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Stanford Law School
Center for Internet and Society

Internet Law Program 2003
Stanford University
June 30 - July 4

 

 

 

 

 

 

 

Peer-to-Peer Copying

By William Fisher and Christopher Yang

Updated 6/1/2003: Dotan Oliar


Table of Contents

Introduction
Case Studies
Readings
Discussion Topics
Additional Resources


Introduction

Most Internet content today is "served" from a central system that takes requests from a user's "client."  Typically, the user asks for access to information or other data; the requested content is then "pushed" from the central system to the user.  In this model, the various visitors to a given web site do not interact.  By contrast, peer-to-peer technology (commonly known as "P2P") creates conversations among individual personal computers (PCs).  In this respect, P2P systems resemble an affiliate network where information (rather than referrals) is passed along many people.

P2P interactions are often initiated when one computer asks several other individual personal computers whether they have a specified file or type of information.  Each computer to which the search request is sent either responds or, more commonly, forwards the request on to a second tier of computers, each of which may pass the request onto a third tier, and so forth.  As the request "cascades," content across a wide network of machines is searched.  When a "match" is made, the sought-after file is transmitted directly to the original requester.

Most applications of P2P technology are wholly benign.  Problems arise, however, when the material flowing through networks of this sort is copyrighted and is being reproduced without the permission of the copyright owners.  For two reasons, nonpermissive P2P file-sharing of copyrighted materials is extremely difficult to police.  First, the structure of P2P systems makes it hard for either copyright owners or government officials to track the movement of copyrighted materials as they pass from user to user.  Second, because P2P systems usually do not employ centralized transmission nodes or distribution points, they are very difficult to shut down.

While both the digitization of information and the concept of file sharing have existed for many years, the advent of the Internet has made P2P copying possible on a scale never before imaginable.  The industry that, thus far, has been affected most dramatically and visibly by the new technology is the music industry.  The main reason why the action in this field has been especially intense is that musical files -- especially when compressed using the popular MP3 format -- occupy relatively little space and thus are easily transmitted through P2P networks.  That circumstance underlay the enormous popularity of Napster , a modified P2P system, and Gnutella (a “purer” example of the P2P model without an intervening server).  Using these systems, it is possible for individuals to create libraries of their favorite songs by downloading free copies of them from the Internet.  Alternatively, individuals can "rip" MP3 files from their own CDs using inexpensive or, in many cases, free software designed exclusively for that purpose.  Users can then play-back these files in a variety of ways.  They can listen to them on a variety of portable MP3 devices or directly from their hard drives, they can send their files via email to other music fans, or they can upload their files to the Internet for anyone to enjoy.  And because the music is in digital form, each successive copy sounds as good as the original.  The net result has been a radical and rapid shift in the way music is distributed and consumed.  But music is only the first industry to feel the force of this technological revolution.  As the bandwidth available to ordinary computer users grows, as file-compression technologies for other types of media proliferate, and as the size of hard drives increases, all other entertainment industries will likely be transformed in similar ways.

This module examines the legal and policy implications of P2P technology.  Is it beneficial or pernicious?  Is it legal or illegal?  Which, if any, of the participants in the new networks should be liable to the owners of the copyrights in material that is transmitted and reproduced without permission?

It is crucial that, before beginning the module, you have at least a rough understanding of the relevant technology and the principal doctrines of copyright law.  If you feel uncomfortable in either dimension, you should consult the attached primers on digital music and the basics of copyright .  You should then peruse the case studies , which focus on the legal battle over Napster and the legal status of alternatives to Napster.  Next, we suggest that you examine the Readings associated with the module, following as many of the associated links as you find interesting.  At that point, you should be well prepared to consider -- either on your own or, better yet, in one of our electronic fora -- the Discussion Topics .  The module concludes with a substantial body of Optional Related Material .
 
 

Back to Top | Intro | Case Studies | Readings | Discussion Topics | Additional Resources


Case Study 1:  Napster

The Internet-related controversy that generated the most heat and light during the past two years was the titanic struggle between the Recording Industry Association of America (RIAA) and Napster.com .  Napster is not a traditional search engine, but a protocol that enables individual computer users to share information concerning the contents of their hard drives .  Specifically, it enables a user interested in obtaining an MP3 copy of a particular song to search the drives of other Napster participants for the song in question -- and then, after locating a copy, to download it to his or her own drive.  The service proved extraordinarily popular, espcially (but by no means exclusively) among college students.  During the period of maximum usage of the system (winter 2001), a high percentage of the traffic on many university networks consisted of Napster searches and downloads.

