Category: Copyright

The Jetflicks indictment: talk about crime not paying.

After reading the indictment that was handed down last week against the eight men who allegedly ran the pirate streaming service called Jetflicks, all I could do was wonder what the hell they were thinking. Between 2007 and 2017, Krisopher Lee Dallmann and Darryl Julius Polo operated Jetflicks as a subscription-based service, delivering tens of thousands of unlicensed audio-visual works to customers around the United States.  So, not only do I want to ask how they imagined they would avoid prosecution while operating inside the U.S., but the following email exchange between Dallmann and a programmer named Louis Angel Villarino (as quoted in the indictment) really makes me wonder why they even bothered …

Dallmann: When Jetflicks starts making crazy $$ in a few months… How much do you need to make to be full-time for Jetflicks only?

Villarino: 120k a year

Dallmann: That’s doable …

Dallmann:  Jetflicks made 750k 3 years ago… 500k in 2015… And a sad 350k last year

Dallmann: If we didn’t have people that took advantage, we’d be awesome.

Assuming this correspondence provides some insight into the enterprise, I am not sure which inscrutable detail to highlight first; but I suppose it would have to be Dallmann’s woeful complaint that customers were “stealing” from Jetflicks by sharing login credentials.  The naïve innocence in his choice of words “took advantage,” implying that he sincerely believed he had an ethical leg to stand on, resonates with the somewhat pathetic revelation that this doomed venture was not even viable enough to provide Villarino with a full-time gig at $120k/year.  

Not that I recommend or condone criminal enterprises, but if one is going to take the risk, it seems like it ought to be with the intent to make some serious money, no?  Operating a media piracy service inside the United States is operating on a time-clock; a criminal indictment will be forthcoming.  So, if the plan does not include reaping several million dollars in a very short time, followed by a flight to a country beyond extradition, then perhaps applying to one of the many tech jobs out there is a better career move.  Some of them actually pay more than $120k per year.

In fact, if I correctly interpolate the evidence cited in the multi-count indictment, it does seem like running Jetflicks was a lot of damn work for not nearly enough revenue.  After all, making sure subscribers receive TV shows in a timely manner when you have absolutely no license to do so requires quite a bit of time and technical skill—not to mention capital expense for servers etc.—that, again, better pay a substantial return considering that a hearty pounding on the door by the FBI is imminent.  Instead, the operators almost seem to have believed they were running a legitimate business that they expected to operate indefinitely.

Some Defendants May Argue Misdemeanor Offense

As this case proceeds to trial, perhaps the rationales of the defendants will be revealed, but if not, it may still be interesting to watch the defense(s) of the six supporting characters, including Villarino.  While the apparent ringleaders Dallmann and Polo are charged with multiple counts of felony infringement, money laundering, aiding and abetting, the other six are only charged with conspiracy to commit copyright infringement.  Consequently, some or all of these men may try to prove that they were only involved in the act of streaming infringing content because streaming is currently a misdemeanor. I have no idea, of course, whether any of the six has any evidence to support such a defense, and some or all may seek plea deals; but this case could highlight the view that many policymakers believe there is no reason for streaming not to be a felony.

The distinction between civil copyright infringement and criminal copyright infringement is based on the purpose, conduct, and goal of the alleged infringer.  Old-school criminal copyright infringement usually entailed conduct like mass-producing bootleg copies of works to sell in an unlicensed market as a substitute for the legal market. Consequently, U.S. criminal code identifies unlicensed reproduction and distribution as charges that law enforcement may bring in copyright cases.  But streaming audio or video (though it often implicates reproduction and distribution) is considered a public performance of a work, and unlicensed public performances are still considered misdemeanors. 

Clearly, with regard to the kind of harm that may be caused by enterprise-scale infringement, the “streaming loophole” is a legal distinction that is outdated by the nature of the technological means used to infringe.  If selling ten thousand bootlegs out of a warehouse in 1988 was a felony, then how can it be that streaming multiple infringing works to potentially millions of viewers is considered a lesser crime?  A letter written this July by the Register of Copyrights to the Senate Judiciary Committee, IP Subcommittee states, “Under this system, criminal streaming piracy, no matter the dollar amount it involves or the number of works affected, is de facto treated as a lesser crime than the illegal downloading or reproduction of the exact same content.”

