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There’s a Jefferson Starship song from 1970 where Paul Kantner imparts his vision of a space colony Utopia. “Free music, the day is on its way,” he intones on a Jerry Garcia-meets-Robert Heinlein album that received mixed reviews from bewildered music critics but won a Hugo science fiction award. Space colonization still seems safely confined to science fiction, but free music is here. You can get that dusty Kantner album, now a CD, on Amazon.com for $10.99. Or you can go a few clicks over on the Internet and get it for free. I have to wonder what Kantner, now 63 years old and without a hit in the digital age, thinks about free music today. For you stubborn Luddites who are still having an assistant handle your e-mail, here’s the way this free music thing works. Connect to the Internet through one of the music sharing services and you’ll see millions — yes, millions — of other computer users from all over the world rollicking in an orgy of file sharing. The software provided by the sharing services allows everyone to peek at the music files in everyone else’s computers. See something you like? You can steal it at the click of a mouse. For the music industry, this is the stuff of nightmares. Madonna has fought back by planting files on the Internet. Download what appears to be a Madonna song file and instead you may hear an indignant Material Girl demand, “What the f— do you think you’re doing?” The record companies have taken a more conventional approach, going to court. They’ve filed suits against some downloaders, but they know they have to shut down the music sharing Internet sites to win this war. The problem is what’s called peer-to-peer technology, a computer communications model where Internet users can connect and share files with each other without going through a centralized server. Most of the music sharing services use this technology. From their point of view, they only provide the software for music swappers to find each other and don’t actually participate in the exchanges. That’s led to what has to be the most perplexing intellectual property issue of our time. Can the companies that provide the software used for music swapping be held liable for copyright infringement? So far, the courts have said yes in some cases and no in others, depending on such things as whether the software has other, legitimate uses, if it was intended primarily to enable illegal downloading and how the technology connects music swappers. To the music industry, this all seems like distinctions without a difference, but such issues have blocked efforts to shut down many of the Internet swap sites. Most IP lawyers hope the U.S. Supreme Court will update its views on copyright in the digital age by granting cert in a case where music companies failed to make copyright claims stick against Grokster, one of the music swapping sites. The Daily Report brought together IP lawyers last week to discuss the issue. The discussion was moderated by Georgia State University Professor Michael B. Landau, who has written extensively on this and related topics. His panel included Atlanta IP lawyers Joseph M. Beck of Kilpatrick Stockton, Martin J. Elgison of Alston & Bird, and Jason S. Jackson and Gregory J. Kirsch of Needle & Rosenberg. Daily Report Assistant Managing Editor Janet L. Conley facilitated the discussion. Their discourse follows, edited for clarity and brevity. — Ed Bean, Managing Editor
LANDAU: Today we are going to discuss what has been a hot topic for years: peer-to-peer file-sharing. A number of cases have gone through the federal courts involving Napster and Aimster and Grokster and Morpheus and Kazaa. But there is no general agreement among the courts regarding a test for contributory infringement. The courts do agree, however, that the end-users who upload, download and copy are directly infringing the copyrights. [ In re Aimster Copyright Litigation, 334 F.3d 643, cert. denied, 124 S.Ct. 1069 (2004)] In Napster, the 9th Circuit held that Napster was liable for contributory infringement because it was a centralized system to which people connected in order to do file sharing. The court found that Napster had knowledge of infringement and essentially facilitated it. [ In re A&M Records Inc. v. Napster Inc., 239 F.3d 1004 (2001)] In contrast, in Grokster, the same appellate court held that Grokster did not infringe for supplying software that was used for locating and exchanging files. Grokster had introduced uncontroverted evidence that in addition to the unauthorized file sharing, its software was being used to distribute thousands of public domain literacy and musical works, as well as new works that were authorized by the bands for distribution via Grokster. The 9th Circuit found that the software had “substantial noninfringing uses.” [ In re Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 380 F.3d 1154 (2004) petition for cert filed Oct. 8, 2004, No. 04-480)] The 7th Circuit, however, in Aimster held that despite the fact that the file-sharing software was capable of noninfringing uses, Aimster, now called Madster, was liable for contributory infringement because it had knowledge that the vast majority of the content infringed and could not