Aware that its system facilitated the nonpermissive reproduction of copyrighted material, Napster employed various tactics to minimize its exposure to liability:  it neither stored nor cached any digital music (infringing or otherwise) on its servers; it trumpeted a " Copyright Policy " in which it disclaimed responsibility for the activities of  its subscribers and insisted that they promise not to violate the law; and it promised to "respond expeditiously to claims of copyright infringement committed using [its] service." Unimpressed, the RIAA filed suit , accusing Napster of both contributory and vicarious copyright infringement.

In its defense, Napster made three legal arguments. First, it invoked the protection of sections 512(a) and 512(d) of the Digital Millennium Copyright Act (DMCA), which provides to the operators of "transitory digital network connections" and "Information Location Tools" "safe harbors" against liability for copyright infringement. Second, Napster argued that peer-to-peer copying of digital files using its system constitutes ""the noncommercial use by a consumer" of "a digital audio recording device," which, pursuant to section 1008 of the Audio Home Recording Act , cannot constitute copyright infringement. Because its members are not engaged in copyright infringement, Napster argued, it plainly could not be liable for contributory copyright infringement. Finally, Napster insisted that a significant percentage of the uses of its system involves lawful copying of musical files -- either because the owners of the copyrights in the songs in question do not object to (indeed, encourage) the duplication of their works or because the character of the copying is such as to make it a "fair use." Consequently, Napster argued, its system is manifestly "capable of substantial noninfringing uses," and thus is immunized against liability for contributory copyright infringement by the decision of the United States Supreme Court in the Sony case.

At the trial-court level, Napter's arguments fared badly. In April of 2000, Judge Marilyn Patel rejected Napster's invocation of DMCA 512(a) . On August 10, 2000, Judge Patel rejected all of Napster's remaining arguments and granted a preliminary injunction against the continued operation of the system . The Court of Appeals for the Ninth Circuit was somewhat less hostile. One day after Judge Patel's second ruling, the Court of Appeals stayed the imposition of the injunction pending an appeal. Oral argument on the appeal was heard on October 2, 2000. The tenor of the questions asked by the three-judge panel suggested that they were more receptive than Judge Patel to Napster's position.

On February 12, 2001, the Court of Appeals handed down its much anticipated ruling.  The three-judge panel declared that Napster must stop trading in copyrighted material and may be held liable for vicarious copyright infringement.  The company was allowed to stay in business until Judge Patel modified her injunction, which the appellate court labeled "overly broad."

During the next several months, a complex set of maneuvers erratically but seemingly inexorably tightened the noose on Napster.  In March, Napster agreed voluntarily to halt illegal song trades by implementing a filtering system designed to catch copyrighted materials.  In response, Judge Patel opted not to shut down the service and ordered the record labels to assist Napster in identifying individual infringing file names, as well as song titles and artist names to be blocked.  Within a week of setting up its filters, the average number of MP3 files shared by Napster users fell close to 60% according to analysts at Webnoize.  By early April, this number had stabilized to 36% and Napster had blocked 311,000 individual songs, as well as 142,000 various misspellings of those song names or artist names. But in a hearing on April 10, 2001, Judge Patel described Napster's filtering efforts as "disgraceful."  Patel suggested that "maybe the system needs to be closed down" if it was unable to catch all copyrighted material.  Nevertheless, Judge Patel failed to take any further action against Napster and instead opted to await testimony from the newly appointed court mediator, A.J. "Nick" Nichols , who also served as the court expert in Sun Microsystems' suit against Microsoft.  In late April, Judge Patel issued a memorandum requiring  the record labels to identify at least one infringing file on the ever-changing network before Napster is obligated to block copies of the song.  In July, Napster voluntarily shut down its system entirely in order to retool it.  The record companies argued that Napster should not be permitted to resume operations until it could guarantee "100% compliance" with Patel's prohibition against infringing activities.  Judge Patel agreed, announcing a "zero-tolerance" policy regarding the transmission of infringing files.  In March 
the Court of Appeals affirmed her order.  Meanwhile, in September 2001, Napster settled a secondary lawsuit against it by the National Music Publishers Association (which represents the owners of copyright in musical compositions, not to be confused with copyrights in sound recordings) for $26 million.

