Capitol Records Prevails in ReDigi Case April 1, 2013Posted by Bill Rosenblatt in Law, Music, United States.
A federal court in New York City handed down summary judgment against ReDigi over the weekend in its legal fight with Capitol Records. In his ruling , Judge Richard Sullivan found the digital resale service liable for primary and secondary copyright infringement. He rejected ReDigi’s arguments that its service, which enables users to resell music tracks purchased on iTunes, is legal under the doctrines of fair use and first sale.
The decision is a surprising blow to the Boston-based startup, especially given that Judge Sullivan refused Capitol’s request for a preliminary injuction early on in the case.
The central holding in Judge Sullivan’s opinion was that in order to resell a digital file, a user has to make another copy of it — even if the original copy disappears, and even if two copies never coexist simultaneously. He based this holding on a literal interpretation of the phrase “copies are material objects” from Section 101 of the Copyright Act.
Once Judge Sullivan established that the ReDigi system causes another copy to be made as part of the resale process, the rest of his opinion flowed from there:
- The user didn’t have a right to make that new copy, therefore it’s infringement — specifically of Capitol’s reproduction and distribution rights under copyright law.
- ReDigi knowingly aided and abetted, and benefited from, users’ acts of infringement, therefore it’s secondary as well as primary infringement.
- The user resold the new copy, not the original one, therefore it’s not protected under first sale (which says that a consumer can do whatever she wants with a copy of a copyrighted work that she lawfully obtains).
- The “new” copies made in the ReDigi process don’t qualify as fair use: they are identical to the originals and thus aren’t “transformative”; they are made for commercial purposes; they undercut the originals and thus diminish the market for them.
In sum, as Judge Sullivan put it bluntly, “ReDigi, by virtue of its design, is incapable of compliance with the law.” At the same time, he was quick to point out that his was a narrow ruling based on a literal interpretation of the law, saying that “this is a court of law and not a congressional subcommittee or technology blog[.]” He investigated Congress’s intent regarding digital first sale and found that it hadn’t advanced since the U.S. Copyright Office — the copyright advisors to Congress — had counseled against allowing digital resale back in 2001.
I’ve always assumed that any district court decision in this case would be minimally relevant, as it would be appealed. ReDigi has already stated that it will appeal. And the opinion does contain patches of daylight through which an appeal could possibly be launched.
Most important is the opinion’s focus on the making of a “new copy” during the resale process. It’s hard to see how this gibes with the many “new copies” of digital files made during normal content distribution processes, including streaming as well as downloads.
In other words, if ReDigi is making “new copies” without authorization, then so are countless other technologies. Some such copies might be covered under fair use or the DMCA safe harbors. Other “new copies” are considered “incidental” (not requiring permission from the copyright holder); the judge didn’t explain why copies made by the ReDigi system don’t qualify as incidental. ReDigi did make a similar argument; the judge didn’t buy it because it didn’t involve the issues in this case, but a higher court, looking at the broader picture of digital first sale, might see things differently.
Judge Sullivan’s reliance on the Copyright Office’s 2001 report on digital first sale is also somewhat problematic. The Copyright Office believed that a “forward-and-delete” mechanism — not unlike what ReDigi has built — could actually support digital first sale. The Copyright Office simply concluded that such a mechanism would not be practical to implement. This does not comport with Judge Sullivan’s assertion that “forward-and-delete” requires a new copy to be made and thus cannot qualify as first sale in the first place.
Another notable feature of Judge Sullivan’s opinion is his assertion that “a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk.” The assertion that a user “owns” a digital download is itself controversial and not based on legal precedent. Judge Sullivan found no legal precedent for digital first sale, but somehow he did find a basis for asserting that digital downloads are “owned.”
Retailers of digital goods believe that they don’t actually sell them in the way that books, CDs, or DVDs are sold; instead they license them to users under terms that may resemble sale. The question of sale vs. licensing of copyrighted digital content is a gray area in the law, and it wasn’t up for examination here: Apple, for example, wasn’t a party to the case and remained silent throughout. But if Apple (or another digital content retailer) ever objects to its content being “resold” through a third-party service, it will have to deal with Judge Sullivan’s language; and once again, it may be harder for a higher court to ignore this aspect of digital resale when determining its legality.
It remains to be seen whether the above issues can be forged into a legal theory that can convince the Second Circuit appeals court to reverse Judge Sullivan’s ruling. Yet even if ReDigi throws in the towel and ceases operations, its very existence has called a lot of attention to the idea of digital resale. The mechanisms are in place today: beyond ReDigi, there’s at least one more startup (the NYC-based ReKiosk); and Amazon was recently granted a patent for resale of digital goods. Indie music labels and a few e-book publishers, at first, will most likely experiment with it.
