Tuesday, March 29, 2005

LAW - Supreme Court Hears MGM v. Grokster Arguments

It's been awhile since the last time I posted anything. Life got awfully interesting after the Illinois Bar Exam, but it's finally settled down as I wait for my results. Just as I was running out of things to do around the house, a case I've been watching very closely for years makes headlines once again.

Attorneys from MGM, the federal government, and Grokster argued their cases before the Supreme Court today. Unfortunately, I don't have a transcript of the proceedings. Still, at least one account does reveal some very interesting things.

One point that the author of the account notes is that MGM's attorney may have forever conceded the legality of format-shifting, which is the conversion of a copyrighted work from one form into another. Examples include ripping CD's to MP3, scanning books to PDF, and converting DVD's to DivX. When questioned about how, for example, the inventor of the iPod would be able to know whether or not the device would be legal or not, the MGM attorney responded that there were perfectly lawful uses for the iPod when it was invented, such as ripping the owner's own CD's to digital format and storing them on the iPod.

The author commented that MGM could be forever barred from asserting that ripping CD's to digital format was illegal under the doctine of judicial estoppel, which provides that a party who takes one position in a legal proceeding cannot change its mind and assert a contrary position in subsequent litigation. By arguing that ripping CD's is perfectly legal, MGM might find itself unable to argue that ripping CD's is illegal in a subsequent case.

There are, naturally, some requirements. The big one is that the Court would have to buy MGM's argument and rule in MGM's favor on some issue based on it. According to the author, MGM and the government seem to have taken the position that the legality of Grokster's peer to peer file sharing technology should be based on the company's business model. Apple would not be secondarily liable for copyright infringement with the iPod because the iPod had legal uses when it was invented, while Grokster would be liable because its P2P technology was almost entirely used illegally, or so the argument apparently went.

As far as the judicial estoppel issue goes, if the Court ruled in favor of MGM based on its iPod analogy, MGM could not argue that ripping CD's was illegal in subsequent cases. So win or lose, we might find the Supreme Court establishing format shifting as fair use just like it did with time shifting (recording a show to watch some other time) in the Sony Betamax case.

I wonder if MGM's argument is as simplistic as it sounded though. Contributory infringement, which was the major issue, isn't necessarily tied to Grokster's technology itself. According to Chilling Effects, contributory infringement occurs when the defendant knows that there is actual infringement going on and does something to materially contribute to the infringement. A couple months ago, I was involved with an American Bar Association task force on the Grokster case and we discussed a standard that looked something like MGM's business-model standard. The point is that it doesn't matter what technology Grokster used, so long as it knew that its users were infringing copyrights and materially contributed to the infringement. The technology could have been a P2P network or a website storing Bittorrent tracking files. It could even have been something as low-tech as providing a real-space meeting place for people to come and sell illegally copied CD's. As long as Grokster's actions somehow helped people infringe copyrights, then it would be secondarily liable. This is important because it draws a distinction between simply distributing P2P technology and advertising it as a way to download illegally-copied music. I talked about this distinction in my post on Bittorrent and contributory infringement. I wonder if the MGM attorney made the same distinction. I think that doing so would have helped their case because it would have let the Court focus on something other than the idea of suppressing a technology by reframing the issue as one where Grokster was advertising a tool for stealing music. It would also leave the door open for P2P networks with legal uses. A decision on the legality of P2P as a technology might not do that.

Splitting the issue between Grokster's act of distributing P2P technology and its act of encouraging people to infringe copyrights could also help future developers protect themselves. The Court, the government, and MGM all seem to have missed the fact that Grokster, unlike, say, Apple, really didn't invent anything. P2P file sharing was already out. All Grokster did was repackage, distribute, and advertise a P2P program. This puts it in a very different position than Sony was in with the Betamax. Sony invented the Betamax, so it could argue that it developed the device with an eye toward substantial noninfringing uses. Grokster did no such thing. It knew P2P could be used to infringe and, according to MGM, it encouraged its users to do just that.

Friday, February 11, 2005

PRIVACY - The Number of the Beast?

