Internet Association Wants to Encode Safe Harbors in New NAFTA

As debate over renegotiating NAFTA heats up, the copyright interests will be duking it out with the internet industry over the inclusion, or not, of “safe harbor” provisions akin to Section 512 of the DMCA and Section 230 of the CDA.  In a letter dated August 31 to USTR Ambassador Robert Lighthizer, the Internet Association sang its standard refrain on the absolute necessity of these liability shields for the growth of the digital economy and the protection of American jobs that are increasingly dependent on the tech and internet sectors.  No surprise there.  And at least some truth.

More bizarrely, though, the letter claims that the Internet Association represents “the new faces of the American content industry, winning Emmys and Oscars, providing digital distribution for streaming-only Grammy winners, while also creating services that address the challenge of piracy by allowing consumers to legally access content globally.”

Ruth Vitale, CEO of CreativeFuture took exception to this claim in a letter of her own addressed to Ambassador Lighthizer. In her response, Vitale explains the well-documented history of the unintended negative effects of the DMCA on creative producers of every size.  “Why should these provisions be in an updated NAFTA — undermining the protections for American creatives overseas?” writes Vitale. “Please don’t export a system that does nothing but shelter the most powerful internet companies, rather than the start-ups that these trade associations often claim are the beneficiaries of safe harbor.”

The only reason the IA was able to insert this plug about award-winning “content creators” is because its membership includes companies like Netflix and Amazon; but as I addressed in an older post, Netflix-like models are neither truly “internet” businesses, nor a particularly new model for content-production.  Netflix is a motion picture exhibitor and producer—one that has as much interest in the copyrights vested in the products it makes as Sony or MGM.

Moreover, Netflix remains something of an unknown quantity, if we’re looking at big-picture economics.  Presently, we are witnessing a period when the company is spending a fortune in raised debt to produce work at a blistering pace in order to grow fat with content in its bid for global market-share.  But profitability is another question altogether; and there will come a time when the growth flattens. Netflix, Hulu, Amazon Originals, etc. are really just the new HBOs, Showtimes, and FX Networks on the block; and no matter how the landscape looks in five or ten years, there is no reason to believe that the copyright interests of the leading producers, whoever they may be, will be any less relevant than they are today. Even more to the point, the copyright framework is essential for the independent writer currently banging away on a new work that she hopes to sell to one of these entities.

Similarly, for all the talk of growth and vitality—and there is evidence of both—the major internet platforms still imply futures that cannot easily be measured by the metrics of the current market.  It wasn’t all that long ago that we all jumped onto Facebook, which is now considered an essential platform for both individuals and businesses. But if my 15-year-old and her friends are any indication, Facebook’s future is questionable because these teens have abandoned the platform as a place for “old people.” This does not mean Zuckerberg and Co. won’t come up with a way to regain that market as it enters adulthood, but it does suggest that the social media market we have today may not look anything like what we will have in the relatively near future (see MySpace).  And if anybody can claim to know the precise role of safe harbors in this uncertain future, then I suspect a crystal ball is somewhere in the room.

The Crystal Ball in the Room

Speaking of fortune-telling, the most substantial quote from the Internet Association letter may be the one which states that “One recent study found that weakened safe harbors for online intermediaries would eliminate over 425,000 American jobs and lead to an annual loss of $44 billion in US GDP.”  Sounds compelling if nobody reads the study, which the IA can assume will be the case. But I read the study (which was not surprisingly commissioned by the Internet Association) authored by Christian M. Dippon, PhD at the private firm NERA Economic Consulting.

While stipulating that I may be undervaluing some aspect of Dippon’s work, the general approach of the study hopes to provide evidence to support this conclusion:  that altering (i.e. weakening) safe harbors would lead to crippling litigation that would then result in higher prices passed onto consumers.  This would in turn reduce demand for certain services, costing jobs and investment in the otherwise robust tech and internet sectors. Both the premises and the research appear flawed.

For one thing, it is false to assume that readjusting corporate liability through legislative reform can only lead to “crippling litigation.”  To the contrary, if the statutory provisions of the safe harbors were amended to restore their original intent while mitigating their unintended harm, this would more likely lead to changes in the best practices of those corporations seeking to avoid liability than it would inexorably lead to more litigation.  It is in fact the worst practices of many service providers where rights-holders find fault—practices that have often been obscured by the dysfunctional DMCA as a tool of enforcement.