This court ruling won’t eliminate digital resale; if let stand, it will simply restrict it to content that copyright owners have given permission to resell — permission that will probably include say over pricing, timing, and other factors. This will complicate the lives of resellers, but it will ensure that digital resale doesn’t harm copyright holders. In other words, ReDigi has let the digital resale genie out of the lamp. It’s bound to happen, one way or another.
Supreme Court Affirms First Sale in Kirtsaeng Case March 20, 2013Posted by Bill Rosenblatt in Law, United States.
The copyleft was jubilant, and Big Media disgruntled, at the Supreme Court’s opinion on Tuesday in Kirtsaeng v. Wiley, a case about the first sale doctrine in US copyright law. First sale, known as “exhaustion” outside of the US, states that the publisher of a copyrighted work has no say or control in distribution of it after the first sale. The law says that if you have obtained a copy of a work legally, you can sell it, lend it, give it away, use it to line a birdcage, or anything else, without consent of the original publisher.
The Kirtsaeng case existed firmly in the realm of physical products. It concerned a tension in the law between first sale (section 109) and another provision (section 602) that makes it illegal to import copyrighted works from outside the US into the country without permission.
Supap Kirtsaeng, a Thai citizen living in the US, got his friends and family to buy textbooks published in his native land at prices that were much lower than those charged here. They sent him the books; he resold them here and pocketed the difference. The books were published by a subsidiary of John Wiley & Sons and were virtually identical to titles published by Wiley in the US. (Disclosure: Wiley is the publisher of one of my books.)
Wiley sued, claiming that Kirtsaeng was infringing under section 602. Kirtsaeng claimed first sale rights to resell the books. Kirtsaeng lost in the lower courts, but the Supreme Court reversed. Now the case goes back to the Second Circuit in New York for a re-hearing consistent with Tuesday’s decision.
Many people are asking me what impact this decision may have on digital first sale, and more specifically, the fortunes of the digital resale startup ReDigi, which is fighting a lawsuit brought by Capitol Records. While I’m not in the business of reading Supreme Court tea leaves, I’d say there are two ways to look at it.
The narrower view is: not very much. Justice Stephen Breyer’s opinion was an exemplar of judicial restraint. It spent a lot of time analyzing key words in the first sale law (specifically that a copy had to be “lawfully made under this title” to qualify for first sale) and the factors specific to its geographic interpretation vis-a-vis section 602. It also focused on divining Congress’s intent in making the law in the first place and emphasized the law’s “impeccable common law pedigree” dating back over 100 years. It’s no wonder that the 6-3 majority crossed “party lines,” with conservative Justices Roberts, Thomas, and Alito joining liberals Breyer, Kagan, and Sotomayor.
The opinion also concerned itself with the decision’s impact on libraries and museums, saying that if the case went Wiley’s way, it would place undue burdens on them to get permission before they could lend or exhibit foreign-made works.
What Breyer did not do was spend much time discussing the business implications of the case. He said little about both the impact on publishers and Kirtsaeng’s right to carry on his resale business. Justice Ruth Bader Ginsburg’s dissenting opinion focused much more on those aspects.
That leads me to believe that if and when the Supreme Court revisits first sale, it will be more receptive to arguments from the library and museum communities than those about industry factions, which often suffuse high-profile copyright litigation. And libraries especially face difficulties without clear digital first sale rights. The Owners Rights Initiative, a lobbying organization set up specifically to deal with this case, turns out to have done the right thing by enlisting library organizations to be part of its “public face” rather than the likes of CCIA and eBay. (The list of organizations that submitted or signed on to amicus briefs in this case is a mile long.)
The other possible view of the Kirtsaeng decision is the bigger-picture one: that the Supreme Court is taking a broad view of first sale by refusing to weigh it down with exceptions like those in section 602, and therefore the Court may take the same broad view when it’s asked to opine on digital first sale — that is, when it’s asked to interpret another group of words in the copyright act: “‘Copies’ are material objects…”
(Props to Andrew Bridges of Fenwick & West for his insights.)
The DMCA and Presidential Politics, Part 2 March 4, 2013Posted by Bill Rosenblatt in Law, United States.
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A minor war of words broke out yesterday in the U.S. government over consumers’ rights to “jailbreak” (unlock) their mobile phones. The White House and the FCC both made public statements in which they politely condemned the U.S. Copyright Office’s decision not to renew the DMCA 1201 exception for jailbreaking and stood in favor of unlocking mobile phones for the purpose of switching wireless carriers.