convince the court that it was too burdensome to prevent the illegal uses. [ In re Aimster Copyright Litigation, 334 F3d 643 (2003), cert. denied sub nom, Deep v. Recording Industry Ass'n of America, U.S. 124 S.Ct. 1069 (2004)] The difference in the holdings in the appellate courts were based upon differences in the technologies and differences in the interpretation of the standard for “contributory infringement” set forth in the 1984 Supreme Court case involving videotaping, Sony v. University City Studios. [ Sony Corp. of America v. Universal City Studios Inc., 464 U.S. 417 (1984)] It is not surprising, for Sony itself was a 5-4 decision in the Supreme Court. Had one justice gone the other way, there would not have been VCRs. In looking at these cases, there are a few things to consider. One is the behavior of the end-users, the people who are uploading and downloading the music files. Is that infringement or should that be excused under fair use or an implied license or some other doctrine? And if it is direct infringement, then there is the possibility of contributory infringement on the part of the companies providing the software. If some of the software does infringe, then what is the proper way either to prevent the uploading and downloading of massive numbers of files, or if it’s one of those things that is inevitable, is there a mechanism for compensating the copyright holders so that the composers and the publishing companies and the record companies get their fair share and there is no huge free-rider effect? I would also like us to discuss some of the differences among the technologies and the legal decisions in the three cases. Recently, the plaintiffs in the Grokster case — that’s MGM and all of the content providers — filed their petition for cert to the U.S. Supreme Court. Should the Supreme Court take the case, it may be to resolve what petitioners in Grokster think is a split between the 7th and the 9th Circuits or to determine the proper interpretation of Sony, in which the court held that by manufacturing and selling the Betamax, a VCR-like video recording machine, Sony didn’t violate the copyright of television shows and motion pictures that were recorded. The Sony decision now is 20 years old. Does the language in the holding of Sony apply today? With that context, let’s talk about whether there really are differences among Napster, Aimster and Grokster in terms of the technology the companies used. If there are technological differences, what are they? KIRSCH: Unlike Napster, Grokster does not have a centralized database, a centralized index. Napster was the first well-known peer-to-peer system. But it wasn’t a pure peer-to-peer system like Grokster. Napster had a central indexing scheme as opposed to a purely distributed indexing scheme. Napster actually operated a server that indexed all the different files available on the millions of different users’ machines across the Net. LANDAU: So it’s like walking into the giant Napster consignment shop where they tell you where everything is, but you can’t get the file unless you go through them? KIRSCH: That’s right. With Grokster, the indexes are not stored on a central server but rather are distributed in a decentralized way among the systems. So once the Grokster software is available on the Internet, and once people start installing it on their machines, Grokster could conceivably go out of business. They could disband, yet the system would keep going on its own. That’s very different from Napster. If Napster shut down their servers, the whole service would come to a screeching halt. LANDAU: So the 9th Circuit said that Grokster and Grokster-type software that enabled users to locate music files on other computers for downloading was noninfringing, but the 7th Circuit in Aimster said that software that enabled users to locate music files on other computers and used AOL’s instant messaging service to get music files back and forth did infringe. [Aimster distributed an interface that allowed AOL's instant messaging software to be used for file sharing.] KIRSCH: That’s right. Also, Grokster provided evidence of substantial noninfringing use. I think they estimated that 10 percent of the entire usage of the system was legitimate. So the court held that was sufficient as evidence of noninfringing use. Aimster, on the other hand, did not submit such evidence, and so I think that’s one of the key points that the different courts considered when they examined very similar services and held one to be liable and one not. LANDAU: Assuming 90 percent illegitimate use and 10 percent legitimate use, the language in Aimster indicates that even if the system is capable of not infringing, if the software provider knows that the bulk of the use is infringing, it has an additional burden to do whatever it can to reduce the infringing use. Unless the software provider can show the court that reducing the infringing use is extraordinarily expensive or burdensome, then it is going to be liable for contributory infringement. ELGISON: But even that is so far from Sony. The numbers were probably far reversed in the Sony case — 90 percent was noninfringing and maybe 10 percent infringing, and yet we end up in the same result here. I’m confused. How do we