Almost all of the ligitation up to this point had involved struggles over the issuance of a preliminary injunction.  In August 2001, the record companies sought to move the case forward, requesting Judge Patel to grant them summary judgment in their substantive case against Napster.  In response, Napster argued that three independent circumstances made summary judgment inappropriate:  (1) the record companies had not adequately identified and proved their ownership of thousands of songs that they claim were unlawfully transmitted over the Napster system; (2) that Napster should be afforded an opportunity to show their entitlement to one or more of the "safe-harbor" provisions in the Digital Millennium Copyright Act; and (3) that the record companies have themselves engaged in various forms of illegal behavior -- most importantly, price-fixing and other kinds of anti-competitive conduct vis-a-vis music on the Internet.  Judge Patel showed little interest in the first two of Napster's arguments.  She took considerable interest, however, in the third.  This was a potentially explosive development in the case.  A finding that the record companies have engaged in anti-competitive behavior could have benefitted Napster in several ways.  At a minimum, it could have reduced the damages that the company must pay (on the ground that the profits that the record companies claim to have lost were based upon monopolistic pricing).  More radically, such a finding could have supported a judgment that the record companies have engaged in "copyright misuse," which could prevent them from recovering at all.  Finally, the record companies could have been held liable to Napster for damages based upon a violation of the antitrust laws.  A ruling by Patel that Napster could pursue discovery of the music companies' documents relevant to this issue raised the stakes even further.

Meanwhile, the Napster executives sought to remake the company in two ways.  First, they participated in a consortium of companies that recently began offering music over the Internet under the trademark " MusicNet ."  Second, they developed plans for resuming operations on a subscription basis.  Money collected from subscribers would, they hoped, enable them to obtain licenses from the record companies to use their sound recordings legitimately.  In the end, however, these various efforts to sustain the company as an independent enterprise came to nought.  In May of 2002, Bertelsmann , the music company that had previously propped up Napster's shaky finances, saved the company from bankruptcy by buying the remainder of it for $8 million.

Professional and popular reaction to the litigation and to the (pen)ultimate decision of the Court of Appeals has varied widely.  Some members of the music industry clearly sympathize with the RIAA.  According to Ron Stone of Gold Mountain Management, which represents such artists as Bonnie Raitt and Tracy Chapman, "[i]t is the single most insidious website I've ever seen… its like a burglar’s tool."   Prominent individual artists and groups are speaking out as well.  One of the most outspoken critics of Napster is the heavy metal rock group Metallica, which sued Napster in U.S. District Court in Los Angeles for copyright infringement and racketeering in April 2000.  In a surprising move, the band delivered to Napster 13 boxes containing 60,000 pages of  documents identifying usernames of people who allegedly made Metallica songs available online and demanded that Napster "boot" them from the service. Napster complied , blocking 317,377 user names from its service in early May of 2000.

In his interview with Slashdot, Metallica drummer Lars Ulrich stated, "I don't want to sound too combative here, but you know, when somebody f---s with what we do, we go after them."   In his testimony to Congress , Lars commented that "if you're not fortunate enough to own a computer, there's only one way to assemble a music collection the equivalent of a Napster user's: theft."  Likewise, Sean "Puffy" Combs, CEO of Bad Boy Entertainment, Inc. was horrified at the infringement activities he alleges to have discovered transpiring over the Napster site:

I couldn't believe it when I found out that this Napster was linking thousands of people to the new Notorious BIG album "Born Again," a week before it even hit the streets.  This album is a labor of love from Notorious BIG's friends to the man, his kids, the rest of his family and everyone else whose lives will never be the same since BIG passed.  BIG and every other artist Napster abuses deserve respect for what they give us.
However, not all artists are opposed to Napster.  Notable supporters include Rap singer Chuck D and modern rock bands Smashing Pumpkins, Limp Bizkit, the Rosenbergs, and Ben Folds Five.  Billy Joe Armstrong of Green Day says, "I just want my music to be out, and that's always been the main priority."

From the beginning, some industry observers suggested that, even if the RIAA ultimately prevailed in its lawsuit, it would gain little.  Napster lawyer David Boies was quoted in a 60 Minutes II interview as stating, "This is a case that the record industry can't win.  If they shut down Napster today in the United States, it pops up in a different country totally outside their control."  (Whether Boies was right will be considered in the next section.)