It seems likely that lawmakers will eventually recognize that streaming is the contemporary method of mass-bootlegging and, therefore, amend the criminal code to encompass public performance by streaming as a form of felony infringement.  In response, the “digital rights” advocates will doubtless write many screeching blogs and post scary-looking memes predicting once again that innocent children will face jail for inadvertently streaming infringing material, or that startup “innovators” will be afraid to enter the market.  And as usual, none of these complaints will be grounded in reality.

Caselaw is replete with both criminal and civil copyright cases, and the distinctions are clear.  This is why a start-up like VidAngel, no matter how much its model proves to be a contorted workaround to copyright law, will have its day in civil court, but its founders will not face criminal charges for the attempt.  There is no comparison between a well-intended enterprise that is held to be infringing and a criminal enterprise that seeks to profit by means of a black market.  Though in the case of Jetflicks, apparently not profiting enough for all the trouble.

Regardless of where policymakers net out on felony streaming in the near term, I will say this for the proposal:  the amended criminal statute might have acted as a deterrent for at least some of the six guys now facing charges in the Jetflicks case. Of course, this implies that they would have known enough to consider the difference, which only begs the original question:  What the hell were they thinking?

Online Copyright Enforcement Is Not Just About “Artists”

Most conversations (i.e. arguments) about copyright tend to revolve around artists in the traditional sense—musicians, authors, filmmakers, photographers, etc.—wanting to make a living from their work.  To those types of creators, the often dismissive responses from the tech-funded intelligentsia range between feigned sympathy and unvarnished antipathy for any author who would presume to earn her living making “art” in the first place.  

Somewhere among those personal opinions, creators have been offered a litany of unsolicited advice as to how they might better understand the new economic realities of the digital age and, thus, learn to benefit from avenues of sustenance newly opened, rather than complain about old avenues that have been closed by rampant piracy.  The classic example—the one that inspires so much gallows humor among creators—is the imperative that, for instance, musicians should sell more tee shirts rather than cling hopelessly to the idea of ever selling music itself.    

But, let’s look at this theme in a different context, especially with regard to the number of people now working in that insecure stratum known as the “gig economy.”  What if you heeded the wisdom of the academics, tech pundits, and internet billionaires and launched a venture that channels your creative work as merchandise? In other words, what if the way you sell your art is literally as tee shirts?  Do the tech companies who promised you the opportunity of low-cost entry support this venture by facilitating the enforcement of your intellectual property? Meh.

After you invest the sweat equity and financial capital to create and register your original designs, then market, produce, and ship the goods, you can be sure that once your brand attracts customers, it will be counterfeited through ecommerce portals.  This is a near certainty.  

The counterfeiter/pirate will often be foreign-based, usually in China, and they will post pages on Amazon, eBay, Alibaba, etc. offering knockoffs that not only infringe your copyrighted designs, but also sell those pirate goods on inferior products.  So, while the counterfeits are eating into your market, you will also receive calls from customers complaining that you sell poor quality merchandise.  Or perhaps they’ll just give you bad reviews on the same wonderful crowd-sourcing platform that empowered the counterfeiters to rip you off in the first place.  

Your ability to keep web-enabled counterfeiting and piracy from driving you out of business will depend on a number of factors, namely whether your company has grown large enough to absorb the cost of enforcement plus lost sales.  Even for a decent-sized business (say $1-2 million in gross sales), these costs can be sufficient enough to have a substantial negative effect on the operating resources of the enterprise.  

If trademarks are infringed, enforcement is a little easier to address as a holistic process; but quite often, a counterfeiter will exclusively infringe copyright by pirating original designs for tees, hats, towels, mugs, etc.  This means someone—either an employee or outside counsel—will have to identify each of the items infringed, affirm their registrations, fill out the platform’s complaint forms, and follow the platform’s various steps to request removal of the infringing URLs from the site. 

The steps required by each platform can either be fairly straightforward or a unnecessarily labyrinthine, but the sites will generally comply with removals in a timely manner.  Nevertheless, the small business owner in this case has the same problem as the musician whose work keeps getting uploaded to YouTube—the game of Whack-a-Mole. The infringements you manage to remove in a period of days will soon reappear at new URLs with apparently new (but probably the same) sellers offering your products.  And you get to do the whole process again.  

