Intellectual Property

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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Today a federal appeals court in California rejected an effort to use copyright to suppress the distribution of a controversial film online, echoing sentiments I previously expressed in two posts on what I called “IP immigration” [1] [2].  Others have discussed the case at length today [1] [2] [3] [4].  In short, the Ninth Circuit court of appeals rejected a copyright infringement claim by the plaintiff Cindy Garcia, who had been deceived into appearing in a short film titled “Innocence of Muslims,” which made insulting and inflammatory statements about Islam.  When the film was posted to YouTube and translated into Arabic, it resulted in threats to the plaintiff Garcia.

The court’s opinion today recognized that the plaintiff could not and did not have a copyright in her five-second, otherwise-unfixed performance.  As the court put it, the activities surrounding Garcia’s unwitting participation in the film may leave her “with a legitimate and serious beef, though not one that can be vindicated under the rubric of copyright.”  (A separate opinion released today observed that compelling YouTube to take down the video based on threats was a prior restraint of speech prohibited by the First Amendment.) MORE »

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The European Commission has today released its new Digital Single Market Strategy. The objectives of the strategy sit within the wider political context: helping to restore a limp European economy to growth, whilst maintaining an effective welfare state and public services. Will this strategy help to deliver the kind of dynamic social market economy Europeans demand?

Vice-President of the European Commission Andrus Ansip has rightly set out an ambitious vision of a Digital Single Market. For those who believe in an enabling set of rules that will take society forward now is the time to step forward to support this vision. The alternative — a set of rules that fragment regulation along member state lines and reverse digital progress — is not a viable option. MORE »

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Today, Maria Pallante, the Register of Copyrights, will testify in the House Judiciary Committee’s twentieth (and perhaps final) hearing in its ongoing copyright review. In her written statement, the Register correctly recognizes that “the ultimate beneficiary of copyright law is the public at large” and that “a sound copyright law will balance the application of exclusive rights with the availability of necessary and reasonable exceptions.” But the testimony treats balance only as benefiting end users, when balance actually is critical to creativity itself.

At the beginning of her testimony, the Register identifies general themes that have emerged from the Committee’s review process. She notes that “it is essential that authors are incentivized to contribute to our culture and society at large….” They must be compensated for the works “we so appreciate and enthusiastically monetize as a nation.” She further observes that copyright law must “promote the many businesses that identify, license, and disseminate creative works.” The law must provide “the certainty they need to protect and enforce their investments.”

At the same time, the Register acknowledges the interests of “individuals who are captivated by a book or film” and “libraries that collect and provide access to our cultural heritage….” It is in this context that the Register mentions the importance of balance and “the ongoing availability of a flexible fair use defense.”

This is an important acknowledgment, but a reading of the Register’s testimony leaves the impression that exclusive rights benefit creators (and derivatively users who benefit from these creations), while exceptions benefit only users (and presumably the entities that provide them with services). Authors get copyrights; users get exceptions. However, copyright’s exceptions and limitations have always played an essential role in providing authors with the raw material for their creative activity. The idea/expression dichotomy allows authors to use themes and genres employed by previous authors. Copyright term enables creators to retell stories from existing sources such as the Bible, Shakespeare’s plays, and folk tales. Indeed, many of Disney’s films, including Frozen, are based on works in the public domain. Fair use is essential for parody (e.g., The Daily Show), documentary films, and news reporting.

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As a fight over the trade promotion authority (TPA) bill “engulfs the capitol,” debate has arisen over whether Congress should identify obtaining balanced copyright language as a U.S. trade priority. Both the Internet Association and the Computer & Communications Industry Association (where I work) criticized the bill’s failure to acknowledge the importance of promoting balanced copyright among U.S. trading partners, since the absence of these protections limits growth opportunities abroad. The Consumer Electronics Association, while applauding the legislation, expressed a similar view, observing that “[f]uture trade agreements should include not only include strong intellectual property protection and enforcement, but also robust and flexible limitation provisions.”

In response to the concerns voiced by the Internet sector, Geoffrey Manne appears to disagree, writing for Truth on the Market that “mandated ‘fair use’ language has no place in trade promotion authority.” (It is important to recognize that these statements do not call on Congress to “mandate fair use” in TPA. The question is whether Congress should direct the U.S. Trade Representative to promote balanced copyright in foreign markets that U.S. Internet companies are entering.)

This issue is important because of the high stakes. Manne is right in saying that trade promotion authority is important, but this glosses over how controversial it can be. As former Deputy USTR Miriam Sapiro wrote at Brookings this week, “the stakes as well as the hurdles for getting trade promotion authority from Congress are high. Critics of trade agreements have been well organized and mobilized.” Trade needs every friend it can get right now, which is why it would be a grave mistake to throw Internet concerns under the bus. This is particularly the case given that the Obama Administration’s last trade effort, ACTA, foundered several years ago due to the perception that the agreement was anti-Internet.

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As Techdirt reported this morning, emails leaked from the Sony hack show MPAA CEO Chris Dodd campaigning to USTR Michael Froman against fair use.