This is what happens when a government process that’s supposed to be confined to relatively arcane business interests spills over into the public sphere. The question is, why are we even talking about this at all?
A little background for those who need it: the Digital Millennium Copyright Act of 1998 has two parts. The part that has gotten most of the attention over the past few years is the second part (Title II, section 512), which includes the “notice and takedown” regime that online services have to follow to avoid copyright liability for files that users upload. This part of the DMCA has been the subject of several recent high-profile litigations, such as Viacom v. Google, EMI v. MP3Tunes, and UMG v. Veoh.
The first part of the DMCA, section 1201, makes it illegal to crack DRMs. This law was originally used to go after DRM hackers such as those who distributed DVD ripping software, in cases such as Universal v. Reimerdes. But that was many years ago.
Since then, we’ve only heard about how this law has been distended out of shape by the likes of makers of garage door openers and laser printer toner cartridges. And soon after Apple ushered in the smartphone revolution with the introduction of the iPhone in 2007, the major wireless carriers appropriated it to cover mobile phone jailbreaking. Let’s be clear: these are all abuses of a law that’s dubious to begin with.
There is a provision in DMCA 1201 that requires the U.S. Copyright Office — the agency that advises Congress on the copyright law — to conduct a “rulemaking” every three years to consider whether any exemptions to the anti-hacking law should be made. Anyone may submit proposals for such exemptions, though the requirements are fairly rigid. The Office evaluates the proposed exemptions and may approve some of them, but the approved exemptions only last three years, until the next rulemaking. They must be proposed and approved again in order to last longer.
In 2009, the Copyright Office approved an exemption for mobile phone jailbreaking. In the subsequent 2012 rulemaking, the Office chose not to renew it; instead they listened to wireless industry lobbyists who persuaded them that consumer choice and competition were doing fine, and therefore that jailbreaking wasn’t necessary. The 2009 exemption expired at the end of January 2013.
An entrepreneur named Sina Khanifar decided to do something about this: he submitted a petition to the White House, through its We the People online petition system, which has a policy of responding to petitions that get over 100,000 signatures within 30 days. The petition did cross that threshold, and the White House did respond.
It would be nice to do something to curtail these abuses of the DMCA. Right now, the DMCA is only “useful” in that it keeps actual DRM hacks in the shadows and prevents things like a “Convert from Nook” option in your Kindle (or vice versa).
But does anyone seriously expect any results from the White House’s populist grandstanding on this issue? The executive branch has no power to implement changes in the DMCA, and it’s unlikely that the FCC (also part of the executive branch) has any relevant authority either. Only Congress can change the law, and the Copyright Office is Congress’s legal advisor. The Office’s own statement on the matter (released via email, not yet available on the Office’s website) basically said “The White House is right, this is a bigger public policy matter than the arcane issues we usually deal with in these rulemakings” — in other words, that they’ve simply done their job according to the law.
The connection between mobile phone jailbreaking and the original intent of DMCA 1201 is tenuous at best. Maybe Khanifar’s petition will spur Congress to act, but I’m not holding my breath.
Copyright Alert System Launches in U.S. February 25, 2013Posted by Bill Rosenblatt in Fingerprinting, Law, Music, Video.
With today’s launch of the Copyright Alert System (CAS) by the Center for Copyright Information, the United States joins the list of countries that have adopted a so-called graduated response system for educating Internet users about online copyright infringement and taking steps to punish repeat offenders. The CAS is finally launching after a few months’ delay, part of which was supposedly due to the effects of Sandy, the mega-storm that hit the northeast U.S. late last year. Other graduated response countries include France, New Zealand, and South Korea; the United Kingdom is currently struggling with its own implementation.
The CAS is a partnership between music and video content owners on the one hand and major ISPs on the other. The content owner representatives include not just the majors (RIAA and MPAA) but also the Independent Film and Television Alliance (IFTA) and American Association of Independent Music (A2IM). On the ISP side, membership includes the five largest providers: AT&T, Verizon, Time Warner Cable, Comcast, and Cablevision. Book and game publishers are not involved at this point.
The CAS is run by Jill Lesser, a tech policy veteran with deep experience on both the content and ISP sides. It has an advisory board whose principal function seems to be to curb abuses: it includes advocates for looser copyright laws (Gigi Sohn of Public Knowledge) and user privacy (Jules Polonetsky of the Future of Privacy Forum).
The CAS works similarly to other graduated response regimes: copyright owners employ infringement monitoring services, which can identify copyrighted works as users send them around the Internet using fingerprinting and other content recognition technologies. The monitoring services send notices to ISPs, which issue warning messages to users. The warnings get stronger with repeat infringements.
