows people to “do cool things on [their] iPod[s]” that smacks of the capitalism Keen so implicitly embraces.

Keen will no doubt object that I mis-characterize his view insofar as he “only” seeks opportunity, not outcome.  This objection is fair enough — so far as it goes.  But it’s a tricky objection to maintain credibly when it is your opponent (here, Feld) who is calling for balance and proportionality in infringement penalties and you (Keen) who is engaging in the take-no-prisoners logic that “we surrender to the online thieves by treating piracy as a ‘cost of doing business'”.

Mr. Keen, accepting business loses due to shoplifting (in the physical realm) or piracy (in the digital realm) is not “surrender”; it is a fundamental recognition of reality.  Failure to recognize this reality seriously undermines your argument — as does your claim that you only seek “opportunity” when you so clearly will be satisfied only by enactment of one particular outcome.

Who will enforce IP laws?

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Ars Technica and TorrentFreak are reporting that Australian ISP iiNet (Wikipedia backgrounder) recently released a policy report calling for changes in the way that IP laws are enforced:

The ‘Hollywood solution’ (in very simple terms) involves the employment of private detectives, hired by content owners, to trawl the public internet and gather information. The content owner uses this information to generate notices which are sent to internet service providers. The notices demand that the ISP should terminate the service of a customer subsequently determined by the ISP (not the content owner).

Naturally, ISPs find this approach unattractive and unsatisfactory, to say the least.

Rather than merely passively complaining about Hollywood’s solution, however:

iiNet has developed a model which it believes addresses ISP concerns and is likely to be far more effective. We believe it to be attractive to all participants and one which offers a sustainable strategy that includes an impartial referee, for resolution of disputes between the parties and the issue of penalties to offenders.

Here is iiNet’s proposal:

1.    A content owner will carry out their own detective work and identify an offending computer making unauthorised copies of their content available for sharing via (typically) bit-torrent software. This will provide them with an ‘IP Address’ that can be traced by the issuing ISP to a specific internet service.

2.    The independent body will determine whether the evidence meets a test of ‘cogent and unequivocal evidence’.

3.    IP addresses can be provided to an independent body who is able to identify the issuing ISP and ask that ISP for contact details for the service account holder. The ISP provides those matching contact details to the independent body.

4.    Using those contact details the independent body can issue notices to the account holder informing them that they had been detected making unauthorised copies available, provide educative information, advise the consequences that may follow continued behaviour and ask the account holder to ensure that the behaviour stops.

5.    The independent body keeps records of the notices and may modify the notice for a repeat infringer, or seek further sanctions. Some of those sanctions may include fines, court charges or changes to the internet service.

6.    Consumers who believe the allegations are incorrect will be able to appeal the notice to the independent body. These appeals and/or complaints would be dealt with by the independent body.

7.    Consumers who believe an insecure wireless access (or other technical issue) may be involved, will be referred, by the independent body, to their ISP for technical assistance.

As I read the proposal, it seems like iiNet is primarily trying to do two things:

  1. Remove itself as arbiter of IP-related disputes; and
  2. Lower the transaction costs involved in full-blown litigation by setting up a quicker (and cheaper?) arbiter of disputes.  (Perhaps they have something in mind like the Uniform Domain-Name Dispute-Resolution Policy, which administratively resolves certain types of domain name disputes without having to go to court.)

With respect to #1, I agree with iiNet.  ISPs are ill-positioned to adjudicate IP disputes, especially since the cheapest solution (and thus a compelling business model) is simply to comply with any content owner’s request, no matter how tenuous the underlying legal cases.

With respect to #2, however, I have serious doubts.  iiNet’s proposal could be read as an ISP’s attempt to shift online infringement clearly from a malum in se crime (crimes that are inherently wrong, like murder) to a malum prohibitum crime (crimes that are wrong by statute, like minor speeding violations).  Acts that are malum prohibitum generally require less evidence for conviction (e.g., strict liability), but this is supposedly outweighed by lesser penalties and less social censure (e.g., fines for speeding are relatively small and do not carry the social opprobrium of murder).

Here’s the problem:  current copyright statutes don’t have the malum prohibitum “balance” built in.  While there may be lesser social censure for copyright infringement than for other crimes, it is hard to think of many non-violent crimes with higher penalties.  U.S. law assesses damages as high as $150,000 per infringing act, and there are never-ending proposals to increase penalties.  Even if such penalties seem grossly disproportionate to the underlying crimes and raise serious constitutional concerns regarding due process and punitive damages, they nonetheless are “the law” as it exists on the books.

