Category: Intellectual Property

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

KinderGuides & Copyright:  A Tale of Wishful Thinking

An important and instructive decision was handed down this week by New York District Court in the KinderGuides case. KinderGuides is a series of children’s books that include adaptations of classic works with some commentary about the authors and the stories.  Publisher Moppet Books has released illustrated, young-reader versions of works from the public domain like The Odyssey and Jane Eyre. But when they decided to launch a series of modern American classics still under copyright, this prompted litigation by rights holders who had not licensed their works to Moppet for adaptation.

At issue were Hemingway’s The Old Man and the Sea, Truman Capote’s Breakfast at Tiffany’s, Jack Kerouac’s On the Road, and Arthur C. Clarke’s 2001:  A Space Odyssey.  The suit against Moppet was filed by a group of plaintiffs including Penguin Random House, Simon & Schuster, and the estates or trusts of the four authors.  Now, before we ask the very reasonable question as to whether the Capote and Kerouac books in particular belong on a young child’s bookshelf in any form, hold that thought while we address the copyright story because it’s a lulu.

Moppet is the business venture of Frederick Colting and Melissa Medina. In 2009, Colting was successfully sued by the estate of J.D. Salinger for publishing an unauthorized sequel to The Catcher in the Rye. The New York Times reported in January, “Given the suit field by the Salinger estate, some in publishing were surprised that Mr. Colting would publish children’s versions of copyrighted works.”

What I find particularly striking about Judge Rakoff’s opinion in this case is that we can infer from his wry rejections of the defendants’ logic a narrative in which Moppet hoped to translate personal and generalized criticisms of copyright law into a series of affirmative defenses for having broken the law.  Rakoff was unequivocal in his dismissal of all of Moppet’s arguments, using terms like “absurd theory,” “exercise in sophistry,” “no support in applicable law,” and my personal favorite, “Implicit in defendants’ argument, then, is a contention that the Copyright Act itself is unconstitutional.” Suffice to say, Moppet did not have a good day in court. But let’s look at some of the important issues.

Substantial Similarity

In order to infringe the right of reproduction in regard to this kind of adaptation, the plaintiff must show that the new work is “substantially similar” to the original. So, if a short and sanitized story about a girl named Holly Golightly contains essential elements from Truman Capote’s novel, then it will be considered “substantially similar” to the original under the law.  Bizarrely, though, Moppet tried to argue that the characters and narratives in all four of the novels were “stock” elements not protected by copyright.  For instance, it appears they tried to claim that Holly is just any “small town girl with a tough past.”

This is an inscrutable claim coming from a publisher that aims to produce and sell children’s versions of classic literature.  Because if there were truly no “substantial similarity” to the original, as they tried to argue—if the Holly they presented in their version bore no resemblance to Capote’s character living out Capote’s narrative—then, Moppet would  probably be guilty of fraud—and possibly infringement of Capote’s right of publicity—because they would be selling their customers a book that has nothing whatsoever to do with Breakfast at Tiffany’s.  You can’t have it both ways; either it’s an adaptation or it’s a different story.

From Rakoff’s remarks, it seems the defendants tried to argue that the creative expressions in the novels are “fictional facts,” which were then “summarized” in the KinderGuide books.  This is the part Rakoff called an “exercise in sophistry.”  Legitimate summaries, as one might find in a book review, literary criticism, or a Cliff’s Notes type study guide, are patently distinct from adapted retellings of the stories themselves.  What KinderGuides produced were illustrated, children’s adaptations of the novels, which makes them “derivative works” under copyright law, rather than “guides” or other forms of comment about the novels.

Derivative Works

A rights holder retains the exclusive right to prepare derivative works (§106 (2)), which includes various types of works that are “based on the original works of authorship.”  So, products like film adaptations of novels, fictionalizations of non-fiction works, sound recordings, spin-offs, sequels, and translations are all examples of works that only the author has the right to prepare or license others to prepare. And this would naturally include children’s versions of novels that were originally written for adults.

The term “based upon” can be confusing because fair uses and new expressions are “based upon” works all the time.  Here, Judge Rakoff makes the distinction by reference to a case in which a Harry Potter Encyclopedia was held not to be a derivative work:

“A work is not derivative, however, simply because it is ‘based upon’ the preexisting works. Only works that are ‘recast, transformed, or adapted’ into another medium, mode, or language while still representing the ‘original work of authorship’ are derivative.

Here, though defendants’ Guides add additional material at the end, specifically a few brief pages of “Analysis,” “Quiz Questions,” and information about the author, they are primarily dedicated to retelling plaintiffs’ stories. Two pages of analysis do not convert the Guides overall – which are largely composed of “Story Summaries” – into something that no longer “represents the original work of authorship.’”