ZDNet reports that the "Real ID Act" (no stupid acronyms this time, so Hollywood or the music industry must not be involved) passed the House of Representatives by a substantial margin. The bill wants to encourage states to standardize, computerize, and network their drivers' license and ID systems by witholding federal dollars from states that don't play along. The article also suggests that federal employees would be able to refuse to recognize the validity of state ID's that don't comply.

Opposition has come from all over the political spectrum. The federal government has a tradition of opposing any form of a national ID system. The Social Security Administration opposes the use of our SSN's as identifiers, though we've seen how much weight that carries. This bill seems to fly in the face of all of that by essentially demanding 50 theoretically separate state ID systems that are actually all the same and happen to be sharing information.

The bill also mandates that ID's store certain information. Given a nationwide database, this would make it possible for the government to track people almost anywhere in the country by essentially having agents ask "papers, please" and cross-referencing the database.

As I sit here typing this article, I'm conneted to the internet via a Bluetooth connection provided by my cell phone and my iBook laptop. The technology exists for a police officer to do much the same thing, except that he could, with an ID card that the Real ID Act demands, figure out everywhere you had been by looking up who else had scanned your card, where, and why.

Scary, huh?

So will this make us safer?

The supporters of the bill sure seem to think so. But I wonder.

The funny thing about databases is that they do a lot more than store information. They also create meta-information about what they're storing. The information in the database is valuable, but so is the information about the records, such as who has accessed it, where, when, and why. And this data tends to take on a life of its own.

For example, not only is your credit rating valuable to certain people, like prospective lenders, but information on who else has looked your credit rating up is valuable as well.

This, to me, reveals one fatal flaw with the whole proposed system: it's still based on human-generated data. If someone acquires an ID based on a fraudulent social security number, suddenly that ID is in not one, but 50 different systems. That lends it a lot more validity, even though it's totally fake. And the networked nature of the system will serve only to perpetuate false information and make it that much harder to uncover the truth.

The ZDNet article quotes supporters of the bill as stating that some of the 9/11 hijackers had state ID's. These are suicide bombers. They knew they were going to die. I wonder if people on Capitol Hill really understand what that means.

The Real ID Act seems designed, not to make us safer, but to make us feel safer. And a false sense of safety is much worse than what we have now.

Wednesday, January 26, 2005

LAW - Copyright Office Seeks Comment on Orphan Works

Today's issue of the Federal Register, which the federal government uses to announce things like new and upcoming administrative regulations, provided an interesting opportunity for American copyright scholars to exercise their brains. Click HERE to view the Copyright Office's notice of inquiry.

The Copyright Office is looking at "orphan works," which are protected by copyright but which have owners that are difficult, if not impossible, to find. The government is concerned that there may be people who want to make legal uses of these works but can't license them because they can't find the owners.

I haven't looked at the document too closely, but the Copyright Office is accepting public commentary on the issue as part of the administrative process. We may see some regulations on the subject down the road.

Another interesting thing about the notice is that it talks about some existing methods for addressing the issue. For example, Canada allows people to talk to the Canadian version of the Copyright Office to get a license, essentially taking it over on behalf of the absent copyright owner.

I'll post more about this once I've had a chance to read it more closely.

Sunday, January 23, 2005

LAW - Video Software Dealers Association Files Grokster Brief

The brief, available here in PDF format, favors reversal of the Ninth Circuit's decision in favor of Grokster in the entertainment industry's lawsuit, which is primarily based on theories of secondary copyright infringement.

I'm extremely concerned about any solution to this problem that advocates telling technology developers that they have to implement technology measures in order to insulate themselves from secondary infringement liability, which is the big issue in Grokster.

The issue isn't P2P itself. As many have said, the technology is perfectly legal and extremely useful. The issue is what bad actors are doing with P2P.

Both the technology sector and the content industry have to realize that there is an often-blurry but extremely important distinction between the two, and I think that the authors of this brief are missing that.

When they talk about things like requiring Grokster to help prevent infringement, they are talking about placing the content industry in control over technological innovation. If a new technology or service has the ability to infringe copyrights, then imposing a kind of duty like will essentially give Hollywood and the music industry oversight
over the development of technology.

