Author: David Newhoff

David is an author, communications professional, and copyright advocate. After more than 20 years providing creative services and consulting in corporate communications, he shifted his attention to law and policy, beginning with advocacy of copyright and the value of creative professionals to America’s economy, core principles, and culture.

Can We Ever End Legalized Piracy?

Creators of every stripe must watch Miranda Mulholland’s May 24th speech delivered to the Economic Club of Canada.  The musician, composer, and label-owner, with nearly 20 years of professional experience, does an excellent job of contrasting the realities of being a professional creator in today’s market against the rhetorical promises of the corporate leaders who designed that market.  In addition to answering some of the classic tech-utopian “advice”—adapting, selling CDs at venues, touring, etc.—Mulholland focuses broadly on the subject of accountability and the fact that what we normally call “piracy” occurs on legal platforms.  She says …

“Let’s look at the biggest music service in the world – YouTube. Did you know that 82% of YouTube users use it for music? It is supported by advertising and it is based on user uploaded content. But wait. Running a commercial site based on unauthorized uploading of copyrighted music is illegal, right?

YouTube says, it isn’t our fault – we are just the shop window. We didn’t put the items in the window, so we are not accountable for them. We are a passive intermediary. We are not liable for this massive copyright infringement.”

Because YouTube is currently a mix of licensed and unlicensed music, it is hard to get a fix on the percentage of infringing v. non-infringing uses.  Anecdotally, though, musicians like Mulholland tell this story time and again.  Still, she hardly asserts that business should return to the way things were before the digital revolution but instead looks forward, recommending specific actions that artists, industry, consumers, and government can take to get the formula right.  And with very subtle differences, what’s good for Canada is good for the U.S.  Her top item for government:  End Tech Company Safe Harbors. (Okay, they spell it harbours up there.)

As has been widely reported by countless independent artists as well as large rights holders, the intended balance in the provisions of the 1998 Digital Millennium Copyright Act was soon overwhelmed by the unforeseen volume of copyright infringement on legal platforms.  And because the largest of these platforms YouTube is part of a $700 billion-dollar empire called Google (Alphabet), litigation is an economic non-starter. Moreover, the major rights holders remain in an awkward limbo comprising negotiated deals with YouTube while still sending millions of notices of infringement of their works on the site.*

Since 2015, the US Copyright Office has been conducting a review of the DMCA; and many artists and creators have for several years been advocating some type of Take Down/Stay Down provision.  One way or another, based on the case law to date and the financial power of providers like Google, it does seem as though only legislative action can recalibrate the intended compromise with rights holders by, among other things, clarifying the statutory conditions a service provider must meet in order to retain the liability shield known as the “safe harbor.”

Of course consumers will be told—and have been told—that any revision to the safe harbor conditions in the DMCA will destroy innovation, free speech, and the internet itself.  We know the play. The Internet Association, along with “digital rights” activists like EFF will come out in full force against any proposed change. And they will all claim to be acting on behalf of consumers.  But the bottom line is this:  the DMCA presently enables massive corporations to grind up the dreams and labors of independent creators; and over time, consumers who want new works—or who wish to become creators themselves—will very likely find themselves part of the piling dust.

Based on just a sampling of the anecdotal experiences described by rights holders, both large and small, who attempt to use DMCA for enforcement, it is very likely that YouTube would be found to have already abrogated its “safe harbor” shield through non-compliance with one or more provisions of the DMCA as written.  Of course, for us to prove this, somebody would have to file a new copyright infringement claim against the company, and that won’t happen—not because a plaintiff would lack standing on the merits, but because Google is simply too big to sue. Ironically enough, though, the perception endures that the 300lb gorillas in this story are still Hollywood and the recording industry.

Viacom v. YouTube Is Unfinished Business

Readers probably remember that ten years ago, when YouTube was new, and only recently acquired by Google for $1.65 billion, the video platform was sued for infringement and vicarious infringement by a class of rights holders led by Viacom.  In 2010, the District Court granted a summary judgment in favor of YouTube, holding that the platform was entirely shielded by §512 of the DMCA; but on appeal in 2012, the Second Circuit called the lower court decision “premature,” finding that there were several triable issues of fact, and remanded the case back down.

