Why is the Media Talking About SOPA Again: An Explainer

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A number of recent news articles ([1] [2] [3]) have mentioned a controversial 2011-12 legislative effort known as “SOPA” (which was short for the Stop Online Piracy Act bill introduced in the House, along with its Senate counterpart the PROTECT IP Act).

Folks may have thought that SOPA ended after the massive Internet uprising on January 18, 2012 and mass Congressional rejection of the effort.  But as media coverage of the Sony leak showed, rightsholder constituencies have just moved from the relatively transparent halls of Congress to less public fora, like courts and federal agencies.

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Competition, Regulation, and Market-Based Prices in Copyright Rate Setting

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When it comes to the nexus between competition and regulation, competition is all too often cursed with fair-weather friends.  For today’s example, we’ll take a trip down the copyright regulation rabbit hole.

It begins with a Copyright Royalty Board (CRB) proceeding for setting webcaster rates under a statutory license in Section 114 of the Copyright Act.  The process, called “Web IV” because it is the fourth such proceeding under this section of the Copyright Act,[1] was announced late last year and should conclude by the end of 2015.  By mid-December, non-interactive webcasters like Pandora and iHeartMedia will know how much they must pay to stream (or “publicly perform”) recorded music to listeners from 2016-2020.[2]

These statutory license rates, part of a complex multi-tiered system that, as we’ve noted in the past, legally requires discrimination against new technologies, are set for 5-year periods and are paid to an entity called SoundExchange.  SoundExchange is designated to collect royalties under the statutory license for certain uses of sound recordings, including Internet radio play of music.

(Perhaps you’re thinking, “wait, I thought radio stations didn’t pay royalties to play records on the air?”  You would be right: traditional terrestrial radio does not pay royalties for playing sound recordings – which has historically been defended with the argument that radio play provides valuable promotion for sound recording owners.  But in another example of copyright law discriminating against new entrants, while conventional terrestrial radio is not compelled to pay for the public performance of sound recordings, Internet radio must pay to do the same, under Section 106(6) of the Copyright Act.)

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Is the Justice Department taking a stand against music licensing gridlock?

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Yesterday Billboard wrote that the Department of Justice was reportedly taking a position against a major source of gridlock in music licensing: so-called “fractional licensing.”

As readers of DisCo may recall, the Department of Justice has been investigating alleged anticompetitive activities by the nation’s performance rights organizations (PROs).  Two of the major PROs, ASCAP and BMI, are already governed by long-standing consent decrees originating from previous antitrust cases.  In the course of efforts to update those consent decrees, DOJ has reportedly said that it will look disfavorably on contractual terms that gridlock musical compositions.

This is a crucial development, because gridlock is one of the greatest impediments to more viable options for music delivery, and, one federal judge has already found, has been used anticompetitively in an effort to extract supra-competitive prices.MORE »

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Quote of the Day: The Apple eBooks Decision, On Windowing

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Today a federal court of appeals in New York upheld an antitrust judgment against Apple, affirming a trial court’s finding that the technology company had coordinated a price-fixing scheme among five major publishers when launching its ebook store in 2010.  DisCo has covered the antitrust aspects of the ebook case before [1], [2], but there is a non-antitrust thread in the opinion, regarding windowing, that deserves attention.

As I noted in a previous post, windowing is a content distribution strategy of releasing the same content in different formats and venues at different times. By delaying consumer access to digital content as long as possible, rights holders aim to maximize returns from more traditional distribution outlets.  My previous post explored windowing in the motion picture industry, but windowing is practiced in the ebook market as well, with publishers holding back the digital distribution of their catalogue in the hopes that consumers would purchase hardcovers.  One of the problems with this windowing business model is that it induces copyright infringement.

Today’s decision by the appeals court notes that publishing executives knew this quite well, but couldn’t bring themselves to break the practice.