end up with the same result? LANDAU: It’s the end-users. In Sony, the Supreme Court held that videotaping of the programming for personal “time shifting” was fair use and not infringement. Without the direct infringement, as a matter of law, there could not be any contributory infringement. The Court could have stopped there and found that Sony was not liable. The language in Sony that created the doctrinal problem is the phrase “capable of noninfringing uses.” And I wish that the court had said, “Is this predominantly or actually used for substantial noninfringing purposes?” A possible noninfringing use for a VCR is as a doorstop. I’m being facetious, but what is “capable of noninfringing uses?” ELGISON: I think you have to go to Sony as the benchmark. Sony is the benchmark on the legal side and Napster, at the moment, is the benchmark on the illegal side. And so when you get one of these cases, you sort of end up saying is it more like Sony or is it more like Napster? And if you can fit it into the Sony box, as Grokster did, you are probably going to win. If it ends up in the Napster box, you are in deep trouble. LANDAU: In Sony, the end-users were found to be engaging in fair use and not infringing because of time shifting and having no demonstrable negative effect on the copyright holders’ markets. It depends on how one interprets Sony, but the threshold question is: Is there direct infringement? That’s the first hurdle. In the peer-to-peer cases or the Napster case, the courts have all said that the end-users indeed do infringe. Then you get to the second question of contributory infringement. ELGISON: I think it’s worthwhile to examine that fundamental principle: Are the users infringing? In Sony, apparently, it was fairly easy for the court to say, “No, this is just time shifting.” And for Napster and Grokster it’s easy to say it is not a fair use because you are doing it so you can get music for free. I would argue that there is a pretty subtle difference there. In Sony, one could argue that you record a movie and time shift it so you can watch it anytime you want and you don’t have to buy the video. So, in effect, you are saving some money. LANDAU: We have to put Sony into a historical perspective. In Sony, the behavior was going on in the ’70s. At that time, you didn’t have a huge market for video rentals. Also, what I have always felt was fatal to the Sony case is that Universal could not show that people were librarying, that people were archiving, that they were building up huge collections of videos to watch at a later time. The term “time shifting” meant, gee, my favorite show is on when I have to go to dinner or I have to be at a party at my colleague’s house. I don’t want to miss it so I will record it, and I’ll watch it later and then I’ll record over it. I think that in one way, Sony was brought a little early. I wonder if the result would have been different after HBO and Cinemax and Showtime and all of the premium movie channels were available and after it was clear that people were doing this to make video libraries. So that is the other question: How much is librarying or archiving a factor? It could be a very important factor. In [ American Geophysical Union v. Texaco Inc., 60 F.3d 913 (1994), cert dismissed, 516 U.S. 1005 (1995)], the 2nd Circuit held that Texaco was systematically “avoiding payment” because the in-house researchers kept archival copies of articles from scientific journals in their files. The court found that the “the photocopying served the same purpose for which additional subscriptions were normally sold or for which photocopying licenses could be paid.” The fact that the people who download the music files generally keep them on their hard drives or burn CDs could be the distinguishing fact. I guess that depends on how much one reads into Sony. BECK: Well, I haven’t heard any arguments that convince me that there is no direct infringement in the Aimster, Grokster, Napster series of cases. I think the difference with the Sony situation is that people at the time did tend to time shift. I’m not sure the result would be as different as you think today. People do record movies and watch them sometimes more than once. But by and large people still like to go to the theater, hear the old celluloid click across the screen, as opposed to having libraries of movies. But in the case of music, people listen to CDs and songs over and over, and they do build archives. Also, the distribution issue was not present in Sony. So, assuming the Supreme Court takes the [ Grokster] case, I think it will have very little trouble finding direct infringement. I think the real issue is whether the concept of duty applies or not. If there is a duty to prevent a harm that you know is going to occur and you fail to do it, and you’re making money because of your failure, is that called contributory negligence? Maybe it’s vicarious negligence as well. ELGISON: I think the Court should take the case, too, and not just for the reasons that Joe articulated, which I agree with. This is not just an issue of peer-to-peer sharing. The issue is digital content. The Internet just happens to be a medium by which you can share an enormous amount of digital copies quickly. We’re not far from