In April of 2001, the five major recording labels launched two competing initiatives to tap into the subscription model for downloadable music.  In one corner, RealNetworks became the technology partner for MusicNet (backed by AOL Time Warner, Bertelsmann and EMI Group).  The remaining two labels, Universal Music Group and Sony Music Entertainment, opted to partner with Yahoo! to launch Duet. Recently a few more services affiliated to the entertainment companies have appeared, most notiably pressplay for music and Movielink for movies. The various services took some time to get off the ground, but seem to have acquired significant groups of subscribers.  Still many consumers have complained about the limited selections and usage restrictions. The entertainment industry blames the persisting file-sharing systems for the unenthusiastic response. How these ventures will ultimately fare in the battle for the loyalty of online music and other content consumers remains to be seen. 

Is Napster passe? Not quite so. First, the legal battles over it are still ongoing. Bertelsmann, who first sued Napster for copyright infringement and later invested more than $100M in attempts to prevent it from going belly up, is now facing a $17B suit from music publishers for its role in prolonging Napster's life. One record company has already asked to join this pursuit of a deeper pocket. Other Napster investors are being sued for similar reasons. Second, the service's resurrection seems forthcoming. Roxio, the CD-burning software manufacturer, which bought Napster's technological assets from Bertelsmann for $5M in a bankruptcy auction in November 2002, recruited Napster-mastermind Sean Fanning in February 2003, and purchased Pressplay from the music groups of Universal and Sony for $40M in May 2003, announced plans to launch a legal version of Napster by the end of 2003. Although only time will tell whether this version of the service ends up being as successful as the original, Roxio's willingness to pay this hefty sum for probably not much more than the Napster trademark is a vivid reminder of the immense success Napster had, the way it revolutionized the world of online music and the enormous goodwill it still enjoys today, more than two years past its heyday.


Case Study 2:  The Next Generation


The demise of Napster has contributed to the development and populaization of second-generation P2P systems.  The first and best known of these is Gnutella, a program developed by Justin Frankel at Nullsoft (AOL's development house that is credited with creating the MP3 player WinAmp.)  The name, "Gnutella," is partly a tribute to the Free Software Foundation’s "GNU" project and partly a play on " Nutella ," Europe's popular chocolate-hazelnut spread.  Executives at AOL shut down the original Gnutella service one day after a limited beta was released, denouncing it as an "unauthorized freelance project."  (Some observers pointed to AOL's announced merger with Time-Warner as the driving force behind this decision.  CNN describes Time-Warner as having been "one of the loudest critics of Napster and MP3 piracy as a whole.")  Soon afterwards, however, the project was adopted by bands of open-source programmers, and a variety of unofficial sites across the Internet began offering the program for download.  (
For more information about Gnutella, please visit the additional resources section .) The  original Gnutella program was far less user-friendly than Napster and suffered from scalability limitations.  Recently, however, several new services -- BearShare, LimeWire, Gnucleus, and others -- have begun offering to consumers improved versions of the program, as well as convenient ways to obtain them.

Other, similar programs included Madster, which "piggybacks" on AOL's popular instant messenger (estimated to have over 21 million users by Media Metrix in November 2000), and Audiogalaxy , which offered the highly popular "Satellite" software.  The most sophisticated of the second-generation P2P systems is FastTrack (now "temporarily unavailable"), developed by a Dutch company.  Fastrack is and was used by the most rapidly growing new services, Grokster (based in Nevis, West Indies), StreamCast Networks (formerly known as MusicCity networks) (offering the widely hailed "Morpheus" software [which in the meantime switched to using the Gnutella technology]), and KaZaA .

All of these new systems differ from Napster in two respects.  First, they permit exchanges of many types of material other than MP3 files:  photographs, movies, books, etc.  Consequently, they can argue more plausibly than could Napster that their systems are susceptible of significant noninfringing uses (a fact whose signficance will become apparent soon).  Second, unlike Napster, they have no central servers that keep track of the files that users are transmitting.  Consequently, they can argue more plausibly than could Napster that they are unaware of and cannot control infringing activities by their users.

The increase in the usage of these systems has been extraordinary, particularly in the United States.  Peer-to-peer copying of music in Europe remains significantly less common that it was during the heydey of Napster.  In the U.S., by contrast, the total number of songs copied per month now exceeds the number copied during February 2001, the time of maximum Napster traffic.