Ultimately, however, the publishers viewed even this [windowing] strategy to save their business model as self‐destructive. Employees inside the publishing companies noted that windowing encouraged piracy, punished ebook consumers, and harmed long‐term sales. One author wrote to [a publishing executive] in December 2009 that the “old model has to change” and that it would be better to “embrace e‐books,” publish them at the same time as the hardcovers, “and pray to God they both sell like crazy.”

(emphasis mine)

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Supreme Court Declines to Hear Oracle v. Google Case Over Java Copyrights

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This morning the Supreme Court issued an order indicating that it was declining to hear an appeal of the copyright case between Oracle and Google.  The appeal concerned the copyrightability of “application programming interfaces” (APIs).  Oracle launched the suit against Google shortly after acquiring Sun, which held copyrights and patents on the Java computer language, in 2010.  It claimed that Android infringed Java copyrights because Android replicated elements of the Java API in the Android API.  (Oracle’s suit also advanced patent claims, which came up remarkably short.)

The trial court sided with Google, but the U.S. Court of Appeals for the Federal Circuit disagreed, in a May 2014 ruling discussed previously here, here, and here.  Google appealed to the Supreme Court, arguing that the appellate court had incorrectly held that the system and methods of the Java API could be protected under U.S. copyright law.  The U.S. Copyright Act withholds protection from any idea, procedure, process, system, or method of operation. Processes, systems, and methods are usually the domain of patent law, not copyright; courts have long noted the lack of copyright protection for interface specifications encourages interoperability across software environments.

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What Does Jurassic World’s Opening Weekend Tell Us About International IP Policy?

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Jurassic World grossed over $315 million abroad last weekend, including more than $100 million in China. The overseas success of the Universal Pictures film – and the fact that for years overseas profits have outstripped domestic ones – calls into question the perpetual narrative that foreign IP laws are non-existent or inadequate. The matter is timely, since this narrative is made in support of the copyright section of the Trans-Pacific Partnership Agreement.

Although the text of the current draft of the TPP is still secret, the IP chapter has been leaked several times during the course of the negotiations, most recently in October 2014. The copyright section of the IP chapter has been discussed several times in this blog, including here and here. Throughout the TPP negotiations, the U.S. has attempted to export certain features of U.S. copyright law, some good, some not-so-good. The good include safe harbors for Internet intermediaries and language on exceptions inspired by the fair use doctrine. The not-so-good include the DMCA prohibitions on circumvention, a life of the author plus 70 years term of protection, and statutory damages.

The new language on exceptions may cause the TPP’s copyright subchapter to be more balanced overall than the copyright subchapters in the various free trade agreements the U.S. previously entered into with other TPP countries, including Peru, Chile, Korea, Australia, and Singapore. But why are copyright issues injected into trade agreements at all?MORE »

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How Copying Promotes Creativity

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On Wednesday, NPR ran a story on composer Michael Giacchino that highlights the importance of fair use copying to the creative process. Giacchino won an Oscar in 2010 for his score for the film Up, and he has written the score for many other films, including the just-released Jurassic World, Tomorrowland, Mission Impossible 3, Dawn of the Planet of the Apes, and the recent Star Trek films.

Giacchino told NPR how he became obsessed with Steven Spielberg films as he was growing up:

“When I wasn’t able to get myself to a theater to re-watch, you know, E.T. for the hundredth time, or Raiders of the Lost Ark, or Star Wars, the only way to relive those movies was to listen to the soundtrack.” When he did go to the theaters, Giacchino would sneak in tape recorders so he could listen to the soundtracks later. “I still have all those cassettes,” he says. “I would just listen to Raiders of the Lost Ark over and over and over.”

As this anecdote reveals, artists don’t just spring into existence. They must learn their craft, and part of that educational process involves close study of the great works of the masters that went before them. As with Giacchino, this study may require the copying of works to get the necessary long-term access to them. Additionally, artists often train by copying other artists. A standard exercise in a creative writing class is to copy, by hand, several pages of prose by great authors such as Ernest Hemingway or William Faulkner. Similarly, studio art classes often require students to paint copies of important paintings in different styles (e.g., Impressionist, Modern, Abstract, etc.). Fair use is the legal theory that permits this copying of works not yet in the public domain.