The MPAA already wants to be able to monitor Internet 2 for illegal movie trading. Do you want the RIAA to force Wi-Max providers to include IP sniffers at all their towers to monitor users to try and track copyright infringement?

Do you want to see recording executives telling software developers what the next versions of Windows, MacOSX, or Linux are going to have to do in order to satisfy this duty to help prevent infringement?

In addition to being content neutral, any solution to this problem has also got to be technology neutral. It's not the device that infringes. It's what you do with it. Target the business model, not the device that enables it.

Thursday, January 13, 2005

TECH - Lawsuit Against ThinkSecret is Rotten

A few days ago Wired reported on, Apple’s announcement that it was suing ThinkSecret, a Macintosh information website, forA few days ago Wired reported on, Apples announcement that it was suing ThinkSecret, a Macintosh information website, for leaking information about the iPod Shuffle, iWork, and the Mac Mini before their official release at the Macworld Expo. According to the article, ThinkSecret predicted that Steve Jobs was going to announce the products during the show. At the time of the lawsuit, the real identity of ThinkSecret’s publisher, Nick DePlume, was unknown.

That has all changed.
According to the Harvard Crimson, DePlume is a Harvard undergrad named Nicholas Ciarelli. Ciarelli, who is 19, has been running ThinkSecret since he was 13. In 2004, ThinkSecret successfully predicted the release of the iMac G5, iPod, and iPod Photo, among other Apple products.

Wired reported that the lawsuit, filed in the Superior Court of Santa Clara County (California) on January 4, 2005, alleged that Apple charged ThinkSecret with misappropriating trade secrets and asked for the source of the leaks and an injunction. According to the article, Apple has filed several lawsuits looking for the source of the leaks that Ciarelli and other web publishers who have made similar predictions in the past.

The Crimson reported that Ciarelli denies any wrong doing, claiming that he uses the same legal news-gathering techniques as any other journalist. The Crimson quoted Ciarelli as saying that he talked to sources, investigated tips, followed up on leads, and corroborated details.

The Crimson also goes into more details on the lawsuit, which makes it much more interesting than the Wired article. According to the Crimson,
Apple’s lawsuit alleges that ThinkSecret illegally solicited Apple employees to violate confidentiality agreements and disclose the information online without the company’s permission. The article also says that complaint alleges that ThinkSecret, which invites visitors to provide anonymous tips, is misappropriating Apple’s trade secrets. ThinkSecret’s contact page does emphasize confidentiality. It provides an anonymous e-mail form and states that fax and voice submissions are kept strictly confidential. ThinkSecret also allows users to submit communications protected by PGP encryption.

The Crimson also quoted a Harvard law professor as saying that Ciarelli might be liable as a contributory infringer, which he describes as one who knows that others are violating the law directly and who facilitates it in some way.

So let’s look and see what we have here:

  1. Apple is claiming trade secret rights in something. Apparently, the company’s position is that the then-upcoming release of the iPod Shuffle, iWork, and Mac Mini were trade secrets when ThinkSecret predicted them, since as the Wired article noted, ThinkSecret did not reveal any sensitive information. It just released information that Apple was going to release anyway before Apple was going to release it.

  2. ThinkSecret acquired the information about the upcoming releases and published it before Apple intended for the information to be released.

  3. Apple claims that ThinkSecret encouraged Apple employees to violate confidentiality agreements by tipping the site off to the upcoming releases.
Based on these facts, either ThinkSecret or one or more Apple employees made first contact. Either Ciarelli or some other ThinkSecret contributor contacted people with the information and convinced them to disclose it or they got the information from people who had it and felt that they could disclose it safely because of the site’s confidentiality guarantees.

Aside from the fact that many seem to agree that Apple is making a public-relations blunder, I wonder about the merits of their claim.

According to the California Uniform Trade Secrets Act, a trade secret is "information, including a formula, pattern, compilation, program, device, method, technique, or process, that (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

The Act further provides that it is illegal to misappropriate trade secrets. It defines misappropriation as: (1) acquisition of a trade secret of another by one who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret, or (B) at the time of disclosure or use knew or had reason to know that his or her knowledge of the trade secret was (i) derived from or through a person who utilized improper means to acquire it, (ii) acquired it under circumstances giving rise to a duty to maintain its secrecy or limit its use, or (iii) derived it from a person under a duty to the person seeking relief to maintain its secrecy, or (C) before a material change of his or her position knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

The Act also prohibits the use of improper means to gain access to trade secrets. Improper means include theft, bribery, misrepresentation, breach or inducement of a breach of a duty to secrecy, or espionage. It does not include reverse engineering.