Fearing erosion of their markets, the record companies have initiated lawsuits against several of the new companies. The Aimster (Madster) litigation saw a September 2002 preliminary injunction issued by the district court based on the causes of contributory and vicarious copyright infringement. It is now on appeal before the 7th Circuit, oral argument set for June 4th, 2003. EFF's amicus brief is based, inter alia, on the April 2003 MGM v. Grokster ruling (see below). On May 24th 2002, RIAA Filed a Napster-like lawsuit against Audigalaxy in a federal court in New York claiming that the two cases are identical. By mid June a settlement was reached according to which Audiogalaxy was to pay "a substantial sum" and block out copyrighted songs from its service. The outcome was a major abandonment of users and the end of Audiogalaxy as a file-sharing service. Recently, the RIAA, joined by the Motion Picture Association of America and several individual movie studios, have brought suit against the developer and various corporate users of FastTrack, claiming that, by assisting consumers in copying vast numbers of songs and movies, the defendants have engaged in both contributory and vicarious copyright infringement. On Jan 10th 2003 Judge Wilson of the federal District Court ruled as part of these proceedings that the lawsuit against Sharman Networks based in Australia and incorporated in the Pacific island nation of Vanuatu could proceed since Kazaa software had been downloaded and used by millions of Californians. Sharman responded with a counterclaim alleging copyright misuse, monopolisation, and deceptive acts and practices by the entertainment companies.   It will be at least several months before this suit reaches judgment.

Meanwhile there were interesting development in other countries. Late in March 2002, in a surprise decision , the Amsterdam court of appeal in the Netherlands overturned a lower court ruling that had held file-trading company Kazaa liable for contributory copyright infringement. The court ruled that  Kazaa is not liable for the illegal actions of people using its software, saying that:

1. "The KaZaA application does not depend on any intervention by KaZaA bv. The program is expanded and functions even better by means of the services provided by KaZaA… These services, however, are not necessary for the locating and exchanging of files. Putting an end to these services may well result in the fact that unlawful use does not abide, but that it becomes more difficult to detect and trace."

2."It is not possible to technically detect which files are copyrighted and which are not. Thus, it is not possible for KaZaA (or any other software) to incorporate a blockage against the unlawful exchange of files."

3. "Providing the means for publication or reproduction of copyrighted works is not an act of publication or reproduction in its own right. Also, it is not true that the KaZaA computer program is exclusively used for downloading copyrighted works."

This decision was the first anywhere to protect a file-swapping company against copyright liability and formed an important precedent. But it was not the last. Its spirit crossed the Atlantic and in April 2003 Judge Wilson ruled in MGM v. Grokster that defendants StreamCast and Grokster were not secondarily liable for copyright infringements by users of their software, marking the first legitimating act of peer-to-peer technology in the U.S.

The Court noted that since their services were capable of substantial non-infringing uses, to be liable for contributory copyright infringement defendants had to have actual knowledge of specific acts of infringement to which they were materially contributing contemporaneously. In finding that defendants did not contribute materially to the infringing activity, the Court relied on the fact that users' file-swapping was managed without defendants' involvement. Thus, the lack of causality between defendants' conduct and instances of infringement was central to the Court's reasoning: even if defendants ceased operation, infringing activities using their software would still be possible. Although finding that defendants gained from use of their software for infringing purposes (through advertisement proceeds), the Court relieved them from vicarious liability since they did not have the right or ability to supervise users' conduct. In its conclusion, the Court recognized the possibility that defendants may have constructed their services deliberately as to gain financially from some users' unlawful conduct while avoiding secondary liability in copyright, but implied that such conduct is legal under current law.

The future of P2P technology now seems much more promising than it was a short time ago. To be sure, the legal battle, in the judiciary and legislative, is far from being over. In the meantime, Internet-based P2P traffic continues to grow in the U.S. and the EU. Even more worrisome to the record companies is that millions of copies of the file-sharing programs have already been distributed, and, as noted by Judge Wilson, are likely to operate even if the services are shut down. The new generation of P2P services, offering greater efficiency and higher transfer rates, exemplified by eDonkey, eMule and BitTorrent, is already here and paving the way for easy video file-sharing.What will the future hold? It is hard to tell at this point. One trend, though, is already surfacing: the entertainment industry is turning to target individual infringers rather than focus on commercial technology facilitators exclusively - a step it was reluctant to take previously. In April 2003, the RIAA sued for the first time four college students for operating services that allowed students to search and share files on-campus. The suits settled quickly with the students agreeing to pay the Industry between $12,000 and $17,000 each. Will the RIAA, in light of Judge Wilson's ruling, go further to sue individual end-users? And would the legalization of P2P technology eventually make music production and enjoyment more open, diverse, distributed, rich, creative, or, in one word - free? We shall have to watch future developments closely to answer these questions, but we hope that you will share your thoughts with us using iLaw's discussion forum.