In fact, the lack of rigor in the study in this regard is revealed by its reference to the BMG v Cox case as exemplary of the kind of litigation that would supposedly run amok under an amended safe harbor regime.  Having acknowledged in the early part of his paper that DMCA is a conditional shield for service providers, Dippon then fails to recognize that Cox lost that case precisely because it failed to meet those statutory conditions.  Given that the internet industry has tried to portray Cox in a similar light, its emphasis in this study suggests that the IA perhaps fed NERA this example and that nobody at NERA did careful research into the case.

Specifically, the study seeks to support its conclusions by means of consumer surveys on the use of search and cloud storage services, determining that a rise in prices for cloud storage would reduce demand for these services; and determining that increased exposure to more intrusive advertising would reduce the demand in search.  These increases in prices and/or intrusive advertising are assumed to result from the aforementioned increase in litigation, which is itself highly speculative.

Perhaps most telling is that in order to calculate the potential price increase for cloud storage, the author references MP3Tunes, which was found guilty of copyright infringement and paid damages of $41.5 million.  Perhaps this case would be a valid baseline if it were not possible for consumers to use a cloud storage service that is not also in the copyright infringement business. But this is not a reality.

For instance, like a lot of consumers, I use Dropbox, which is neither in the infringement business nor presently more vulnerable to litigation as a result of the MP3Tunes outcome.  This legal storage business will also not be more vulnerable to litigation under the kind of amended safe harbor regime rights holders seek domestically; and it especially would not be more vulnerable to litigation if we do not transpose our current safe harbor language into new trade agreements.

There are a number of large leaps, assumptions, and omissions in the NERA study, despite IA’s leaning on it to predict potential economic losses like 425,000 jobs.  For instance, while it is true that a high-paying tech job does support several other jobs in the economy, this is too broad a view to take without also accounting for the ways in which several of the IA member companies simultaneously threaten many jobs in various sectors.

While exporting the safe harbor provisions through FTAs may be of tremendous value to a provider like Google, one cannot take the “job-killer” position seriously without weighing the unprecedented market power of these near monopolies and their capacity to bully the diverse, entrepreneurial middle class on which the economy actually depends.  And that brings us back to the rather insulting notion that these companies represent the “new face of content.”

Inherent Contradiction

Frankly, the Internet Association making this claim is kind of like a state highway department saying it’s the “new face of farming” on the grounds they build and maintain the roads that get food to market. That’s not just me being flip; it’s a comment on the nature of how the safe harbors are meant to function. Remember that the safe harbor provisions are predicated on the assumption that the service provider is not in the content business but is rather in the highway-building business and, therefore, not liable for how people might use the highway.

That’s an analogy the internet industry has employed for years to explain their neutral status vis-a-vis liabilities for copyright infringement and other claims.  And I have to say it takes a deft bit of rhetorical salesmanship to imply to the USTR that these liability shields have substantially contributed to the growth of content-producing platforms like Netflix or the production division of Amazon. The DMCA safe harbors contributed like crazy to the growth of infringe-now-settle-later models like YouTube, but that’s apples-and-oranges relative to a Hulu winning awards for a major production like The Handmaid’s Tale.  Meanwhile, for all the successful YouTubers out there—and they do exist—that’s still not an economy; and the day it becomes the economy, we’re screwed because one company owns the whole damn thing.

So as the rhetoric flies across social media about the absolute necessity of safe harbors to protect free speech, innovation, and jobs, readers should keep in mind that copyright is fundamentally predicated on the right of the individual to exploit his own creative labor, while safe harbors are based on limiting the liability of giant corporations, which has so far enabled them to infringe the rights of many individuals.  So, I agree with the Internet Association that “balance” is key in these provisions, but I disagree with their assertion that the status quo has achieved anything of the kind.


Image sources:

Digital Umbrella by maxkabakov

NAFTA Map by michal812

Crystal Ball by Kzenon

© 2017, David Newhoff. All rights reserved.

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