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Calls to Backtrack on Copyright Balance Put Tech Backing for NAFTA in Doubt

· September 22, 2017

As negotiators converge on Ottawa to resume talks over updating the 1994 North American Free Trade Agreement (NAFTA), content interests have barraged U.S. trade officials with letters demanding that the U.S. Government abandon critical balancing mechanisms in the agreement’s copyright chapter, regarding fair use and safe harbors for Internet services.  

How these issues are resolved is critical, since it will affect Internet and technology industries’ support for the IP chapter of the agreement, and potentially NAFTA itself.

There are two major moving parts here: (1) whether USTR undermines well-established safe harbors for online intermediaries, and (2) whether USTR abandons the policy of promoting balanced copyright in free trade agreements.  

As previously noted here, acceding to Hollywood and recording industry demands would break with existing U.S. law, and Congressional direction in trade promotion legislation.  This would also walk back priorities that were laid out by USTR itself earlier this year.  Nevertheless, some in the entertainment industry are urging U.S. negotiators to do exactly that, at the risk of crossing red lines for Congress, negotiating partners, and various U.S. stakeholders.

Relitigating the DMCA Safe Harbors

Beginning with FTAs involving Chile and Singapore in 2003, every modern U.S. free trade agreement has included obligations to implement DMCA Section 512-style provisions.  Some music rightsholders complained in a letter earlier this week that despite rightsholders endorsing every FTA since 1998, these provisions are outdated.  (We’ll set aside the absurdity of complaining that the 1998 Digital Millennium Copyright Act is an outdated, two-decade old system while extolling the virtues of the four-decade old 1976 Copyright Act.)

What is the music industry letter’s basis for removing the U.S. DMCA from U.S.-led free trade agreements?  It claims: “We support safe harbors as they were originally intended, that is limited to passive neutral intermediaries and not platforms that are optimizing or promoting content.”  But no one ever thought the DMCA only protected neutral networks like broadband providers.  When enacting the DMCA, Congress explicitly pointed to the value of Yahoo’s actively developed search index, and specifically the “human judgment and editorial discretion” exercised by Yahoo staff in building the first, manually-crafted search engine.

In any event, arguing that safe harbors haven’t worked out as music industry interests had once hoped concedes a thinly-veiled effort to launder amendments to federal law through trade agreements.  Congress, however, stated repeatedly in regard to the 2015 Bipartisan Congressional Trade Priorities and Accountability Act (or “TPA”) that U.S. trade agreements should “reflect a standard of protection similar to that found in United States law” and “cannot change U.S. law without Congressional action, nor prevent the United States from changing its law in the future.”

This Congressional directive applies with full force in the context of copyright: both House and Senate reports backing TPA cited the importance of balancing language.  Disregarding these Congressional directives would be a curious strategy for negotiators wary of “irritating” legislators.

The economic consequences of abandoning intermediary protections would be severe.  This is because the DMCA is responsible for the modern Internet economy; hundreds of thousands of jobs depend on products, tools, and services delivered through online intermediaries.  Recent research indicates that weakening intermediary liability protections would cost 425,000 U.S. jobs, and decrease productivity by $44 billion per year.  Liability risks also affect investment: surveys reveal that for a large majority of venture capital investors (81%), intermediary liability limitations were more important than overall economic conditions.  At the same time, online services are increasingly the source of the most successful U.S. cultural exports.  For example, digital streaming services secured nearly a third of 2017 Emmy nominations, having invested billions into new, engaging content.

Championing Imbalanced Copyright

In addition to urging the Administration to backtrack on safe harbors, rightsholders have told trade negotiators to reject any attempts to balance copyright laws against technology exports, notwithstanding that USTR identified “strong and balanced copyright” as a digital trade priority several months ago.

As previously covered on DisCo, fair use industries are economically critical, accounting for 16% of the U.S. economy, employing 18 million U.S. workers, and producing $368 billion in exports.  Undermining ad-supported online business models alone could endanger more than 10 million Internet-dependent jobs.

By contrast, music industry requests to selectively export U.S. copyright law in a way that would harm digital exports come at a time when a bright, streaming-lead future approaches.  In fact, even as the RIAA-led letter complained that current U.S. copyright law was not serving the music industry well, the RIAA’s mid-year numbers were telling another story, including a 47% increase in digital streaming revenues.  A recent Goldman Sachs research report paints a similarly encouraging picture for the future of the music made possible by digital streaming services.  Like the RIAA numbers, the Goldman Sachs report attributes its projection of $100B+ revenues by 2030 to new, Internet-enabled services.

Promoting the Future of Digital Exports

If new and innovative technology is going to continue driving creativity, copyright regulations should not endanger the Internet and tech firms enabling that innovation.  Unfortunately, many nations’ copyright laws date from the pre-Internet era, and actively deter U.S. Internet exports.  That must change if U.S. online services are going to succeed in foreign markets.

When the Obama-era Anti-Counterfeiting Trade Agreement (ACTA) broke down in 2012 in the face of criticism from the public, Internet, tech constituencies, many attributed that criticism to a failure to account for the importance of the Internet.  Following on the heels of the 2011-12 SOPA debacle, the two incidents together reflected the fact that the needs of new technology had not been incorporated into policy — intellectual property policy in particular.

Exporting certain copyright enforcement measures without U.S.-style balancing rules places a thumb on the scale in favor of one industry’s exports to the detriment of others — not only the Internet and technology sectors, but all U.S. enterprise that depends on technology to export.

As technology is increasingly becoming the platform for new faces of U.S. creativity, technology and cultural exports hang in the balance.  If NAFTA fails to protect those exports, the segments of the economy being left behind may conclude it is wiser to walk away from the deal.

Digital Trade

Companies rely on clear, predictable rules that facilitate digital trade to export their products and services around the world. These rules include balancing the competing interests between encouraging investment and enabling information access; promoting the free flow of information online; and maintaining balanced intermediary liability regimes.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.