Back to Top | Intro | Case Studies | Readings | Discussion Topics | Additional Resources


Readings

The statutes and judicial decisions relevant to copyright law on the Internet are numerous and complex.  In this section, we will deal primarily with the statutory law that is most relevant to the distribution of online music (and other digital media).  This module assumes that you have some background training in, or at least familiarity with, the fundamental principles of copyright law.  If this is not the case, we suggest that you first explore some basic copyright tutorials .

Copyright Act

The Copyright Act of 1976, 17 U.S.C. §§ 101 et. seq. , provides copyright protection both to "musical compositions" and to "sound recordings."  Thus, there will generally be two copyrights associated with any single recorded song that is not yet sufficiently old to have passed into the public domain.  However, even if the musical composition copyright has fallen into the public domain, a modern recording of it will still be copyrighted.

Under 17 U.S.C. § 201 , copyright originates with the author of a work.  This author may freely transfer any or all of the exclusive rights that make up the copyright grant (such as the right of reproduction and the right of distribution).  Authors of musical compositions and creators of sound recordings often transfer their exclusive rights to music publishers and record companies.

Composers and publishers are represented by a variety of institutions, some of which license activities that otherwise would violate the copyright laws -- such as the broadcast of musical compositions by radio stations.  Other institutions engage in lobbying and anti-piracy efforts on behalf of the artists and publishers.   The Recording Industry Association of America (RIAA) performs a variety of such functions on behalf of its membership, which includes the largest record labels in the world.  The RIAA routinely patrols the Internet, searching for pirated files, and sends cease-and-desist letters to apparent copyright violators.   The RIAA also initiates lawsuits on behalf of its membership.

One of the earliest and most influential decisions pertaining to the digital reproduction of copyrighted materials came from the Supreme Court in a 1984 case challenging the legality of the video cassette recorder (VCR).   In Sony Corp. v. Universal Studios, Inc., 464 U.S. 417 (1984) , the Supreme Court held that copying a television program for noncommercial use within the home did not infringe the copyright in the program.  More specifically, the Court determined that the practice of "time-shifting" -- i.e., recording a television program for viewing once and only once at a later time -- was permissible under the fair use doctrine.  The Court then ruled that, because one of the major uses of VCRs is time-shifting, the manufacturers of the machines were not liable for "contributory copyright infringement," even if the VCRs were sometimes used for illegal purposes.  To escape liability, the manufacturers needed only to show that their products were "susceptible of a significant noninfringing use," which they had done.

Audio Home Recording Act of 1992

The current struggle over peer-to-peer copying is not the first copyright battle that has been waged on the digital music front.  In 1986, digital audio cassettes (DATs) were first introduced, and many believed that this technology would take the place of the traditional and ubiquitous analog audio cassette tape.  Because the new machines recorded music in digital form, they created a new threat of large-scale high-quality piracy.  Records and cassette tapes are subject to wear and tear, and second- or third-generation copies created from one of these analog devices are often scratchy and of poor quality.  Digital audio tapes, by contrast, allow for "perfect" reproduction, in which each successive copy is identical to its predecessor.  The recording industry, consequently, lobbied against the introduction of the DAT into the United States.  (Some industry commentators believe that the resultant delay is responsible for the failure of the technology to gain consumer interest.  Others blame the lack of consumer enthusiasm on relatively high equipment costs and consumer loyalty to pre-existing audio cassette collections.)

Despite the fact that the threat of mass piracy supposedly posed by DAT technology never materialized, the recording industry's lobbying efforts did pay off in the form of a piece of legislation specifically designed to appease copyright holders' concerns.  The Audio Home Recording Act of 1992 (AHRA), 17 U.S.C. §§1001-1010 , mandates the inclusion in DAT machines of copy-control devices that limit the ability of would-be profiteers to create serial copies of protected works.  Under AHRA §1002(a) , a "digital audio recording device" must conform to a Serial Copy Management System (SCMS) designed to prevent multiple copies being created from a single work.   A "digital audio recording device" is defined as a device capable of rendering a "digital audio copied recording."  To trigger the statute, a copy must be a digital reproduction of a "digital music recording" and must be produced either directly or from a transmission.  See AHRA §1001 .  Finally, under AHRA §1002(c) , it is unlawful to attempt to circumvent the SCMS.  Consumers, however, also benefited from the Act.  AHRA §1008 provides that consumers who make noncommercial copies of musical recordings utilizing a covered device or medium shall not be made liable under a copyright infringement theory.