As DisCo has previously covered, Sony Pictures Classics, a subsidiary of MPAA member Sony, successfully argued that its use of a nine-word Faulkner quote in the film Midnight in Paris was fair use, saying: “Fair use is an integral part of the Copyright Act. Without fair use, critics and scholars could not quote the very works they write about.”  Similarly, DisCo covered how the NFL and Baltimore Ravens also successfully argued fair use, with the MPAA filing an amicus brief in support of this doctrine.  After that brief drew media attention, MPAA’s Ben Sheffner wrote in a blog post that the MPAA’s “members rely on the fair use doctrine every day when producing their movies and television shows – especially those that involve parody and news and documentary programs. And it’s routine for our members to raise fair use – successfully – in court.”  And several years ago, Fritz Attaway, then a senior MPAA executive, explained to a National Academies review that the “beauty of fair use is that it is a living thing . . . like our Constitution . . . that can adapt to new technology.”

One would think that when USTR announced in 2012 its intention to promote U.S. limitations and exceptions like fair use in the TPP, the film industry would have supported codifying the exception that it both relies upon and celebrates. MORE »

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David Balto and Matthew Lane, antitrust attorneys, have authored a guest paper for DisCo on innovation in the music delivery sector.  David previously served as Policy Director at the Federal Trade Commission’s Office of Policy and Evaluation, and attorney advisor to the FTC chairman.

There is no doubt that we live in exciting times.  New technologies are constantly emerging that promise to change our lives for the better.  These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, or give us a voice.  However, disruptive innovations do not hit all areas of our lives equally.  There are some industries that are controlled by companies that don’t want to be shaken up and have the power to prevent it.  These consolidated industries are an anathema to disruptive innovation.  So how do we enable disruptive competition in these industries?

One answer is found in our competition enforcement agencies and the oversight they can achieve through antitrust enforcement and consent decrees secured when cases are brought.  The important role of consent decrees is often overlooked.  A properly constructed consent decree between the government and a company accused of anticompetitive behavior can restore competition and foster new competitive entry.  Permitting entry is vital to disruptive innovation because much of this innovation comes from start-ups and new entrants. MORE »

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Tomorrow the Supreme Court will hear oral arguments in two intellectual property cases that could affect the technology sector: Commil USA, LLC v. Cisco Systems, Inc. and Kimble v. Marvel Enterprises, Inc. This blog attempts to summarize and preview the arguments for both cases. For disclosure purposes, CCIA filed an amicus brief in Commil in support of Cisco.

1. Commil USA, LLC v. Cisco Systems, Inc.

The issue the Supreme Court chose to focus on in Commil is “whether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).” Even though this is a patent law case, it may have implications for copyright as well because many patent standards for secondary liability are imported into copyright law (see Grokster). CCIA discussed this issue at length in its amicus brief supporting Cisco and argues that the culpable intent requirement in copyright law from Grokster should not be changed regardless of the holding in this case.

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Yesterday Austin-based Usenet provider Giganews was awarded more than $5.6 million in attorney’s fees and costs by a federal court in California, relating to its lengthy battle to exonerate itself of spurious infringement allegations from serial copyright litigant Perfect 10.  The court awarded fees in order to “discourage serial litigants from bringing unmeritorious suits and then unnecessarily driving up litigation costs in order to drive a settlement.”  (A statement by Giganews and link to the order are here.)

Represented by “high stakes” IP litigator Andrew Bridges of Fenwick & West, Giganews has been slugging it out with adult content purveyor Perfect 10 since 2011.

Perfect 10 is likely no stranger to copyright nerds; its litigation campaigns against a who’s-who of Internet properties in the previous decade yielded few victories for the company, but did lead to important precedents on intermediary liability and fair use, including search engines’ use of thumbnails.  (Some of these cases comprise the so-called Perfect 10 “trilogy”; including Perfect 10 v. Google, Inc., Perfect 10 v. Amazon.com, Perfect 10 v. VISA, Perfect 10 v. CCBill LLC.) MORE »

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An expert panel convened on Capitol Hill this morning, discussing new research on the detrimental effect that regulatory uncertainty has on Internet investment (as well as additional copyright law and policy challenges, which we live tweeted on @DisCo_Project).

The new research quantifies the impact of Internet regulations, including intermediary liability limitations, by showing their effect on early-stage investment.  A new report by Fifth Era and Engine finds that legal uncertainties for digital content intermediaries discourage early-stage investment around the world, reinforcing findings from a 2011 report that found early-stage investors in the United States were considerably less likely to invest in new online services exposed to legal risks.

In a similar vein, another 2011 paper found that changes in copyright policy changes could spur demonstrable investment in new online services.  Comparing investment in online services in the U.S. and Europe in the wake of the 2008 Cablevision case — a federal appellate court ruling widely heralded as giving additional legal certainty to online platforms — researchers found that U.S. investment increased considerably.  In contrast, a follow-up study by the same authors explored the impact of judicial decisions in Europe that increased legal exposure for online platforms, and found decreased investment when applying the same methods.

The Fifth Era report reinforces this conclusion, providing further evidence that additional risk and uncertainty in the online environment decreases investment.  This conclusion is not entirely surprising — but the authors’ specific findings provide impressive data on how severely risk can stifle early-stage investment.

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