Because the parties settled in March of 2014, just days before a new round of oral arguments was scheduled back at the Second Circuit, we’ll never know whether or not the rights holders would have been able to demonstrate to a jury that YouTube was failing to comply with key provisions in the DMCA and thus forfeit its safe harbor.  What we do know is that Viacom had provided evidence that YouTube’s founding executives, in its earliest days, were making calculated decisions to not remove material they knew to be infringing because the content was driving traffic.  We also know that the circuit court held that there were statutory issues warranting further discovery where YouTube might have been found wanting in holding up its end of the DMCA bargain.

The circuit court opinion also cites YouTube’s own internal audit at the time, which revealed that 60% of its content was copyrighted content and that only 10% of that material was authorized.  So, it is no exaggeration to say that while the Viacom case dragged on, YouTube grew its dominant position on the backs of creators, who were involuntarily “sharing” their work for no return.

Since 2010, the platform has grown from 24 hours of video uploaded every minute to 300 hours every minute; and the assumption has been that a service provider cannot know, amid all that material, what is and is not infringing.  Indeed, one of the formative principles of DMCA was that ISPs would not have to affirmatively monitor for infringement, but would instead be required to respond to each individual infringing use upon notification by the rightful owner of the copyright.

The flaw in this mechanism is now obvious and its consequences for creators are clear. A platform like YouTube is able to monetize infringements at warp speed while responding to claims at the pace of a horse and buggy by contrast—all while generating so much ad revenue that the company becomes untouchable via litigation. At the same time, shielded from liability for mass infringements on its own platform, YouTube enjoys an aggressive bargaining position that has enabled it to pay far lower rates than competing services for those works they do license.

There is a disconnect between the intent of the DMCA and the manifest reality. And what’s falling through the statutory cracks are the middle-class livelihoods of thousands of creators like Miranda Mulholland. Meanwhile, the promise that digital-age models replace old models for the artists who learn to “adapt” has been consistently disproven by creators who have actually done everything the digital gurus told them to do.

I suspect the prospect of ending safe harbors, as Mulholland proposes, is a non-starter. The principle of limiting liability for sites hosting User Generated Content remains sound; and it cannot be discounted that a site like YouTube must also manage an appeals process for wrongful claims against creators who build successful channels on the site and do not carelessly infringe copyrights.  Nevertheless, it cannot be denied that YouTube walks, talks, bargains, and earns money like a very actively-managed distribution network rather than the “dumb pipe” they claim to be when threading the loopholes of the DMCA.

While digital rights activists criticize every possible solution—from voluntary measures to legislative amendment—the fact is we now have 20 years worth of data not available to the authors of the DMCA in 1998.  These data show what artists like Miranda Mulholland have tried repeatedly to explain on the most human level—that they’re getting clobbered by an industry making fortunes from their labor.  Copyright law has always had to evolve when confronted with new technologies and new paradigms.  And in context to the lifespan of the public internet, the DMCA is ancient history.

*The irony is not lost on me that Mulholland’s video is best shared via YouTube, but that’s part of the challenge. They’re pretty much the only game in town.

See also:

https://www.musicbusinessworldwide.com/youtube-must-not-be-allowed-to-benefit-from-legalised-piracy-on-an-unimaginable-scale/

 

ReDigi Is Not About Consumer Rights

ReDigi is a business venture whose revenue model is based on brokering online transactions between sellers and buyers of “used” music files.  A prospective seller has a collection of legally-purchased digital files of songs purchased from iTunes that he will never access again, so he places these for sale via ReDigi, which connects him with a buyer. The buyer purchases the file(s) for less than the current retail price, and ReDigi takes a cut. According to their testimony, ReDigi’s software removes the file from the seller’s computer before copying it to the buyer’s computer.