The AHRA has already been interpreted once in the MP3 context -- specifically in a suit against the manufacturers of a portable MP3 player.  In that case, the RIAA brought suit against Diamond Multimedia, a company that produces the Rio, an MP3 playback device.  The Rio is similar to a walkman and allows an MP3 user to download sixty minutes worth of music files from his or her hard drive and listen to the music remotely.  In Recording Industry Association of America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072, 1074 (9th Cir. 1999) , the Court of Appeals for the Ninth Circuit found in favor of the defendant, ruling that the AHRA did not apply to the Rio device, because the computer hard drive from which the Rio records could not be considered either a digital audio recording device or a digital music recording within the meaning of the Act.  Moreover, according to the court, because MP3 files are not coded with generation status or other copyright information, and because copies cannot be made of the files downloaded to the Rio, the SCMS would serve no useful function.

SDMI

Despite its victory in court, Diamond Rio and other hardware vendors recently have been involved in the Secure Digital Music Initiative (SDMI) to introduce copyright protection mechanisms to their portable MP3 players.  The SDMI is a working group composed of over one hundred and eighty businesses and organizations that are trying to develop specifications for the secure distribution of  music over the Internet.  The specifications are intended to be cross-platform, so that they will be compatible with many different hardware and software products.  SDMI has already fallen behind its initial proposed deadlines (it had hoped to have had its specifications ready for incorporation into merchandise by Christmas 1999), but it has selected a watermarking scheme and guidelines for an encryption scheme that is designed to make copyright information readable from digital music files.  This information will be readable by SDMI-compliant portable devices that eventually will refuse to play pirated music files encoded with the copyright protection specifications.  We will discuss technological protection mechanisms, including SDMI, in further detail in a later module.  For more information about technical alternatives in the context of digital music, check out these resources .

Digital Millennium Copyright Act (DMCA)

Where copyright protections are in place, it may be unlawful to design a product that will circumvent that technology.  The DMCA §1201(a) prohibits the manufacture and distribution of certain devices that circumvent technological protection mechanisms designed to prevent the unauthorized access of protected materials.  Prohibitions on the unauthorized access itself came into effect on the second anniversary of the Act.  Jonathan Band, a lawyer in Washington D.C., has written a helpful memo on the DMCA.    If you are interested in further details about this protection, take a look at the RealNetworks v. Streambox materials -- a case that has recently been settled.

The DMCA raises additional issues for Online Service Providers (OSPs) that maintain pirated files on their servers or that link to pirated materials.  Under the DMCA §512(c)(1) (and, indeed, under all but one paragraph of the section), "the term ‘service provider’ means a provider of online services or network access, or the operator of facilities therefor."  The DMCA §512(c)(1) exempts an OSP from liability for housing on its servers copyright infringing material unless the OSP has notice of infringing material and fails to move expeditiously to remove it.  Thus, unless the OSP knows that a site hosted by one of its servers contains pirated MP3 files, it is under no obligation to search out such infringing materials on its servers.  The OSP must, however, provide a contact person to whom copyright holders can express concerns about possible infringing materials.  Once a copyright holder puts the OSP on notice that the infringing materials are present, the OSP must quickly remove them.  Thus, if a group such as the RIAA gives notice to an online provider that MP3 files are being transmitted across its systems, it can put pressure on the system administrator take some kind of action to curtail the alleged piracy.

Similarly, liability under the DMCA §512(d) is limited where an online provider is "unwittingly linking or referring users to sites containing infringing materials."   The liability exemption for "unwittingly linking" is limited to the circumstance where provider is unaware of the infringement.  If a search engine provides an indexed list of links to counterfeit MP3 files, the RIAA could argue that the fact that so many MP3 files are pirated gave notice, or at least constructive notice, to the provider that it was linking to infringing material.  Relying on this provision, the RIAA has already taken issue with at least one indexed MP3 search engine.  According to the RIAA:

We have communicated with Lycos about their new MP3 search engine, and they have committed to work with us to develop procedures to eliminate infringing sites from their directory. They also indicated their intent to fulfill their obligations under the newly enacted Digital Millennium Copyright Act, which requires them to take appropriate action whenever they become aware of an infringing musical recording.
The Lycos search engine has since been reduced to little more than a collection of dead links, a common problem encountered when searching for MP3 files on the Internet.  However, other sites have sprung up offering sleeker indices and claiming to minimize the number of dead links encountered when searching for MP3 files.