We see this happen with some frequency in the digital universe where repurposing content is relatively cheap and easy. A party wants to capitalize on the brand value of a notable work by making a use that infringes copyright, but they hope that some minimal measure of addition or change to the original work will meet the standards of fair use.  In fact, Rakoff’s opinion states that Colting and Medina “‘went to great lengths’ to achieve fair use protection,” implying that they made decisions based on how they believed fair use works (or how an attorney mis-advised them) but with little understanding of the actual doctrine.

Judge Rakoff held that defendants would be unlikely to prevail in weighing all four factors of the fair use test, stating, “Fair use…is not a jacket to be worn over an otherwise infringing outfit. One cannot add a bit of commentary to convert an unauthorized derivative work into a protectable publication.”  Even with my limited experience in the world of copyright law, I can imagine that quote will be cited in many fair use cases to come. It is one that should resonate with bloggers, YouTubers, and other digital-media creators who frequently imagine various uses to be fair uses when they are not.

Copyright is Not a Use-It-Or-Lose-It Right

One of the most important lessons in this case is revealed in the consideration of the fourth fair use factor, which weighs the potential market harm to the original works of authorship. While it is reasonable to think that a children’s version of a classic novel should have either no negative impact—or even a potentially positive impact—on sales of the original works, this is not the question on which the matter turns.

The exclusive rights in copyright, including the preparation of derivative works, are a not a use-it-or-lose-it proposition.  The author retains the right to change his mind and, for instance, prepare derivative works at any point during the term of copyright protection.  That right includes preventing the preparation of derivative works that the author or his assigns believe to be inappropriate uses of the original works.

Based on Judge Rakoff’s opinion, it seems that Colting and Medina were of the opinion that because the rights holders of these novels had not yet prepared children’s versions of these decades-old books, that some sort of limit had been reached, which should allow them to create their KinderGuides versions.  This reads as an attempt to argue that the defendant’s opinion that copyright terms are too long is the same thing as an affirmative defense for infringement.  “Indeed, the fact that any given author has decided not to exploit certain rights does not mean that others gain the right to exploit them,” stated Rakoff shortly before he opined that the defendant’s argument in this regard is tantamount to calling the copyright act unconstitutional.

Value to the Public

This rather arrogant assumption that the right to exploit a work in a specific way should devolve from the rights holders as a consequence of non-exploitation raises a question of value for me that is separate from—but adjacent to—the copyright issues.  As a parent who is reasonably well-versed in the literary arts, I’m skeptical about the value KinderGuides would be providing in this particular case.  If Kerouac-Lite existed, I don’t see why I would buy it for my kid.

As described in an older post, I remember being a new parent in the 1990s when the market exploded with billions of dollars worth of products and services designed to mold our children into geniuses.  It became necessary to step back from all that frenzy and think about which choices are truly in the interest of the child in contrast to those which more likely appeal to the egos of the parents.

In fact the 2016 New York Times headline announcing Moppet’s foray into American classics virtually echoes this tension between parent ego and child education.  Forget ‘Pat the Bunny.’ My Child Is Reading Hemingway, it says.  The notably careless mention of Pat the Bunny, which is a pre-reader’s tactile book, brings back memories of getting swept up in the marketing of things my kids don’t actually need.  One does not segue from Pat to Papa quite so rapidly.  And my instinct is that one shouldn’t.

My personal view in this regard is that children’s versions of works that may be described as foundational building blocks of literature and culture—The Odyssey, the Bible, Shakespeare, Norse Myths, Little Women, etc.—can be tremendously valuable.  While the 6-12-year-old is still learning fundamental literacy like spelling and grammar, this is a good time to introduce simplified versions of ancient stories and themes they will later discover resonating throughout their reading experiences. At least that’s the hope.

But publishing children’s versions of novels like On the Road or Breakfast at Tiffany’s in particular smacks of market opportunism with dubious educational value, especially in contrast to the wealth of great literature written purposely for children.  It’s not that it wouldn’t be possible to legally write the children’s version of a story about an “American geisha” (as Capote described Holly Golightly), so much as one has to wonder why one would do so.  Thankfully, Judge Rakoff offers a sober and informative opinion regarding KinderGuides’ efforts before they get any ideas about the works of Anaïs Nin.

Spotify in Songwriters’ Crosshairs Again

In July, two new lawsuits were filed against the streaming service Spotify, alleging willful copyright infringement on a “staggering scale.”  Publisher Bluewater Music Services and songwriter, musician, and producer Robert Gaudio (formerly of The Four Seasons) both accuse the streaming service of infringing the reproduction and distribution rights of songwriters by failing to obtain mechanical licenses for several thousand songs represented by the two complainants combined. 