ISPs can opt to punish repeat alleged offenders by such means as throttling bandwidth and making users watch videos about copyright. (ISPs already have policies for terminating repeat infringers’ accounts, which they must have in order to maintain their eligibility for the DMCA safe harbor.)
Where the CAS differs from other graduated response systems is that it is not tied to law enforcement. The arrangement between content owners and ISPs is voluntary. ISPs will not terminate or suspend users’ Internet accounts, nor will they pass information about infringements on to copyright owners. Another difference is that the CAS is not being funded through taxes or levies on Internet service (although funding sources are confidential).
In other words, the CAS is a more purely educational approach than France’s HADOPI or other systems. Analysis of the CAS’s results will therefore be more useful in determining how successful education by itself can be in getting people to respect copyright. The hope is that education will do more than draconian statutory damages or blunt-instrument legislation.
Given how little effect those approaches have had, it may not be difficult to declare the Copyright Alert System a relative success in the years to come. As it is now, it seems like quite a reasonable system: it raises awareness about the importance of copyright by using advanced Internet technologies instead of relegating enforcement to outmoded nontechnical legal means; it is permeated with references to legal content sources; and it doesn’t cost users a thing.
Awareness Grows over Digital First Sale February 19, 2013Posted by Bill Rosenblatt in Business models, Law, Publishing.
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What would happen if the law were to definitively decide that users should get the same rights of ownership over digital downloads as they do with physical media products such as books, CDs, and DVDs? A growing crescendo of events over the last few weeks indicates a growing awareness of this fascinating topic.
Let’s start with late last month, when Amazon was granted a U.S. patent on a scheme for reselling digital objects. The patent describes a scheme for transferring “ownership” of digital content objects from one user to another, possibly with limits on the number of transfers, and handling the e-commerce behind each such transaction.
Digital resale is possible now. For example, the startup ReDigi is doing it for music downloads from iTunes and Amazon. The question is not whether it’s technically feasible to support digital resale with reasonable safeguards against abuse of the process (i.e., “reselling” your content while keeping your own copies). The question is whether doing so requires a license from content owners, or whether users have a legal right to resell their content without permission.
In the former case, any service (like ReDigi) that facilitates resale would have to pay royalties to copyright owners on every transaction. In the latter case, it need not pay anything. Since resold digital content is identical to “new” content, this would have highly disruptive implications for publishers and others in the value chain. The law is not clear on this point, but it may become clearer within the next couple of years through litigation, such as Capitol Records’ lawsuit against ReDigi, and the efforts of a lobbying group called the Owners’ Rights Initiative.
Amazon’s patent does not take a position on whether digital resale requires the copyright owner’s permission; it simply discloses a mechanism for doing digital resale. And of course just because Amazon has a patent does not mean it intends to implement such a system; Amazon was granted about 300 patents in 2012. Still, the issuance of the patent prompted Wired to run an article about digital first sale and its implications two weeks ago.
That brings us to last week, when the O’Reilly Tools of Change for Publishing (TOC) took place in NYC. TOC is the preeminent conference on technology and innovation in publishing. Just before the conference, the TOC folks held an invitation-only Executive Roundtable featuring John Ossenmacher, CEO of ReDigi. O’Reilly Media, a publisher of books and other information for IT professionals and a bellwether of technological innovation in publishing, confirmed that it is in talks with ReDigi to take the company into resale of e-books. The room was filled with traditional publishing executives who had a more skeptical view, though Ossenmacher survived the ordeal well.
The TOC organizers had asked me to give a talk on digital first sale at the conference; I did so later in the week (slides available on SlideShare). The room was packed with a broad mixture of editorial, business, and technology folks from the publishing industry. Publishers Weekly, the leading trade publication of the book publishing industry, decided that the topic was important enough to feature in an article summarizing my presentation. Most of the attendees were surprised at the highly disruptive implications for publishers, retailers, and libraries as well as users, though a few expressed the idea that digital resale is yet another inevitable type of change to legacy business models in the content industries.
Mega’s Aggressive Takedown Policy? February 1, 2013Posted by Bill Rosenblatt in Law, New Zealand, Services.
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Here is an interesting addendum to last week’s story about Mega, the new file storage service from Kim Dotcom of MegaUpload fame.
Recall that Mega encrypts files that users store on its servers, with keys that only the users know… unless they publish URLs that contain the keys, like this one. This means that Mega can’t know whether or not files on its servers are infringing, unless a user publishes a URL like that.
As TorrentFreak has found, Mega is crawling the web in search of public URLs that contain Mega encryption keys. When it finds one, it proactively removes the content from its server — at least if the file in question contains audio or video content — and it sends the user who uploaded the file a message saying that it has taken down the file due to receipt of a takedown notice from the copyright owner.