That leaves us with two threshold issues. Was the information a trade secret? if so, does any of Ciarelli’s conduct fall into any definition of "misappropriation?" And finally, did Ciarelli use any "improper means?"

Assuming that Apple’s employees sign agreements not to disclose confidential information, I think we can safely conclude that Apple took reasonable efforts to keep upcoming releases of its new products secret by attempting to enforce its confidentiality policy.

What I am more concerned with is whether the information had actual or potential independent economic value because nobody else knew about it until ThinkSecret ran its story. According to one intellectual property firm’s website, "this criteria is almost always proven when secrecy is proven, since companies typically do not put forth effort in a lawsuit to protect and recover control of valueless information."

In this case, I’m not so sure. It seems to me that any lost sales of iPod Shuffles, iWork discs, and Mac Minis arising out of ThinkSecret’s actions would result more from the fact that Apple sued a teenaged Mac fan than from the fact that ThinkSecret accurately predicted the products’ release. ThinkSecret speculated on specifications and pricing of the iPod Shuffle, iWork suite, and Mac Mini, but it didn’t release anything that is typically considered valuable like customer data. The weight of precedent on the issue of independent economic value is certainly on Apple’s side here, but I don’t think it’s at all clear.

I have more concerns about the second and third issues in this case because a decision for Apple on them runs the risk of shutting down all rumor and insider publications everywhere. Remember, for there to be infringement, you need a trade secret and you have to have stolen it.

Did ThinkSecret steal anything? The answer may depend on what the actual conduct was. If Ciarelli or someone else working for the site actively contacted Apple employees and encouraged them to disclose information that was most likely protected by nondisclosure agreements, either by emphasizing the confidentiality of their submissions process or otherwise, then I think you do have misappropriation (disclosure without consent and inducement of Apple employee’s breach of a duty of secrecy). In essence, by encouraging insiders to violate their confidentiality agreements by emphasizing anonymity and confidentiality, Apple has a decent argument for inducement.

Somehow, I don’t think that this was the case. If it was, I doubt Apple would be trying to get the identity of ThinkSecret’s sources.

I think the second scenario is much more likely. Some insiders who frequent ThinkSecret decided to leak the information. Maybe they did it to generate publicity. Maybe they just thought consumers should know sooner rather than having to wait for Macworld. Whatever. So these insiders, for their own reasons, submitted the story through one of ThinkSecret’s many anonymous channels. Ciarelli in turn took what it had been given anonymously and posted it online.

Unless there is a court opinion establishing that someone can be secondarily liable for trade secret infringement, the Harvard law professor’s statements regarding contributory infringement are incorrect. Contributory infringement has been in the news a lot lately, but in the context of copyright law. The Uniform Trade Secrets Act, on the other hand, doesn’t provide for contributory infringement. Liability has to arise from misappropriation, which means that merely benefiting from someone else’s disclosure of a trade secret on your forum won’t get you there unless you misappropriated the trade secret yourself.

As a practical matter, I don’t think this is an issue in this case. If Ciarelli did the legwork that he claims he did, I think that a court would be likely to find that, in verifying the tip and deciding to post it to his website, he, not the original insider, is the primary actor. Therefore, the critical part of the analysis is whether or not he misappropriated anything.

Assuming the second hypothetical state of facts, where one or more insiders tipped ThinkSecret off of their own volition, let’s see if Ciarelli’s conduct falls into any of the categories of misappropriation.