Given the reality of enormous statutory penalties for infringement, streamlining copyright enforcement procedures could lead to disaster.  As a policy matter, it’s one thing to argue for streamlined procedures (i.e., fewer due process protections) in exchange for lower penalties.  Under certain circumstances, that can be a reasonable policy tradeoff.  But it’s a dangerous thing to argue that every content owner in the world should have a fast, easy way to sue individuals up for $150,000.  Copyright trolls like Righthaven exist even in a world with the due process protections of courts; it’s truly frightening to imagine how many new trolls will arise if the potential payoffs remain the (astronomical) same but the bar for suit is set even lower.

To be fair, iiNet appears to recognize this danger and suggests:

Infringements can be ranked as minor (say, single instances), major (say multiple instances of different files) or serious (at a commercial level). Each level having prescribed penalties….A scale of fines can be established, relative to the economic loss represented, and demerit points could also be awarded in line with the severity of the infringements.

Nonetheless, I fear that their report does not highlight just how pivotal such gradation and balancing would be to any implementation.

WIPO points the way forward

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Intellectual Property Watch is reporting on a recent speech by the World Intellectual Property Organization (WIPO–Wikipedia backgrounder) Director-General Francis Gurry on the future of copyright law.  You can view the full speech on YouTube here (or here, if you want to skip the pleasantry-preliminaries), and you can read it here.

Gurry wastes no time in touching on the central issue of copyright policy:

How can society make cultural works available to the widest possible public at affordable prices while, at the same time, assuring a dignified economic existence to creators and performers and the business associates that help them to navigate the economic system?

Surprisingly, Gurry answers not by talking about retrenchment and enforcement but balancing competing interests:

It is a question that implies a series of balances: between availability, on the one hand, and control of the distribution of works as a means of extracting value, on the other hand; between consumers and producers; between the interests of society and those of the individual creator; and between the short-term gratification of immediate consumption and the long-term process of providing economic incentives that reward creativity and foster a dynamic culture.

Digital technology and the Internet have had, and will continue to have, a radical impact on those balances. They have given a technological advantage to one side of the balance, the side of free availability, the consumer, social enjoyment and short-term gratification. History shows that it is an impossible task to reverse technological advantage and the change that it produces. Rather than resist it, we need to accept the inevitability of technological change and to seek an intelligent engagement with it. There is, in any case, no other choice – either the copyright system adapts to the natural advantage that has evolved or it will perish. [emphasis added]

Perhaps Lawrence Lessig’s speech at WIPO last year has had a bigger effect than expected!  Gurry even outlines “three main principles that should guide us in the development of a successful policy response”:

  1. “[N]eutrality to technology and to the business models developed in response to technology.”
  2. “[C]omprehensiveness and coherence in the policy response.”
  3. “[M]ore simplicity in copyright.”

Gurry ends with this observation:

Future generations are clearly going to regard many of the works, rights and business agents that we talk about as cute artefacts of cultural history, much as the vinyl record has become in a very short space of time. The digital work is going to change dimensions. We see that happening with user generated content. We see it happening also with 3D printing or additive manufacturing, where the digital file is the manufacturing technology and factory. This is the realm of the blue sky and I hope that this Conference can start to develop the tools for exploring that sky.

Update: I reference this post in the comments section of a recent Copyhype post. Suffice it to say that there’s a lot of heated rhetoric on both sides; I think Gurry’s speech does a good job a forging some reasonable middle ground.

The 84,000 question

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I hadn’t had a chance yet to comment on the 84,000 websites the U.S. government seized about a month ago because they were supposedly associated with child pornography.  Turns out the government was wrong about that, but the damage was done since a lot of visitors to the websites of innocent small business owners were directed to a page displaying an imposing government seal and the statement:

Advertisement, distribution, transportation, receipt, and possession of child pornography constitute federal crimes that carry penalties for first time offenders of up to 30 years in federal prison, a $250,000 fine, forfeiture and restitution.

Whoops.

Recently, the White House’s IP Czar Victoria Espinel testified before the House Judiciary Committee, and Rep. Zoe Lofgren (D-CA) had a lot of pointed questions (YouTube video of the exchange here).  Now Ars Technica has posted an interview Rep. Lofgren in which talks about the due process problems with seizing domain names without giving people a chance to defend themselves before the seizure takes place:

You’ve got the prosecutors coming in, they have a judge sign something, and the people whose property is being seized are never heard from. It doesn’t appear, honestly—though it would not solve the due process problems—that there’s much inquiry on the part of the prosecution, either. Is there a fair use right? Is there an authorized use? Is there legitimate business going on? There’s no opportunity for that to be raised, and once the damage is done, it’s done.I’ve not yet talked to some of the individuals, but we’ve had second-hand reports of people in the child pornography takedown [i.e., who owned one of those 84,000 websites] whose businesses were essentially destroyed. There’s hardly anything you can say. It’s worse than accusing somebody of being a pedophile.

These are troubling developments indeed.  The whole point of giving the innocent-until-proven-guilty the chance to defend themselves before seizure is to help prevent these sorts of devastating mistakes from happening.