It’s impossible to say for sure whether this is a blanket policy, and of course Mega’s web-crawling technology probably doesn’t work perfectly. But if this is Mega’s policy, then Mega is being at least as aggressive as RapidShare in going after public links to infringing content. RapidShare finds public links to files on its service and, apparently, examines them with content identification technology to see if they are infringing. According to TorrentFreak’s findings, Mega does no analysis; it uses no fingerprinting or other content identification technology; it just takes the content down. It has taken down unambiguously legal content. (My file wasn’t taken down, because it’s just a PDF of a presentation that I created, and/or because it’s only on this blog and not on a known P2P index site.)
Mega could be doing this in order to conform to the terms of Kim Dotcom’s arrest. Whatever the reason, it helps make sure that pirated material on Mega can only be shared by sending encryption keys through means such as email… or perhaps URLs that are publicly available but are themselves encrypted. And if you truly want to share audio or video material to which you have the rights, then Mega wasn’t going to be the best place for you anyway.
A commenter on TechDirt put it best: “So we’re still allowed to share the stuff, but just not on linking sites? Seems fair enough to me. Probably for the best too, since some dumbasses clearly don’t know how to hide their copyrighted material properly.”
Netherlands Rejects Ban on Illegal Downloads December 21, 2012Posted by Bill Rosenblatt in Economics, Europe, Law.
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A lengthy political debate in the Netherlands has resulted in rejection of a law banning illegal downloads in that country, as the Dutch parliament finally voted against the law yesterday. This development paves the way for enactment of a private copying levy of up to €5 per device on devices such as PCs, smartphones, tablets, and set-top boxes.
Without a law against downloading infringing content, it will be impossible for the Netherlands to adopt the kind of graduated response scheme that France has implemented and that shows promising early results. Instead, the country will go down a path that has led to unfairness, confusion, and inaccuracies in compensating rights holders according to actual use of content.
Levies on consumer electronics have their origins in German taxes on photocopiers. Under EU copyright law, people have the right to make copies of content for their personal use, but rights holders have the right to be compensated for those copies. Levy schemes were enacted in order to compensate rights holders according to formulas for estimating the value of copies likely to be made by each owner of consumer electronics. These schemes vary widely from one country to the next and have been the source of unnecessary complexity in European content licensing as well as gray-market consumer electronics sales in high-levy countries.
(A notable exception to this is the UK, which has neither levies nor private copying rights, though the latter, at least, is about to change.)
The European Commission has been working for years to eliminate — or if not possible, at least harmonize — the unfathomable levy system in the EU. This step in the Netherlands works against the EU’s efforts. It is, admittedly, politically expedient: given the choice, politicians would rather be seen adding a tax onto consumer electronics purchases (thereby motivating Dutch people to drive the short distance to Luxembourg, where consumer electronics are levy-free) than passing a law that criminalizes online infringement. Media companies also find levies desirable because they create more stable and predictable revenue streams.
Yet this is a retrograde move. Levies are blunt, unfair instruments in an age where fairness and accuracy — at least relatively speaking — are available through technology. Everyone has to pay the same levy regardless of how many copies of files they make or whether those files are infringing or not. It’s not even clear whether the levy is meant to compensate rights holders for infringement or for private copies (of anything). It is especially disappointing to see levies spread in the home country of Europe’s leading authority on levy chaos, Prof. Bernt Hugenholtz of the University of Amsterdam.
The new levies are set to take effect in the new year. Yet this issue may not be resolved after all, as several makers of consumer electronics have filed suit against the Dutch government over the levies.
You Bought It, You Own It. But Can a Library Lend It? November 12, 2012Posted by Bill Rosenblatt in Law, Publishing.
I’ve been writing regularly about the battle that libraries are fighting over e-book lending — a battle whose outcome doesn’t look good for libraries right now. Libraries can only lend e-books at the pleasure of publishers and not through any legal right. I have said that libraries’ best shot at changing their fortunes as the reading world transitions to digital is to try to get e-lending rights enshrined in the law.
I also didn’t believe — with all due respect to the American Library Association and other library advocacy groups — that the library community stood much of a chance of getting Congress to pay attention to this issue. I had thought that if there were any path to change it would be through the long, hard slog of litigation.
That is, until I read about the Owners’ Rights Initiative, a lobbying group that began life last month. ”You bought it, you own it” is the ORI’s mantra. It’s run by Andrew Shore, a partner in a Washington law and lobbying boutique with experience in international trade issues.