It is understandable that consumers might look at this story on the surface and think it seems like a great idea; but ReDigi is in fact a classic example of yet another digital-market business venture trying very hard to get a court to conclude that the copyright law says something other than what it says.  In addition to the company’s multiple statutory conflicts, the business model itself would have a devastating effect on the primary market by creating a parallel market that is “secondary” in price only.  Moreover, despite its claims, ReDigi has no way of controlling whether or not its users would store files in offline devices while selling copies of the same files through the service.  And it goes without saying that the implications of this proposal would quickly affect digital books, movies, software, etc.

ReDigi has tried to argue its legality based on two limitations to copyright:  fair use (§107) and first sale (§109).   In March of 2013, the Court for the Southern District of New York soundly rejected all of ReDigi’s affirmative defenses after Capitol Records sued the company for infringement of the reproduction right (§106(1)), the distribution right (§106(3)), and the rights of performance and display (§106(4) & §106(5)).  ReDigi has appealed; amicus briefs have been filed; and a hearing at the Second Circuit Court is imminent.  Although the fair use defense in this case is infuriatingly funny, I think the defense argued by ReDigi that is most-widely reported, and which would gain the attention of most consumers, is the assertion that the business is covered by first sale doctrine.

First Sale is a Tangible Peg That Doesn’t Fit Into Intangible Holes

(Photo source photo by jgroup)

Like fair use, the principle of first sale has a common law lineage and was codified into the federal copyright law with the 1976 Copyright Act.  The seminal case involved a 1904 novel called The Castaway, written by Hallie Erminie, who was highly controversial for her pro-Southern views on race and the Civil War.  Publisher Bobbs-Merrill had set the retail price for this book at one dollar and notified retailers that any reduction of that price would be deemed an “infringement of copyright.”  When the R.H. Macy company sold copies at 89 cents each, the publisher sued; and in 1908, the Supreme Court unanimously held that Bobbs-Merrill had erred in its attempt to control the price via copyright after having sold the books wholesale to Macy.  The opinion contains the following quote:

“It is not denied that one who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.”

Bobbs-Merrill v Strauss is the case law precedent for the federal statute which today allows you to legally dispose of your physical copies of books, CDs, albums, and DVDs in any way you want—from reselling them to gifting them to making sculptural works of the materials and copyrighting those sculptures if you are so inclined.  The rights holders have no interest in the paper, plastic, and vinyl, even if these physical objects might later obtain intrinsic value far beyond their original purchase prices.  Copyright protects the intangible, or as the same court opinion stated …

“The copyright is an exclusive right to the multiplication of the copies, for the benefit of the author or his assigns, disconnected from the plate, or any other physical existence.  It is an incorporeal right to print and publish …” 

This, by the way, is why that pro-piracy assertion that says, “copying isn’t theft because nothing physical has been taken” is absolute gibberish. Copyright grants exclusive rights to the author, and it is the rights which are stolen via piracy.  And on the subject of the rights ReDigi is infringing, it has two major problems with its defense under the first sale doctrine.

The first problem is that courts frequently take a dim view of corporations that attempt to “stand in the shoes” of their customers. In other words, even if first sale doctrine could ever properly apply for you and me in the digital market (and that’s a big if), that does not give a business like ReDigi the right to commit mass infringements in order to facilitate, and profit from, our individual exercise of that right.  This pretense that the for-profit business is acting on behalf of consumers is SOP for many contemporary ventures; and it’s usually the way the story is reported in the press because the actual legal issues are less sexy. But ReDigi really isn’t about our rights as consumers, it’s an attempted end-run around copyright to make millions on the backs of creators—again.

The second problem for ReDigi’s claim—and indeed with applying first sale in a digital market in general—is that the statutes in §109 only provide a narrow exception to the right of distribution (§106(3)) and not to the right of reproduction (§106(1)). You can sell your copy of Toni Morrison’s The Bluest Eye, but you may not make copies of the book. Because ReDigi cannot function without making copies—and the courts have held since Napster that this form of copying infringes the reproduction right—its attempt to assert a first sale defense to the restriction against reproduction is asking the courts to read something other than what the statute clearly says. In fact, ReDigi is seeking such a dramatic expansion of the law that it not only wants to “stand in the shoes” of the public, but it wants to claim a right the public doesn’t even have.