digital television. According to the FCC, by 2006 we’re supposed to have it, which means everything will be coming in digitally. By then we’ll all have DVRs [digital video recorders], I assume. Our DVRs will probably be hooked up to our computers. We’ll be able to copy movies digitally, download them onto our computers and send them on out. So I think this is a big, big issue that goes well beyond the facts of the Grokster case. And I hope the Supreme Court takes it. This may not be the perfect case to start the layout of hard and fast principles that will apply in the digital age, but we need some guidance. I don’t think Sony has much viability left. LANDAU: Let’s talk about Sony for a minute. First, is the language of “capable of noninfringing uses” dicta because the dispositive part was the noninfringement by the end-users and they were just talking in general, or should that be the test? BECK: I think “capable of non-infringing use” is part of the test. I just don’t know what it means after Grokster. It must mean more that just a trivial capability because if that was all they had in mind, I don’t think they would have emphasized the issue in the opinion; the opinion wouldn’t have come to stand for that. But I really think it does stand for that despite the argument that it’s dicta. So I think that if there is the capability of a substantial noninfringing use, then perhaps you are going to defer and say it is not contributory infringement. The real issue to me is whether the Supreme Court will defer to Congress on this issue, in part because the problem is so much larger than it was under Sony. Today there is potential for massive infringement of all kinds of intellectual property. As a result, I believe the Court may be more reluctant than it might have been in Sony to find infringement absent further direction from Congress. If the Court were inclined to rule in Grokster’s favor — and say this is fair use, or it is noninfringing — it may be inclined to rule based on the law as it now exists. But even if the Court is inclined to find infringement based on the “duty” concept I mentioned, then I’m afraid it may simply leave it to Congress to try to solve the problem. LANDAU: Look at the Inducement of Infringement Act [a bill in Congress the authors of which say would allow legal action against file swap services and perhaps other technologies by making it make it illegal to "induce" copyright infringement]. I mean, there are a couple of interesting approaches that the Court can take and approaches that Congress can take. And this is a question that has bothered me from the beginning: Should they go back and amend the Audio Home Recording Act? [The Audio Home Recoding Act of 1992 requires makers of digital audio recorders to pay a royalty tax to copyright holders of music in order to compensate them for lost royalties from consumers making home copies.] There are only certain types of devices that are defined to fall within the act. A personal computer is not a digital recording device under section 1001. In other countries, there are levies on all kinds of media, on every blank CD and every CD burner and even on every computer. The assumption is that some infringement will happen, so you add a fee that amounts to a royalty to the sale of items that can be used to infringe. ELGISON: That is not a novel concept. We all practice in intellectual property law and are often faced with this quandary of applying copyright law to computer programs and computer software. And it’s always been a square peg in a round hole. These cases are a continuation of that struggle. And the law has to change, and the law has to evolve. So how do you strike a balance between innovation and new technology, which you want to encourage, and infringement, which you want to discourage? One way is to do it on the remedy side. For example, you could have the test of willfulness: Willful contributory infringement where the contributory infringer is out there making a profit from the very beginning. The company develops technology that is designed to facilitate infringement. And on the other hand you’ve got a company that’s developing a device that makes multiple copies, but there is nothing that indicates that they believed or were intending to create infringement. One might be a willful infringer, and one might be a nonwillful infringer. To a nonwillful infringer, you might say injunctive relief, and it’s resolved so the company is not put of business. For the willful infringer, damages, attorney’s fees, treble damages. In that way, you can begin to move behavior. LANDAU: There’s also the technological aspect. Why not make CDs so that you’re allowed to make one archival copy, for example, and after that the disk or the second disk cannot be copied? I’ve always wondered why there has not been some sort of coding similar to DSS [digital signature standard, a technology that authenticates Web signatures] or access codes or something put on audio works so that you can’t upload and download a billion times. KIRSCH: I think from a pure technical point of view that can be done, but in terms of viability I think it’s suspect. I think all of those schemes are destined for failure. Maybe initially they will work, but long term there are