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Thou shall not steal. That is the opening sentence of the opinion by Judge Duffy in the case of Grand Upright Music Limited v. Warner Bros. Records Inc.,780 F. Supp. 182 (S.D.N.Y. 1991). The courts had spoken: The unauthorized sampling of copyrighted music via digital technology does not constitute fair use. Once again, the courts are facing the question of what constitutes fair use in the evolving digital era. The Internet increasingly is making it possible to distribute copyrighted works among millions of users almost instantaneously. Copyright owners are alleging theft, and those facilitating the copying are interposing the fair-use defense. Three recent federal cases have analyzed the fair-use defense as applied to the unauthorized dissemination of copyrighted music and films over the Internet. A common theme runs through these decisions: New technologies do not expand the scope of the fair-use defense. Not all parties agree, however, and the appeals courts soon will be addressing this issue. A finding that unauthorized wholesale copying over the Internet constitutes fair use could undermine the foundation of copyright protection and the industries that rely on it. RIGHTS OF COPYRIGHT OWNERS AND THE FAIR-USE DOCTRINE The exclusive rights granted by Section 106 of the Copyright Act are subject to certain “fair use” exceptions, which permit limited use of copyrighted works without liability, under certain circumstances. The fair-use doctrine is codified in 17 U.S.C. 107 and traditionally has been used to foster criticism, scholarship, news reporting, teaching and other forms of expression considered useful by society. Section 107 sets forth four nonexclusive factors to be considered by the courts in determining whether copying constitutes fair use: the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use on the potential market for or value of the copyrighted work. Analysis of the first factor increasingly requires considering whether the defendant has “transformed” the work “with new expression, meaning, or message.” Campbell v. Acuff-Rose Music Inc.,510 U.S. 569, 579 (1994). The more transformative the new work, the more likely the courts are to find fair use. Part of the fair-use analysis, particularly in the area of new technology, is whether the product that permits copying also is capable of “substantial noninfringing uses.” In Sony Corp. v. Universal City Studios Inc.,464 U.S. 417 (1984), the court determined that the primary purpose of video cassette recorders was to “time-shift,” i.e., tape a television program and watch it at a more convenient time. The court concluded that time-shifting was fair use of the copyrighted works and held that a manufacturer is not liable for selling a “staple article of commerce” that might be used for copyright violations if it also was capable of “substantial noninfringing uses.” In the cases discussed below, the defendants argue that their technology falls within the Sony “substantial noninfringing uses” and/or “transforms” the copyrighted works. COPYING OF ONLINE MUSIC: ‘MP3.COM’ AND ‘NAPSTER’ Courts recently have held that companies cannot use new technology in a manner that facilitates the unauthorized mass distribution of music to millions over the Internet, even if the technology is capable of noninfringing uses. In UMG Recordings Inc. v. MP3.Com Inc.,92 F. Supp.2d 349 (S.D.N.Y. 2000), several copyright owners sued MP3.Com, alleging that the company engaged in the unauthorized copying and distribution of proprietary music. The defendant had created the service My.MP3.Com, which permitted subscribers to access and listen to any of the tens of thousands of CDs that MP3.Com had purchased and copied into its database. To use the service, subscribers had to “prove” that they already owned the CD of interest, either by buying it from an affiliated online retailer or by inserting a copy of the CD into their CD-ROM drives for verification. The defendant claimed that its service simply facilitated the storage of CDs purchased for private use, and therefore that its actions were protected by the fair-use doctrine. Regarding the first fair-use factor, the defendant conceded commercial use but claimed that the factor weighed in its favor because the new technology provided a transformative “space shift,” enabling subscribers to enjoy their CDs without transporting them. The court found that the “transformation” was simply a new method of repackaging the music and held that “[w]hile such services may be innovative, they are not transformative.” Id. at 351. Under the second factor, the court held that the copying of music is “far removed from the more factual or descriptive work” that is traditionally more amenable to the fair-use defense. As for the third factor, the defendant did not dispute that it copied and replayed the copyrighted works in their entirety, which the court held negated any claim of fair use under that factor. Under the fourth factor, the court noted that any purported positive impact on the plaintiffs by the defendant’s activities “in no way” permitted the defendant to usurp the plaintiffs’ exclusive right to copy and distribute their copyrighted products. In A&M Records Inc. v. Napster Inc.,2000 U.S. Dist. Lexis 11862 (N.D. Cal. Aug. 10, 2000), defendant Napster created file-sharing software, available freely on its Web site, which permitted users to log onto the Napster system and copy digital files of copyrighted music without payment or permission from the copyright owners. Numerous record companies and music publishers filed suit against Napster, alleging vicarious and contributory copyright infringement. Although the facts of the case were different, Napster essentially put forth the same defenses as defendant MP3.Com and also relied heavily on Sony. Regarding the first fair-use factor, the court held that the purpose and character of the defendant’s use “militated” against a finding of fair use. The court rejected Napster’s “transformative” claim, following the MP3.Com