In late August, Spotify filed a motion with the court alleging that the complainants were treating their service as though it were “a new Napster,” asserting that the complaints are unclear in their allegations, and, therefore, requested a More Definite Statement. Spotify further indicated that they are prepared to defend themselves if the complainants can more clearly articulate exactly what Spotify is supposed to have done.  States Spotify …

“Plaintiffs allege that Spotify “reproduce[s]” and “distribute[s]” Plaintiffs’ works, thereby facilely checking the boxes to plead an infringement of the reproduction and distribution rights. But Plaintiffs leave Spotify guessing as to what activity Plaintiffs actually believe entails “reproduction” or “distribution.” The only activity of Spotify’s that Plaintiffs identify as infringing is its “streaming” of sound recordings embodying Plaintiffs’ copyrighted musical compositions.”

The Gaudio and Bluewater complaints lay out a broad narrative that accuses Spotify of building a multi-billion-dollar business while knowingly exploiting thousands of songs over a period of years without obtaining mechanical licenses, hence the “don’t call us Napster” response from Spotify. The complainants further state that the $43-million settlement resulting from a class-action suit brought by David Lowery and Melissa Ferrick was little more than a slap on the wrist; that it amounts to $4 per infringement; that it provides no disincentive to continue infringing; and that the lion’s share of the money will go to the major labels anyway.

Further, with Spotify poised to go public, the complaints also cite the major labels’ agreements to exchange sound recording rights for equity in the streaming company. Gaudio/Bluewater describe these deals as an obstacle to the labels themselves holding Spotify to account for using unlicensed works. 

Counter to this narrative, however, Digital Music News reports that the music publishers represented by the National Music Publishers Association (NMPA) have “declared war on Spotify,” citing CEO David Israelite stating that Spotify’s assertions in its response mean that it is now in a fight with “all songwriters.”  What did Spotify say to trigger Israelite’s comments?  Well …

Despite the demand for a “more definite statement,” the Spotify brief is a bit cryptic itself.  It balks at some of the language in the Gaudio/Bluewater complaints, defending the company as an above-board, legal service that should not be compared to pirate sites et al. They may be protesting a bit much, though.  The “infringe now, settle later” strategy of which they’ve been accused is implicit in the Lowery/Ferrick suit and is certainly an approach consistent with most tech companies whose core business depends on the exploitation of creative works.

The only salient, triable issue at the bottom of all the rhetoric is the question ofwhether Spotify repeatedly infringed Sections 106 (1) & (3) of the copyright act by making use of songs without mechanical licenses.  To this, the Spotify brief comes extremely close to claiming that they don’t need mechanical licenses. The music site Complete Music Update published a whole article under exactly that headline, and the declaration was precisely what triggered the unequivocal response from Israelite at the NMPA.

Spotify has asserted that streaming only implicates the public performance right (§106(4)), which they state is amply covered by paying license fees to the performing rights organizations (PROs) that manage those rights.  Mechanicals are required separately—and obtained as compulsory licenses for rates set by a rate court—for anyone seeking to reproduce or distribute a song. For instance, an artist who wants to record a cover song on her new album needs a mechanical license.

While it may not be completely unreasonable to argue that streaming is a public performance rather than a distribution, that would only alleviate the infringement of §106(3).  It is not possible for Spotify to provide its service without reproducing files on its servers; and there is sufficient case law (including Napster) to affirm that this type of copying implicates the reproduction right (§106(1)). Moreover, as the CMU article observes, it is worth asking why, if Spotify believes it does not need mechanical licenses, the company settled the Lowery/Ferrick class-action suit, which was entirely based on the use of songs without mechanicals.

Additionally, Spotify’s mobile app enables downloading, at least for subscribers, and this would seem to implicate distribution.  Anticipating this response from the complainants, the Spotify brief bizarrely states that it would assert a defense of fair use.  Not only does that sound like a non-starter, but it’s a pretty odd thing to say after asserting that you never needed the mechanical license in the first place. 

As for the some of the more rhetorical aspects of the briefs, Spotify accuses Gaudio/Bluewater of “dangling” big money in front of the Ferrick class members and of painting the streaming service with the same brush as Napster and other piratical enterprises.  Meanwhile, Gaudio/Bluewater make an intriguing point that as Spotify continued to raise hundreds of millions of dollars for its growth, none of those resources were apparently directed toward improving the company’s ability to ensure the mechanical licenses were paid for all the music on the platform.

Based on Israelite’s statement, if Spotify doesn’t walk back the claim, this fight could turn existential for the streaming company. As a matter of copyright history, the transition to music streaming may be one of those threshold moments that ultimately requires Congress to recalibrate the statutes according to the intent of IP in the first place. Because if the courts were to agree with Spotify that mechanicals are simply not required for streaming, and we consumers do nearly all of our listening via streaming, this would undermine the incentive for songwriters and composers, which is foundational to the existence of copyright.