ways around them. LANDAU: Assume that you have been caught downloading. What if there were a quick administrative proceeding, almost like paying a traffic ticket? ELGISON: If you want to actually change behavior, it’s got to hurt. One would argue that parking fines may not actually change behavior because people do it anyway. JACKSON: Well, it’s not that hard to change behavior. With Generation X, a little bit of hassle goes a long way. There has been ongoing criticism from consumers who are in their teens and 20s, that $15 is a lot of money. They want an effective means to buy high quality audio singles. LANDAU: That brings up an interesting question. Why was there not a scheme for delivery with different price points developed earlier? One has been used for ages in publishing. A hardcover costs more than a paperback. For example, if you go into the record store, you have the physical cost of the jewel box, the physical cost of the CD, the cost of the artwork, you have the distribution costs. If you are just getting a digital file online, why isn’t it selling at a fraction of the cost of a CD? ELGISON: I have not represented the record industry and I’ve never talked with an executive, but I’ve got to believe that they must have been scared out of their minds about digital copies being sent out without any control. My guess is they were forced into systems like iTunes [a legal download service that sells songs for 99 cents]. JACKSON: Generation X has become cynical about the DRM schemes. DRM is an acronym for digital rights management and refers to systems that allow publishers to distribute digital content in a manner that prevents unauthorized copying, playing and distribution. I don’t know if you remember the infamous felt-tip pen incident. [Hackers defeated a CD copy protection technology in 2002 by coloring on the disc with a felt-tip pen.] People thought, “OK, they are going to copy-protect CDs, they are getting serious about DRM, and they are going to create a hassle. I’m going to go back and buy my CD and be legitimate.” Low and behold, with a felt-tip pen you could defeat the copy protection. Incidents like this have created cynicism about the effectiveness of these DRM schemes going into the future. LANDAU: But do Gen-Xers have this notion that, I want music, I don’t want to pay the price for it, so I will just download. What’s the difference between saying, I have an old, beat-up 14-year-old Honda. I really would like a Porsche 911. I don’t want to pay for it. It’s there in the parking lot next to my Honda; I’ll just drive off with it. Or do they believe that nothing is really being taken because after a file is downloaded, another copy is still there? KIRSCH: Right or wrong, some people don’t look at it that way. They think that whether they make an illegitimate copy or not, the songs will still be sold to someone. I’m sure there are lots of rationalizations occurring. For example, some people may tell themselves, “I’m not really hurting anybody by making a copy.” People tend to be very good at rationalizing their actions. ELGISON: There also has been this pervasive notion that I have heard from many people, not necessarily just college students, that if it’s on the Internet, it’s not covered by the law. LANDAU: The question for me is deterrence. What actually is a deterrent? Every study says the death penalty doesn’t deter. You have huge numbers of people in jail for petty drug offenses, and jail doesn’t deter them. So how many people do you have to actually hit with a lawsuit? And lawsuits are not cheap. So should there be some sort of quick administrative behavior? Maybe something like the ASCAP model, for example, where a person pays a fee to obtain a blanket license for music performances. For those who don’t obtain authorization or a license, there’s a going statutory damage rate for each infringement. I haven’t looked at ASCAP infringement cases in a while, but the last time I did the statutory damage was about $2,500 per infringement. Someone goes in and gets the list of the songs that infringe and usually wins on summary judgment in those cases. So should there be some standard damage rate? You would want a rate that is not going to bankrupt someone or cause the kid’s parents to lose their house, but something that is going to make it sting so that the person knows there is a good chance of getting caught and paying an expensive fine. BECK: I don’t know how many know this, but, Michael, besides being a professor, is a performer of music himself. Michael, suppose you are performing in Virginia Highland. BMI and ASCAP don’t want to sue you and your colleagues in your band; instead, they sue the club. That’s where the notion of contributory infringement and vicarious infringements have their most force. And the reason enforcement by ASCAP and BMI works is because of that. The performing rights societies do not want to sue the band, even though in your case, Michael, you are the deep pocket. LANDAU: On a professor’s salary, right? BECK: And ASCAP and BMI want to sue the owners of the club and the officers and shareholders, and because of that, deterrence works. I think a judicially crafted model of an expanded notion of contributory infringement and vicarious infringement would