The first is acquisition of a trade secret of another by one who knows or has reason to know that the trade secret was acquired by improper means. The Crimson quoted Ciarelli as saying that Apple did not feed him information. The issue here is whether Ciarelli knew or should have known that the information was acquired by improper means, most likely the breach of a duty of secrecy. So the question is whether Ciarelli knew or should have known that the insider breached a duty of secrecy when he made the tip. This is probably Apple’s strongest argument because the more research Ciarelli did into the tip, the more likely he would presumably be to discover that the information was generally protected. However, without identifying the informant, Ciarelli would have no way to know whether the insider was under a duty of secrecy to begin with. Ciarelli himself had no duty to keep Apple’s secrets. If the insider who gave him the tip didn’t either, then there were no improper means and therefore no misappropriation.

The second category of misappropriation is disclosure or use of a trade secret without express or implied consent. In this case, Apple’s strongest argument here is that Ciarelli disclosed trade secrets without express or implied consent when he knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who utilized improper means to acquire it or derived it from a person under a duty to the person seeking relief to maintain its secrecy. Again, the issue is the anonymity of the ThinkSecret contact site. Although an Apple insider might presumably be under a duty of secrecy to Apple, the fact that the website takes anonymous tips means that he could have no way to determine whether or not his informant had done so or not.

There is case law, in the form of
DVDCCA v. Bunner, where the California Court of Appeals reversed an injunction prohibiting a website operator from posting a copy of the DeCSS source code, which allowed users to crack DVD copy protection. The court noted that the injunction was improper because the information had become common knowledge, and therefore no longer a trade secret, by the time the trial court granted an injunction against disclosure. Although the DVDCCA appealed the case to the California Supreme Court, it later gave up on the action.Personally, I think that there is a definite issue as to whether Ciarelli could be held liable for infringement in the first place due to the anonymity of his informants. However, I would really hate to see any kind of ruling that threatens the ability of website operators to acquire anonymous information without some kind of provision for protecting themselves from liability as trade secret infringers. Maybe a notice and takedown provision, like we have in the Digital Millennium Copyright Act, would work. At this point, I don’t know. But if this case goes anywhere, it will definitely merit very close scrutiny.

What does this mean for ThinkSecret? As a practical matter, it would appear to put a limitation on whether Apple could enjoin disclosures like the ones at issue. If Apple makes a public announcement a short time after the leak occurs, then it will destroy its own case. Therefore, it’s best bet would be to seek damages, which may include actual damages and unjust enrichment, and an injunction relative to the identities of ThinkSecret’s sources. Willful and malicious misappropriation can lead to an award of attorney’s fees, but I doubt that Apple could succeed on that claim because Ciarelli didn’t actually steal the information.

Damages are unlikely to be a big draw for Apple because it would be hard, if not impossible, to show that it stood to lose any money. It might claim that advertising revenues derived from people who visit ThinkSecret constitute unjust enrichment, but that isn’t going to be much money either.

It looks like the real meat, so to speak, would be an injunction requiring Ciarelli to either give up his sources or do something to enable him to do so. That way Apple could make examples of the informants and possibly prevent future leaks. And this is where I have grave reservations about this case.

If maintaining an anonymous contact system constitutes inducement of violation of a duty of secrecy, then basically Apple wants to make website operators its trade secret police. Protecting privacy should not be declared an improper act. Holding Ciarelli liable for trade secret infringement on the basis that his anonymous contact system is somehow part of trade secret misappropriation could essentially kill off ThinkSecret and all sites like it, or give companies like Apple total control over them

Personally, I think that there is a definite issue as to whether Ciarelli could be held liable for infringement in the first place due to the anonymity of his informants. However, I would really hate to see any kind of ruling that threatens the ability of website operators to acquire anonymous information without some kind of provision for protecting themselves from liability as trade secret infringers. Maybe a notice and takedown provision, like we have in the Digital Millennium Copyright Act, would work. At this point, I don’t know. But if this case goes anywhere, it will definitely merit very close scrutiny.

Monday, December 20, 2004

LAW: Bittorrent and Secondary Copyright Infringement

This is not just a rant. I have a substantive point to make about the nature of secondary copyright liability. It just so happens that I get to rant for awhile to set up the facts.

The most popular Bittorrent directory on the world wide web is closing down for good less than a week after the MPAA announced that it had the latest P2P filesharing technology in its sights. A few days ago, the MPAA sued more than 100 operators of Bittorrent tracking websites.

I'm not surprised. I don't really think the site operators would have won an infringement case anyway.