The ORI unites a number of constituencies that stand to gain if the First Sale Doctrine is extended to digital content. Recall that First Sale, section 109 of the US copyright law, says that once you legally obtain a copyrighted work, you can do with it as you please without further involvement from the publisher: resell it, lend it, give it away, use it to line a bird cage. But First Sale is currently deemed not to apply to digital files, such as e-books and software.
Libraries have found some interesting allies in the ORI. Most of them are companies (or trade associations representing companies) that sell used merchandise, including eBay and various used computer equipment dealers. Used book sellers are there (Powell’s Books, Chegg). The video rental kiosk operator Redbox has joined to protect its interests as it undoubtedly plans to move from DVDs and Blu-rays to digital files. A few companies that facilitate e-commerce transactions are on board.
This textbook example of a “strange bedfellows” coalition does have synergies. It would have been inconceivable for companies like eBay and Redbox, let alone the several sellers of used enterprise software, to get anyone to take them seriously on this issue. Tying their opportunism over making money on used software and videos to the issue of public library lending gives them a much better story to tell. For their part, libraries get money and resources far beyond what they can muster on their own, plus a degree of business savvy that is outside of libraries’ comfort zone.
Ironically, the ORI jelled around a court case that is about hardcopy books, not digital content: Kirstaeng v. Wiley, which is currently before the Supreme Court. The case is about college textbooks (published by John Wiley & Sons) that Supap Kirtsaeng purchased in Thailand and has been reselling on eBay in the U.S. The Supreme Court has to determine how to reconcile two provisions of the copyright law that are at odds with one another in this case: First Sale says that the textbooks are his to resell in the U.S., despite the fact that the prices in Thailand are lower than they are here. On the other hand, section 602 of the law lets a publisher block importation of gray-market copies of its works into the country.
Even though Kirstaeng is about hardcopy, it’s not hard to see how the case could apply to digital works if the Supreme Court finds for Wiley. One of the ORI members, Quality King Distributors, was involved in a conflict between 109 and 602 in 1998 when another case, Quality King v. L’anza, went to the Supreme Court. Writing for the Court in that case, Justice Stephens specifically excluded “licensees” from First Sale rights because they are “non-owners” of copyrighted works. Because purchasers of digital files are currently considered licensees rather than owners, Stephens’s opinion could be interpreted to mean that they don’t get First Sale rights — though that remains to be tested.
The ORI looks like an interesting vehicle for the library community to get e-lending rights enshrined in law. Even so, it seems unlikely to succeed. First of all, the Kirstaeng case is an example of how hard the media industry is prepared to fight against First Sale: Wiley has hired no less than Ted Olson, the former U.S. Solicitor General, to argue its case.
Textbook publishers like Wiley don’t like First Sale — whether digital or hardcopy — because it enables the huge market for used textbooks; publishers would love to see the used textbook market go away. Movie studios hate it because it would harm their carefully maintained system of release windows. In general, media companies — as well as digital content retailers like Apple and Amazon — are against digital First Sale because it would create downward pricing pressure, as the “used” copies of digital content are (unlike their physical counterparts) not inferior to “new” ones.
The issue that’s likely to carry the day, if and when digital First Sale legislation is ever considered, is the one that the U.S. Copyright Office pointed out in its 2001 report on the subject: for digital First Sale to work fairly, users would have to delete their copies of files once they gave, lent, or resold them to someone else. Either users would have to be trusted to take this additional step voluntarily (including deletion of copies on all their devices, backups, etc.) or there would have to be a mandatory mechanism, similar to but much more sophisticated than the one that ReDigi has developed for music files, to delete the files automatically.
Neither contingency seems very likely to be enshrined in legislation. This augurs an unsuccessful outcome for libraries. Libraries don’t need the full set of First Sale rights in order to lend e-books without permission from publishers. As I have argued, libraries can get by with narrower rights; such rights could be granted through amendments to Section 108 of the copyright law, the section that extends extra rights to libraries and archives.
So the bottom line on libraries and the Owners’ Rights Initiative is that its critical mass is likely to get libraries more attention in Congress than they might on their own, but it’s unlikely to get the result they need to stay relevant as reading moves to e-books.
The Future of HADOPI October 26, 2012Posted by Bill Rosenblatt in Economics, Europe, Law.
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A recently-released report from the French government, Rapport sur les autorités publiques indépendantes (Report on the Independent Public Authorities), includes a section on HADOPI (Haute Autorité pour la diffusion des oeuvres et la protection des droits sur internet), the regulatory body set up to oversee France’s “graduated response” law for issuing warnings and potentially punishments to online copyright infringers.