Either Digital is Different or It Isn’t

What I find amusing about stories like this one is that the tech-utopian, anti-copyright crowd loves to accuse copyright advocates of clinging to buggy-whip paradigms in a automobile world.  Yet when there is a potentially profitable outcome, these same pundits are happy to support “innovators” who whack cars with buggy whips all the time.  Copyrighted works that are fixed in physical objects are fundamentally different from works fixed as digital files, and contemporary copyright law must recognize this difference.  To be blunt, the intangible digital file obliterates the whole idea of a secondary market.

There’s no such thing as a “used” digital copy, which is more properly called a clone, because it is identical in every way to the original file and not subject to the degradation—or for that matter, the appreciation—associated with creative works that are fixed in physical objects like books, albums, etc. Nobody will ever enter a rare bookshop and sell her “first edition” ones and zeroes that represent the poems of Dylan Thomas. No father will pass along his digital file of Dark Side of the Moon to his son and feel the gift imbued with the same meaning as a vinyl album that has been lovingly preserved.

Both intrinsic and sentimental value is lost through digital, with works now “fixed” as intangibly as the copyrights that are supposed to protect them. This is why it is more essential than ever to understand what copyright protects:  because authors can no longer rely on the natural barriers to infringement created by physical objects.

What we consumers get in lieu of physical treasures—for better or worse—are more flexible ways to experience more works, and at very low prices. In fact, the idea that I can legally stream a large library of musical works on demand for about $9/month suggests that ReDigi’s proposal is kind of a buggy-whip concept itself—seeking to trade stored files in a world gone streaming. Ultimately, ReDigi does not provide the market with anything that justifies the scope of revision it seeks, in the service of its own short-term gain, to the copyright law.

The concept that is usually lost in these conversations, as people focus on the immediate ends they want to achieve, is that copyright’s exceptions must be weighed against its original purpose. And this has always been true as the law confronts each new technological change.  As the first sale principle was articulated a century and half ago in a world very much composed of physical objects, it is easy to imagine that the doctrine itself would simply never be considered in a market that looks like the one we have now.

While many consumers may feel that any price above zero for creative works is too high, the fact remains that there is a price threshold below which we can destroy the incentive to create and distribute, which is the reason we have copyrights in the first place. By making available identical, digital products for lower prices not negotiated by producers, the ReDigi model would further degrade one of the already-limited channels of distribution that actually compensate authors for their work.

Cyberattack Effect in China Reveals Flaw in Piracy Logic

This month, computers around the world fell victim to what experts have called the largest cyberattack on record. Known by its name “WannaCry,” the ransomware* assault went global sending cyber-defense teams into hyperdrive trying to protect systems as vital as hospitals, banks, and telecommunications in Europe, Asia, and the U.S.  One notable consequence of the attack, as reported in The New York Times on May 15th, was that Chinese businesses, public institutions, and universities were especially stymied in responding to the threat for one simple reason:  software piracy.

Paul Mazour, writing for The Times, cites a 2015 study revealing that 70% of the software installed in Chinese computers is not licensed, noting later in the article that use of unlicensed software and other media is so embedded in the culture that many citizens don’t even know it’s illegal.  Clearly, when major institutions, including large corporations and one of three state-run telecom companies are implicated, we get the idea.

The “WannaCry” attack targeted older Windows operating systems, and because the Chinese make such widespread use of unlicensed versions of Windows, the unsupported software lacked the updates and patches that would have at least helped mitigate the effects of the assault. And because so many computers were unprotected, this facilitated a much wider and faster spread of the virus. Granted, there are broader aspects of this story, including China’s supposed desire to build a domestic alternative to Microsoft. But taken in isolation, this incident strikes me as a cautionary tale, albeit a stodgy and maternal one.