So, the question naturally arises, why don’t the major online retailers use their astounding technological prowess to better automate the identity of likely infringers?  It is true that Amazon allows a legit merchant to upload a product shot and have the system search all the places that image appears. This is not a useless tool, but it still implies a lot of extra, costly labor for the business/copyright owner. 

Why doesn’t Amazon, for instance, provide a more proactive interface for registered merchants and manufacturers similar to YouTube’s Copyright Match for the community of YouTubers, which alerts a creator when her videos are used by other YouTubers?  For instance, how hard is it for an Amazon or EBay to interpret data comprising  a) a matching photo, b) a price point about 80% less than it should be, and c) a seller based in a piracy-rich location like China, and flag the URL as a likely infringer?  This is too complicated for the most powerful computer companies in the world?

These are corporations that harvest and monetize the most granular data about us as consumers and private citizens.  Have a casual conversation with someone about eyewear in the vicinity of your phone and, like magic, you will soon be served an ad for eyewear.  Somehow, we accept this creepy invasion with a resigned shrug while simultaneously choosing to believe that these companies simply cannot analyze a basic data relationship between a product-maker and its legitimate products. 

Whenever takedown/staydown proposals have been made in the context of the usual copyrighted works like sound recordings, the internet industry and its network of pundit(s) counter that any technology used to identify repeat infringements will be too error-prone, will not be able to identify when a given use is a fair use, and will inevitably stifle free speech.  These complaints are debatable enough in the usual context, but such considerations do not apply even hypothetically to the role copyright plays in this kind of counterfeit merchandise.  

If an online retailer were to more systematically remove repeat infringers from E-Commerce sites, they could alleviate some of the burden for start-up and smaller companies.  And since this kind of entrepreneurism is exactly what the web industry claims to have enabled, it does seem like the right thing to do.  

Of course, this has always been the fine print in Silicon Valley’s generous offer of free-to-use platforms for new, independent enterprise. Their interest in either ignoring copyrights, or even funding efforts to weaken copyright law, has always been an underlying flaw in their ebullient commands to “embrace the new models.”  In reality, however, even if your rock band really could offset the loss of not selling music with the sale of tee shirts, the tees themselves would be infringed, and the major retail platforms will apparently be of very little help.

Fair Use Error in Seuss/Trek Mash-Up Case Not Good for Small Creators

In order for copyright law to work for all the Whos in Whoville—the small and the tall—legal reasoning must apply equally whether the plaintiffs are major enterprises or kitchen-table start-ups. While it is understandably common in the court of public opinion to favor smaller defendants being sued by larger copyright owners, the fact is that when an error of law disfavors a large owner, it can have an even more profoundly negative effect on smaller creators.  This is a significant problem with the district court holding in Dr. Seuss Enterprises v. ComicMix LLC.  

In 2016 a group of creators, working under the name ComicMix copied Dr. Seuss’s iconic imagery from several classic works and combined these with themes and characters from Star Trek in order to produce a “mash-up” book called Oh, the Places You’ll Boldly Go!.  According to the creators’ testimony, the “Boldly” book was painstakingly designed to mimic Seuss—not only in illustration style, but composition, coloring, etc.—and a side-by-side comparison of the visual works shows that ComicMix “slavishly copied” nearly all of Seuss’s expressive elements in its pages.

Dr. Seuss Enterprises (DSE) sued ComicMix for copyright infringement, and the District Court for the Southern District Court of California held that “Boldly” is a fair use because it is “highly transformative.”  So, once again, this nettlesome doctrine is confusing courts as to the nature of derivative works.*  Because “Boldly” is not a work of commentary about — or parody of — the original, and is merely a different use of Seuss’s expressive elements, the district court erred by not recognizing it as a derivative work, which is the exclusive right of the copyright owner to produce.  Or not produce as he/she sees fit.  (See also, Stephen Carlisle posts here and here discussing this case.)

Fourth-Factor Fair Use Analysis is Troubling for Small Creators

Concurrent with this case being appealed to the Ninth Circuit, Copyright Alliance filed an amicus brief, which points to a specific error in the district court’s unfounded reasoning in its application of the fourth prong of the fair use test.  If the court’s rationale were to be upheld, it would be especially troubling to small, independent, and start-up creators. 