The headline that most Anglophone writers took away from the 24 pages in this report that were devoted to HADOPI was “HADOPI’s budget to be cut by 23%.” These writers took their cues from anti-HADOPI statements by various French politicians — including new French President Francois Hollande — and mischaracterized a statement about HADOPI by the French culture minister, Aurélie Filippetti.
Unfortunately, none of these people appear to have actually read the government report. (Yes, it’s in French, but there is Google Translate. I used it.) HADOPI is not on the way out; not even close.
Let’s get the most obvious facts out of the way first. Yes, HADOPI’s operating budget is being cut from €10.3 Million to €8 Million, but its headcount is being increased (from 56.2 to 65.2 FTE). Apparently the budget cut reflects the fact that HADOPI’s ramp-up period is coming to an end in 2012, and the focus is being shifted to increasing operational efficiencies and cutting overhead. Moreover, HADOPI’s purview is being expanded to include video games as well as music and video content.
Another bit of factual cherry-picking in the Anglophone press: HADOPI has merely sent out more than a million emails but only prosecuted 14 people and only fined one (less than €200), so therefore it must be a big waste of money.
On the contrary: all of the data in the report, as well as the conclusions it draws, point to an agency whose successes are outnumbering its failures and whose mission is quite properly being optimized.
As it turns out, HADOPI has several objectives, not just issuing warning notices to illegal downloaders. Those other functions are where HADOPI does not look as successful as hoped. One objective is to increase the number of legal content offerings in France. To do this, it has put a labeling system into place, along with a website called PUR (Promotions des Usages Responsables, also an acronym for the French word for “pure”) that lists all of the labeled services. Although the report cites a sharp increase in the number of such services in France over the past year, that increase is surely attributable to market forces and is no different from similar increases in other countries.
Another of HADOPI’s objectives is to regulate the use of DRM technology according to rules derived from the European Union Copyright Directive of 2001. This means both ensuring that DRM systems don’t unduly restrict users’ rights to content and that DRM circumvention schemes (hacks) are prosecuted under the law. So far, HADOPI has only been asked to intervene in two DRM disputes concerning users’ rights, and both reviews are ongoing. This can’t be counted as a great success either.
Yet regarding HADOPI’s core “graduated response” function, the data in the report shows nothing but success so far. Fining people (a maximum of €1500) and suspending their Internet access (up to one month) is not the objective; reducing copyright infringement is. The number of people who have been fined or had their Internet access suspended is simply the wrong metric.
The good news is that HADOPI appears to be succeeding as an education program rather than as a punitive one. In 2011, HADOPI reports that fully 96% of people who received a first warning message did not receive a second one; this number stayed about the same in 2012. In addition, the percentage of people who received second notices but not third ones rose from 90% to 98% from 2011 to 2012. (The legal steps that could lead to fines or suspensions begin after the third notice.) To buttress this data, HADOPI has published results from four independent research reports that note significant decreases in illegal downloading in 2011. No one has substantively debunked any of these findings.
Furthermore, HADOPI does not simply take complaints from copyright owners — which monitor the Internet and submit complaints to HADOPI — at face value. For more than half of the users who received three warnings, HADOPI chose not to send the cases to French authorities for prosecution.
It is also interesting to note that the educational aspect of HADOPI appears to be succeeding despite the fact that it treats violations as misdemeanors, with small punishments, in contrast to the enormous criminal penalties associated with copyright infringement in France (as they are in the U.S.). This points to the conclusion that online education is more effective than large statutory damages in curbing infringement.
Now let’s talk about the economics. Ideally, this type of program would be funded by copyright holders — the ones with rights that they want protected. France is funding HADOPI with taxpayers’ money, although copyright owners do pay for the monitoring services that detect allegedly illegal downloads and report them to HADOPI.
At the same time, €8 Million isn’t a bad deal. France currently has about 50 million overall Internet users and about 25 million fixed broadband subscribers. Let’s assume that the total number of French people who pay for Internet subscriptions is about 30 million. In that case, HADOPI’s annual budget could be apportioned as a levy on Internet subscribers of about €0.27 (US $0.35). This is two orders of magnitude smaller than the £20 (US $32) annual antipiracy levy on ISP subscribers that the Digital Britain Report proposed for the UK in 2009.
Furthermore, HADOPI measured the market impact of unauthorized downloading (not counting P2P) as €51 to 72.5 Million annually. Although this figure can’t be taken as a magnitude of lost sales, the worst case break-even point for HADOPI’s cost-effectiveness would be that 16% of illegal downloads displace sales (one study attempted to measure promotional effects vs. sales displacement and suggested that about two-thirds of illegal downloads displace sales).