reasoning. The court held that users did gain economic benefits from the Napster service because they received free music that they normally would have had to purchase. The court also found that the Napster service was not personal use in the “traditional sense,” given the vast amounts of people participating in the service. Napster had approximately 20 million users at the time the court issued the preliminary injunction. The court found that the second factor favored against a finding of fair use because the copyrighted music was creative in nature. The court also found that the third factor weighed against a finding of fair use because the defendant copied the entire copyrighted work. The court held that such complete copying “tips the fair use analysis in plaintiffs’ favor” if it is likely to negatively affect the market for the works, even after Sony permitted such copying for private home use. The court held that the fourth factor weighed against the defendant because the plaintiffs had amply demonstrated that the Napster service had harmed the market for their copyrighted products. Citing MP3.Com, it held that any positive effect on the plaintiffs’ sales was irrelevant. ‘NAPSTER’ COURT SPECIFICALLY DISTINGUISHED ‘SONY’ The defendant also claimed several specific fair uses of its service: namely, sampling, space-shifting and the authorized distribution of new artists’ work. It argued that its users’ ability to sample the music was analogous to household copying that does not confer a financial benefit to the user, i.e., space-shifting of music, analogous to time-shifting the viewing of television programming; visiting a free listening station in a record store; or listening to song samples on a retail Web site. The court, however, differentiated each situation. The Napster “sampler” constituted obtaining permanent copies of songs, by potentially millions of users who normally would have had to purchase the copyrighted work. The court also noted the difference between the Napster service and the Sony taping scenario. Specifically, the plaintiffs almost always charged for their music and made samples available in a highly restricted manner, unlike free television broadcasts. Also, with the Napster service, its users, rather than the plaintiffs, determined the music selection, the amount of sampling and whether to keep the downloaded song. Next, the defendant claimed that space-shifting was sufficiently analogous to time-shifting television broadcasts to constitute a noncommercial personal use under Sony. If space-shifting is a fair use, argued the defendant, the staple article of commerce doctrine should preclude liability under Sony. The court was also “unconvinced” that Sonyapplied to space-shifting. Even if it did, the court found, the defendant failed to demonstrate that space-shifting was a commercially significant use of its service. The court held that the massive growth of the Napster service was not caused by the ability to space-shift music, but rather by the ability to acquire copyrighted music for free. In contrast, noted the court, the Supreme Court in Sonyfound that time-shifting represented the principal use of the video recorders. The court also declined to apply the “staple article of commerce” doctrine because Napster, unlike the defendants in Sony, exercised ongoing control over its service. The court held that the defendant’s role in facilitating the unauthorized file-sharing “smacks of contributory infringement.” In contrast, noted the court, the defendants in Sonymerely manufactured and sold the recorders. The court concluded that Napster’s primary role of facilitating the unauthorized copying and distribution of copyrighted music rendered Sonyinapplicable. In another recent case, City Studios Inc. v. Reimerdes,2000 U.S. Dist. Lexis 11696 (Aug. 17, 2000), the court held that the possibility of a substantial noninfringing use of a work by members of the public who gain access to the protected copyrighted work through circumvention technology posted on the Internet does not shield the party who posted the technology from liability under the Digital Millennium Copyright Act, 17 U.S.C. 1201 et seq. (DMCA). The plaintiffs were studios that owned and distributed copyrighted motion pictures for home use on DVDs, which were protected with an encryption system. The defendants posted a decryption program on their Web site. The plaintiffs successfully enjoined the defendants’ de-encryption posting under the DMCA. The defendants substantially put forth the defenses discussed in the MP3.Comand Napstercases. The court held that the Section 107 fair-use defenses did not apply to the DMCA, that the defendants failed to meet the safe-harbor provisions of the DMCA, and that Sonydid not apply to the facts at hand. THE SONG IS NOT OVER YET: LOOKING TO THE FUTURE So what has happened since these rulings? Napster recently filed an appeal in the 9th U.S. Circuit Court of Appeals against the preliminary-injunction ruling. No. 00-16401 (9th Cir. filed Aug. 29, 2000). The MP3.Comcourt recently ruled on the damages portion of the case, finding willful infringement and awarded damages of $25,000 per CD, for a total of more than $100 million. The court held that the defendant’s fair-use defense was “without any merit” and was “little more than a sham.” MP3.Com issued a statement that it intends to appeal. Likely hoping for a similar ruling as the MP3.Comdecision, numerous members of the entertainment industry recently sued Scour Inc. Twentieth Century Fox Film Corp. v. Scour Inc.,No. 00-CV5385 (S.D.N.Y. filed July 20, 2000). Scour provides an Internet service for trading music, videos and similar files online. The defendant is seeking to transfer the case to Los Angeles. These cases will be closely watched. The tension between copyright protection and new technologies is far from over. Jeffrey P. Weingart is a partner, and Monica B. Richman an associate, in the information technology group at New York’s Brown Raysman Millstein Felder & Steiner.

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