Imagine if everyone did it. 

Yeah, it’s an ancient, parental finger-wag; but it is also a basic concept that copyright advocates have been trying to explain to the pirating public for years.

In the same way that China’s high volume of piracy left so many users extra vulnerable in this security context, there is likewise a tipping point at which a certain volume of piracy in any market will end, or dramatically curtail, new production of the works being pirated.  Based on one very typical comment I read this week, though, it seems that people are still confused about the contrasts between a black market and a legal one.

The Verge published a story about the arrest and current status of alleged Kickass Torrents founder Artem Vaulin, and I won’t comment on that still-developing case at this time. But the reason I mention it is that the comments section, not surprisingly, shifts from the report itself to the broader subject of piracy and everything that’s wrong with Hollywood, and the usual litany of complaints.  This observation from one anonymous poster caught my attention, not because I want to pick on him/her, but because it is exemplary of familiar themes:

“As much as Netflix, Spotify, iTunes/AM etc. are combating piracy and being fairly succsessful [sic] at it I can’t help but feel it’s a sub-par experience. The constant exclusivity deals, every corporation with hit TV show pushing their streaming service, and the most ridiculous of all, geo-blocking, in their effort to get more out of consumer they end up being a great advert for piracy …”

So, here’s a simple truth in response to that:  no legal market will ever compete with a black market. Doing business legally, even making older libraries of works available, has costs considerably higher than running a piracy site.  If the piracy advocates are waiting for the day when every creative work ever produced is available worldwide for a single, low-price subscription before they’re willing to stop pirating, they might as well at least stop banging on about the subject. Because it ain’t gonna happen.

Maybe this fact alone seems like justification for many to pirate, but those who think this way need to remember that a black market doesn’t produce a damn thing. Pirates trade in illegally-obtained works that other investors, large and small, have spent trillions to produce.  Because legal consumption of works in many markets is greater than illegal consumption, the margin of difference is sufficient enough to mask much of the damage when viewed from a broad perspective. But that doesn’t mean damage doesn’t occur. It’s like a basic principle of ecology; nothing looks wrong for a while until suddenly everything is wrong all at once.

Smaller, independent creators tend to feel the effects of piracy more acutely than big, corporate producers who have the scale and depth to treat piracy (to an extent) as a cost of doing business; but this does not mean the effects are nil. The Chinese scramble to protect systems running unsupported software reveals that there is always a tipping point when self-interest becomes self-destructive.  If enough consumers opt for a black market because, as the cited commenter says, the legal market is “a sup-par experience,” the truly lousy experience will come when production of new works grinds to a halt.

Yes, there is competition among producers. That’s what happens when people invest millions of dollars hoping to make something the market will like.  This competition necessitates exclusive deals, windowing, marketing, and even the dreaded geo-blocking.  This last item may seem incomprehensible to many consumers, but it is actually a manifestation of the way in which many independent film productions are financed.

In fact, eighty film directors in Europe (i.e. not Hollywood executives) just signed a petition urging the EU not to adopt a digital single market approach because this would adversely disrupt the way in which their films get made. The petition, published this week ahead of a forum to be held at the Cannes Film Festival next Monday, contains the following statement:

“More than ever, the territoriality of copyright needs to be maintained: this principle ensures high level support for artistic creation in Europe, helping the most fragile filmmakers and European co-productions. Enshrining this principle underwrites the exclusivity of rights and the financing of works.”  [Emphasis added]

It’s all well and good to sit at a computer, know exactly nothing about how products like motion pictures are financed and produced, and pontificate on the theme that “Hollywood should learn from the pirates, and until they do, I’ll keep pirating.” But this is untenable logic, not only in Hollywood, but especially for the thousands of works that are produced far from Hollywood. And the only reason these delusions persist is that—for now anyway—the legal market remains larger than the illegal market.  But there is always a tipping point, even if nobody can tell you exactly where it is.

*Ransomware locks up files on a computer and demands that the user pay the hacker(s) to restore access.