The most prominent and important aspects of the DMCA, however, involves not its provisions pertaining to OSPs, but its prohibitions of anti-circumvention technology.  These will be considered in detail in the next module.

Finally, there are three additional U.S. statutory sections of which you should be aware.  Please skim the summaries of the following: the Digital Performance Right in Sound Recordings Act of 1995 , the No Electronic Theft Act and the Federal Anti-Bootleg Statute .

International Dimensions of the Issue

For an introduction to international copyright law, begin by reviewing Findlaw's doctrinal summary entitled " International Copyright Protection ."  Then, please review the following articles from the Berne Convention, which provides copyright law protection to foreign nationals in signatory states:

Berne Article 2 (defining the scope of copyright protection granted under the treaty)
Berne Article 9 (right of reproduction)
Berne Article 13 (sound recordings)
Berne Article 14 (cinematographic rights)

For more information on the International Dimensions of online music distribution, see the additional resources section .
 
 

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Discussion Topics

1.  RIAA v. Napster :  Suppose that the United States Supreme Court had decided to review the decision of the Ninth Circuit Court of Appeals.  How do you think the Court would have ruled?  How should it have ruled? 

2.  Will the second-generation P2P systems suffer the same fate as Napster?  Should they?

3.    Many of the more vocal proponents of MP3 argue that some music pirating is justified, because music companies are already "ripping consumers off" through enormously high profit margins on CDs and other non-Internet music sales.  In fact, the major labels have recently settled with the FTC to end policies that are estimated to have added $500 million to CD prices since 1997.  Other observers disagree, suggesting instead that music companies lose a great deal of money each year on the unsuccessful CDs they produce, making some subsidy derived from high profit margins on better selling items necessary to enable the record label to continue production of more financially risky projects ("portfolio diversification").  Who do you believe has the more persuasive argument?  Can or should the legitimacy of music piracy be evaluated by economic observations such as these?

4.    For the past few years, many people have been arguing that the Internet will cause "disintermediation" (cutting out the middleman in many consumer transactions) and therefore cause consumer prices to fall.  At least one record company executive predicts just the opposite for the future of online music.  According to an interview with Jeremy Silver of EMI, digital music creates reintermediation, citing such increased cost factors as web hosting, music directories, streaming technology, security, watermarking, and transaction companies.  Which view do you think is more persuasive?  How do you think the current spate of lawsuits are likely to impact this "supply chain?"

5.    Some observers believe that digital media will resurrect the idea of micropayments, small charges for online activities or purchases that accrue over time before payment becomes due.  Because individual record tracks are often too inexpensive to purchase separately, would micropayments make more sense?  Would you support such a system?  Do you believe that the major labels would support such a system and would their support be necessary?

6.    The WIPO Copyright Treaty of 1996 provides that it shall be illegal to attempt to circumvent technological protection measures implemented by copyright owners.  With the jurisdictional enforcement problems created by the Internet, is international copyright law the only remaining method through which countries can see that copyright laws will be effective?

7.   The first-sale doctrine in copyright law provides that once a copyright holder has sold the tangible embodiment of his work, he or she ordinarily will not be allowed to control its future disposition.  Some critics of SDMI argue that watermarking and encryption technologies will in effect allow the copyright holder to prevent any future sales or transfers of the work and will thereby frustrate the first-sale doctrine.  Should the SDMI be required to insure that the original purchaser of a digital music file be able to dispose of it as he sees fit, or will the market force the price of digital music down to compensate for the reduced value of the file to the purchaser who cannot resell or transfer it in the future?

8.    To what extent should piracy be curbed by law and to what extent should it be curbed through code (e.g., the implementation of technological protection schemes)?  How useful are the two enforcement mechanisms likely to be in the context of digital media distribution?  This may become increasingly important as content owners have recently shifted emphasis from encryption to tracking of file sharing - raising fundamental questions about privacy and monitoring.  (Each of these issues will be reconsidered later in the month.)
 

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