It’s still too early to proclaim HADOPI’s success or failure. For example, the more determined infringers could move to ways of obtaining content that evade detection (e.g. HADOPI only deals with downloads and not streaming). But the signs are encouraging enough that the French government has decided to keep the experiment going.
(By the way, if you would like to argue with me about this, I will be in Paris from November 7 through 11, speaking at the SNE conference “Les assizes du livre numeriques” on Thursday November 8.)
Publisher-Library Feud over E-Books Heats Up October 1, 2012Posted by Bill Rosenblatt in Law, Publishing, Rights Licensing, United States.
The US trade associations for public libraries and book publishers exchanged heated words last week regarding the growing impasse over e-book lending. The American Library Association’s (ALA) newly-installed president, Maureen Sullivan, issued an open letter to trade publishers such as Simon & Schuster, Macmillan and Penguin demanding that they license e-books for digital lending. The Association of American Publishers (AAP) issued a response saying, in effect, “Sorry, our hands are tied.”
An article I wrote last year explains the legal background of this issue. Thanks to a legal doctrine known in the US as First Sale, libraries can buy print books and lend them without permission from publishers. But because First Sale doesn’t apply to digital downloads, libraries must get licenses from publishers to acquire e-books for lending. Thus some of the major trade (consumer) book publishers are refusing to license e-books to libraries or are placing restrictions on lending terms.
But that’s not all. E-book technology is also enabling companies like Amazon to supplant some library functions in the private sector, while indie authors and publishers are likely to increase giveaways of their content in digital form, in hopes of exposure. More and more people are reading digitally, while libraries may face a future of lending hardcopy books only. Library patrons will lose, and it’s far from clear that any (legal) private-sector function will completely fill in the gaps.
The good news is that public libraries are finally waking up from the what-me-worry stance they appeared to affect a year ago; Digital Book World says that Sullivan’s “open letter” was borne out of libraries’ frustration about the way things are going.
The bad news is that this situation is going to get worse before it gets better… if it ever does.
The problem with “open letters” is that they are often tacit admissions of powerlessness. Sullivan’s open letter is primarily an attempt to explain the value proposition of libraries to publishers. Yet that aspect of it contains little that publishers haven’t heard before. It also attempts to convince publishers that they, together with libraries, have a special role in society to spread information and culture that they must maintain. This aspect of it is likely to fall on deaf ears.
The heart of the problem is that libraries aren’t comfortable acting like businesses, while the major publishers are. Yet libraries are being forced into discussions with publishers about business terms instead of relying on laws like First Sale. Many library people find such discussions distasteful or distracting, because they believe (rightly) that theirs is a greater mission than being a “channel” for publishers. Moreover, the reality is that such discussions are unlikely to lead to satisfactory conclusions for libraries.
Library gurus such as Robert Darnton of Harvard have suggested innovative models for libraries and e-books. It’s possible that as wireless broadband and connected devices become more pervasive, publishers and libraries may be able to come to some arrangement that involves licensing e-books for time-limited cloud-based reading, instead of relying on downloads of DRM-packaged e-book files as they do now. But if publishers require that such deals reflect libraries’ true value in book sales, then the numbers may well come up short for libraries. They can argue (again, rightly) that they help publishers sell books in general by promoting reading, but it’s hard to quantify that benefit sufficiently.
The AAP’s don’t-look-at-us response to the ALA open letter is at least honest. Trade associations already labor under constant antitrust restrictions. Not for nothing does every trade association meeting begin with what lawyers call an “antitrust benediction” warning participants not to say anything that could be interpreted as collusion; talks I give at trade associations’ events have to be scrubbed by their antitrust attorneys. Furthermore, the Justice Department’s recent investigations into collusion with Apple over e-book price-setting have made it even more for difficult for publishers to collaborate, whether under the AAP banner or otherwise.
Publishers’ lack of ability to agree on library lending terms will only lead to more and more confusion and complexity for libraries and their patrons. In fact, publishers may be loathe to work together to create a workable solution for libraries precisely because it could backfire: if the ALA doesn’t like the terms on offer, it could sue on antitrust grounds.
Libraries may have better luck on the legal front than with technology or business terms. As I have explained, getting First Sale to apply to digital content in general (so that anyone can lend, sell, or give away lawfully obtained digital content) is virtually unthinkable. Yet it might be possible to get Congress to pass a narrower change in the law — specifically to Section 108 of the Copyright Act — that would give lending libraries statutory licenses to lend digital content without affecting First Sale rights in general. It remains to be seen whether the political climate in Washington could entertain such legislation, but it may be libraries’ best hope of survival in the e-reading age.