Although it's one of the latest technologies, Bittorrent relies on tracking websites to host lists of files that users can download in order to retrieve large files from a large number of sources simultaneously, thus dramatically reducing the time it takes to grab a file. Essentially, users load a Bittorrent program on their computers and provide information on how other Bittorrent users can download files that they have made available. As users download parts of files, Bittorrent makes those file fragments available for others to share so that it isn't necessary to serve an entire copy of a large file on a single computer. Unlike traditional P2P networks, Bittorrents don't require full copies of a file, which permits a level of distributed file hosting never before seen.

Of course, one of its most popular uses has been copyright infringement, specifically of movies. You can get one much faster than you can with a conventional P2P network, where download speed increases only as full copies of files become available.

However, Bittorrent relies on tracking files to work. And the most efficient way to disseminate tracking files is on websites. I think this brings sites like suprnova.org, which hosted lists of Bittorrent tracking files, squarely within the Napster decision. Site operators stored tracking files that visitors downloaded in order to enable them to commit acts of copyright infringement. In this way, the Bittorrent files are a lot like Napster's central servers. The site operators knew that users were relying on the site to facilitate copyright infringement and got traffic because of it.

According to Wired News, MPAA representatives expressed no desire to go after Bram Cohen, the creator of Bittorrent. And as of today, the Bittorrent website is still up and you can still download the software from a number of places, including sourceforge.

Despite the argument that site operators might not know what is going on inside the computer, I think that reality demonstrates that a lot of Bittorrent tracking websites know exactly what their users are doing. Here is some text from one website that hasn't come down yet:

Why choose ******** and BitTorrent?

1. Users move to ******** Bittorrents instead of Kazaa every day

2. Bittorrents are spyware free.

3. Bittorrents are adware free.

4. Bittorrents files are verified and rated, no dummy files or corrupted files!

5. As seen in CNET News: ******** BitTorrents is taking over Kazaa as the prefered P2P networks.

6. Extremely easy to use, and counting on full tech support.

The site's toolbar further supports my point. It advertises movies, games, tv shows, anime, music, apps, and comics. This particular site charges a fee for registration, so I couldn't access any tracker lists. As a side note, anyone who uses a credit card to pay for access to a site that may promote copyright infringement is asking to get sued by the MPAA. Watch National Treasure and see what I mean. I suppose it's possible that the site serves only public domain works and freeware or shareware software. But I'm skeptical about anything claiming to be "taking over Kazaa."

Anyway, I think that most of the Bittorrent tracker sites are a pretty clear case of secondary copyright infringement, which occurs when you don't do any illegal copying yourself, but you do certain things that enable others to do it more easily. According to Chilling Effects:

Vicarious liability, a form of indirect copyright infringement, is found where an operator has (1) the right and ability to control users and (2) a direct financial benefit from allowing their acts of piracy. User agreements or Acceptable Use Policies may be evidence of an operator's authority over users. The financial benefit may include a subscription fee, advertising revenues, or even a bartered exchange for other copyrighted [material]. Under the doctrine of vicarious liability, you may be found liable even if you do not have specific knowledge of infringing acts occurring on your site.


The other form of indirect infringement, contributory infringement, requires (1) knowledge of the infringing activity and (2) a material contribution -- actual assistance or inducement -- to the alleged piracy. Posting access codes from authorized copies of software, serial numbers, or other tools to assist in accessing such software may subject you to liability. Providing a forum for uploading and downloading any copyrighted file or cracker utility may also be contributory infringement. Even though you may not actually make software directly available on your site, providing assistance (or supporting a forum in which others may provide assistance) in locating unauthorized copies of software, links to download sites, server space, or support for sites that do the above may contributorily infringe. To succeed on a contributory infringement claim, the copyright owner must show that the webmaster or service provider actually knew or should have known of the infringing activity.

It seems pretty clear to me that a site, particular one that charges a registration fee, that enables users to download Bittorrent trackers that allow them to illegally download copyrighted works would be, like the original Napster, both a vicarious and contributory infringer.