The fourth fair use factor considers the potential market harm to the rightsholder if the contested use were allowed; and that word potential is critical to this analysis because authors do not always know how, when, or why their protected work may be profitable in some new way.  Hence, the aforementioned exclusive right to prepare derivative works is a big part of that potential value, and exploiting that right is neither mandatory nor limited by a timeframe (other than the expiration of copyright itself).  Write a novel next year, and it is up to you to decide when—or if—you want to develop or approve a film adaptation.  The right to exploit your novel for a motion picture does not wane if you choose never to enter the film market or to enter that market many years after publication.

Consequently, when weighing potential market harm, one question the court is supposed to ask is whether the allegedly infringing work would be considered a derivative work under the exclusive rights granted by the copyright act.  If the answer to that question is yes, this weighs in favor of a finding that the contested use does present potential market harm.  And this is true regardless of a plaintiff’s ability to quantify the presumed value of that derivative market—especially if it implies a market she has not yet entered!    

So, because the district court erred in failing to recognize “Boldly” as a derivative work, it then exacerbated this problem by inventing what Copyright Alliance calls a “bright line standard” that does not exist in caselaw, whereby a plaintiff would be required to present evidence to prove the “substantial” market harm caused by the contested use. Now, forget about being a major player like Seuss for a moment and think about being the smallest Who on the dust-speck. 

Imagine being an indie comics author just beginning to get some recognition for your work on Instagram when you discover that some other party has started making merch or animated clips from your characters without license.  Then, when you sue to defend your work, the court says, Well, you weren’t in that market, so you can’t demonstrate how you could have sustained market harm. Or as the CA brief describes in its footnotes …

“One can readily imagine the first-time author whose only market data consists of modest profits from a first novel, with no existing licensing or sequel revenues, failing to show “substantial” harm after a playwright sells a script that co-opts the author’s central plot points and characters.”

This Catch-22 logic is the antithesis of the principle that fair use is meant to extend the purpose of copyright law. Instead, this court’s reasoning merely transfers the author’s derivative works right to another party for no reason other than the fact that the using party was the first to exploit a particular idea for a derivative.  By framing this ruling in those terms, it should be clear why a larger entity, which could expedite time-to-market, may be more likely to do harm to a smaller entity, or an individual, than the other way around.  

In addition to creating a burden of proof for the plaintiff that has no basis in the history of fourth-factor analysis, the district court in Seuss v. ComicMix went so far as to dismiss evidence that DSE had already pursued various derivative-works collaborations and is preparing to do more of same in the future.  So, even with a plaintiff who could come rather close to providing quantifiable evidence of potential market harm, this court still dismissed DSE’s claim in this regard as “merely hypothetical.”  

More specifically, as the Copyright Alliance brief describes, the court “penalized [DSE] for both non-entry into a market and successful entry into other, existing markets.”  In other words, ComicMix’s fair use defense was supported by the fact that DSE had not yet entered the specific mash-up “opportunity” ComicMix had exploited; BUT the defense was also strengthened by the fact that DSE had been successful with other derivatives in general.  

Presumably, the “logic” here seeks to define “potential market harm” as the extent to which an infringer may capture some fraction of the rightsholder’s market—as long as the rightsholder is already financially successful.  That is not the purpose of fair use; and upholding this reasoning could be devastating to the author with much shallower pockets than a DSE.  

Courts do not weigh fair use based on which owners have been “successful enough” to tolerate a particular infringement.  Among other problems, such reasoning literally penalizes success.  “This unfair double-standard would effectively force copyright owners who wish to protect their works to enter all markets while at the same time being careful not to be too successful in those markets,” states the Copyright Alliance brief.  That is an aberration of the purpose of copyright law and, therefore, the purpose of the fair use doctrine.  

* A brief written for this case by Professors Peter S. Menell, Shyamkrishna Blaganesh, and David Nimmer cites both Judge Leval, the author of the “transformative” doctrine, and Justice Souter’s opinion in the seminal Campbell case stating, “it is clear they did not intend for fair use to swallow a large portion of the right to prepare derivative works.”