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The Public Costs of Private Distribution Strategies: Content Release Windows as Negative Externalities

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In a Bloomberg Businessweek interview last month, Megaupload founder Kim Dotcom talked extensively about copyright and business models.  Dotcom, who has been criminally charged in the United States in relation to copyright infringement, was asked by the interviewer if he “believed in copyright.”  Dotcom replied that he did, but argued that he did not believe in “copyright extremism” – a term he used to describe extended delays in content distribution, which often result in content reaching foreign markets months after it is released in the United States.

According to Dotcom, the solution to such “extremism” is a worldwide studio-run streaming platform rather than, as the Washington Post’s Brian Fung described it, “letting Netflix play the middleman.”  Essentially, “extremism” is another way of saying that piracy is more a business model problem than a policy problem.  Expensive and controversial copyright enforcement would be more efficiently supplanted with different business practices.

But this raises an obvious question: if there is a better way of doing things, why aren’t things done that way?  The answer is that different stakeholders bear the costs of different solutions.  Moving to worldwide online distribution entails risks borne mostly by industry stakeholders, who would be abandoning a time-honored content distribution strategy referred to as “windowing” or “release windows.”  On the other hand, the risks of the current windowing model are known, and the costs of this model fall at least in part on taxpayers.

Example of Release Windows

(click to enlarge)

What Are Content Release Windows?

The traditional approach to distribution of film and some other content involves selective release through different and often exclusive channels, in different markets, for different times.  This means content may only be available through a particular channel for a period of time.  This period is dictated by the license, and it may occasionally be mandated by law.  As a result, the availability of a given piece of digital content often appears to consumers to change arbitrarily.

The most sacrosanct window has always been that of initial theatrical exhibition.  This is the time frame during which newly released films are exhibited in traditional movie theaters.  Over time, the length and nature of this window has changed, and it has generally become shorter.  As data from the theater owners’ trade association shows, the theatrical exhibition window has contracted over the last decade, but it still stands at roughly 120 days in the United States, and can be far longer in other markets.

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The Solicitor General’s Peculiar Brief in Google v. Oracle

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Last week, the Solicitor General of the United States filed a very peculiar brief advising the Supreme Court not to hear Google’s appeal from the Federal Circuit’s decision last year that the Android application program interface (API) infringed Oracle’s copyright in the Java API. We previously discussed the Federal Circuit’s May 2014 decision here, here, here, and here; and the significance of the Court’s call for the views of the Solicitor General here.

The SG’s brief is peculiar in several ways. First, it reflects a profound misunderstanding of the Copyright Act subsection that codifies copyright’s “idea-expression dichotomy” by prohibiting protection for ideas, systems, and methods: 17 U.S.C. § 102(b). Second, it completely ignores the obvious “circuit split” between the federal courts of appeal, which has been exacerbated by the Federal Circuit’s decision. Third, it mistakenly concludes that Google’s “substantial and important” concerns about the impact of the Federal Circuit’s decision on “interoperability and lock-in effects” are better addressed through the fair use doctrine than the idea/expression dichotomy.

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Royalties Ruling Reflects Anti-Innovation Bias

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As the national press noted two weeks ago, Judge Louis Stanton in the Southern District of New York sided with BMI in a dispute with Pandora over royalty rates for public performance of musical compositions administered by BMI.  That ruling was finally unsealed yesterday, and it reflects another example of copyright law penalizing new technology.

The upshot of yesterday’s decision [PDF here] is this: while radio broadcasters everywhere pay 1.7% of their gross revenues in public performance royalties for musical compositions, Pandora should pay 2.5% of its gross revenue to BMI.

As I have noted in previous posts, Internet radio broadly gets a bad deal in the copyright regulatory framework.  The fact is that the current copyright system tends to discriminate against newer forms of technology, and in favor of existing technologies.  This isn’t a recipe for promoting progress.

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