serve that deterrent purpose. It comes back to what we said earlier about duty. Is there a prophylactic duty to do whatever you know how to do to prevent infringement? Or can you, as the Grokster court allowed the defendants to do, say, “The cat is out of the bag. I can’t stop them now because they don’t go through my server.” I find that a very lame excuse for permitting infringement. Although I think if the Supreme Court wants to take this case, it may have to expand traditional notions of contributory infringement. ELGISON: I think we need a completely new test for secondary liability in the digital age. The old test just simply doesn’t work any more. The Sony test is not really applicable today because the technology was so different back then. That was not a technology that involved multiple copies with no problems in degradation. That is a huge difference from the current technology. I would argue that if you look at these tests of contributory infringement and vicarious infringement and collapse them together, you can come up with a better test for contributory or vicarious liability for digital content. You look at the elements. It’s knowledge by the company putting out the technology. It’s a direct financial interest in revenue generated from infringing activity. The question is, did the defendant intend this device, this technology, for infringing activity or did the defendant invent it for noninfringing activity. LANDAU: And you run into an interesting situation there because, for example, under that test it might apply to blank CDs. It would not apply to the computer and the CD burner in the computer because, theoretically, you can back up your files. JACKSON: Going forward, the concern expressed by many programmers and computer scientists is the outcome if the Supreme Court revisits Sony. They are afraid the remedy will eliminate the generic peer-to-peer client. Microsoft and Intel and IBM are all researching and developing products that rely on generic computer peer-to-peer clients. I would say, even if the train is moving in the wrong direction, let’s not rip up the track, let’s not take VCRs off the shelf. LANDAU: Then it might be a question of just imposing a price. I mean, looking at the compulsory license fee for the use of musical compositions, it’s around eight cents per song. Now, I know that’s only for the copyright holder. BECK: Per copy. LANDAU: Per copy sold, right, but that is not a real big tax on each individual. If you have something where you figure out how many songs the average person downloads, then divide that among the total number of computers and disks, it might be $5 more per computer, $10 more per computer. BECK: I would like to ask our Gen Xer why it is that so many young people or maybe even people as old as I am — if they are not as illiterate computer-wise as I am — see no problem with taking music or movies, making copies without paying for them, whereas they would be at least a little more guilt-stricken about going to Blockbuster and picking out a tape and sticking it under their shirt. JACKSON: Several factors. Number one, CD prices have been steadily increasing for a long time. There is also a consensus that people were happy with the quality and selection of music. Now we have fewer musical choices. We have the glitz of Britney Spears, but we don’t have the variety and selection we used to. We have a $15 CD that has only two good songs, creating a market failure in this area. BECK: But if you could get the two hits for two or three dollars or you could get it for free, do you really think sizable numbers of people would voluntarily pay for it if they could just as easily get it for free? JACKSON: Surprisingly, I think so. I know people who were MP3 downloaders and the threat of a lawsuit actually worked. They say, “I want to get an education and be a professional, and I don’t ever want to expose myself to liability going forward, so I’m going to cease this activity and maybe even delete the songs from my hard drive.” ELGISON: I saw that there were a couple of cases where individuals paid $12,500, I think I read in one, and $17,000 in another case, so there have been some serious hits out there, and it may very well be that if enough of them happen to get published, that will be a deterrent. LANDAU: You have two factors together. One is that combined with the availability of services such as Apple’s iTunes and other sources that are saying if you want just those two songs on the album that you like, they are 99 cents each. I went on iTunes the other day just looking at things, and I just saw some terrific jazz releases that I hadn’t been able to find in ages. If I wanted to take certain cuts and put together the best jazz compilation that’s ever been created, I can do it at a reasonable fee. So I think that that’s one of the answers. It may just be that there are a confluence of factors that are shaping or reshaping behavior so that there will be more compliance. It may take the additional factor of the Supreme Court or Congress to put it into shape. I think back again to Sony when the movie studios thought that the VCR was the end of the world as we knew it. So things have a way of working out.

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