Notice the term "inducement." It appears in the contributory infringement analysis. It also appears in the Induce Act, which media meat puppet Orrin Hatch proposed in order to give corporate content owners yet another weapon. The act would hold liable for copyright infringement anyone who:

intentionally aids, abets, induces, or procures, [copyright infringement] and intent may be shown by acts from which a reasonable person would find intent to induce infringement based upon all relevant information about such acts then reasonably available to the actor, including whether the activity relies on infringement for its commercial viability.

Notice that the cause of action under the act, creatively dubbed "inducement," is substantially broader than "inducement" as a type of contributory copyright infringement: knowingly and actually assisting infringement. It could also catch a lot of "dual use" technologies that are used to infringe copyrights, but are market for other legitimate purposes.

The iPod, anyone?

Anyway, the Induce Act died in Congress, the victim of disagreement between technology companies and content owners. The tech sector wants to be able to make things like DVR's, iPods, and CD burners without having to fight the entertainment industry over "inducing" copyright infringement. Big media would like very much to rule the world and control innovation absolutely. I suppose the setbacks that the Induce Act has suffered were inevitable.

However, inducement is back, this time before the Supreme Court in MGM v. Grokster. I think that the big issues before the Court will be inducement and the "substantial noninfringng uses" test from the Sony Betamax case, which states:

Accordingly, the sale of copying equipment, like the sale of other articles of
commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.

The question is thus whether the Betamax is capable of commercially significant noninfringing uses. In order to resolve that question, we need not explore all the different potential uses of the machine and determine whether or not they would constitute infringement. Rather, we need only consider whether on the basis of the facts as found by the District Court a significant number of them would be noninfringing.

As for substantial noninfringing uses, the issue is what "capable of substantial noninfringing uses" means. Does the business model mean anything? How much can a defendant really stretch potentiality of a substantial noninfringing use before anything can escape liability under this exception?

This is a test that targets a technology itself. Is the product or service capable of substantial noninfringing uses? If so, it escapes liability and a device-killing injunction. If not, it goes away.

Well, almost anything is. Even Napster would be capable of such uses. After all, it could have purchased licenses. But that didn't save it. Why?

Some people think Napster was wrongly decided. Personally, I don't. While I think P2P is a valuable technology with a lot of potential, Napster was using it for illegal purposes. Furthermore, its value as a service depended almost entirely on those illegal uses.

Realistically, that has to matter. "Substantial noninfringing uses" can't become an excuse raised by people who are clearly and presently profiting from infringement. The doctrine is supposed to protect innovators, not thieves.

So where should a court draw the line? How remote can a potentially substantial noninfringing use be before it's no defense to a party that's merely raising the possibility as an excuse to continue encouraging acts of copyright infringement?

I have had some unique opportunities to discuss the issue with attorneys from both sides from the issue and I think I've come up with the beginning of a test that I could support.

If a technology has a present, commercially significant noninfringing use, then its developer is not liable for secondary copyright infringement. That's the easy part.

If the technology does not have such a use, but is capable of commercially significant noninfringing uses, then its developer will not be liable for secondary infringement unless it derives most, if not all, of its present value from acts of infringement.

I was surprised when inducement came up in our discussion. Parts of the committee wanted to suggest to the Court that one who induced another to infringe a copyright by affirmatively persuading or encouraging the infringement was liable or if the developer is not pursuing the development of value based on substantial noninfringing uses in good faith.

I think this is a hard standard to prove, but I think it strikes the right balance. the Bram Cohens of the world, who create useful and innovative technologies, get to continue working while the Suprnovas of the world get injunctions. Some may criticize this standard as being overprotective of the developer. Maybe so, but courts have traditionally erred on the side of innovation and should continue to do so.

It's important to remember that the Suprnovas and Napsters out there are not actually committing any copyright infringement of their own. Their users are. And regardless of where courts draw the "substantial noninfringing use" line, copyright owners will always be able to pursue actual infringers, identify them, and seek recovery that way.

Besides, there are other ways to impose secondary copyright liability by targeting acts instead of technology. This is where this whole "inducement" theory comes in. The idea is that you don't need to create any technology to be a secondary infringer if you actively enocurage and enable others to commit direct infringement.

If the goal is to prevent infringement, I think that requiring copyright owners to pursue the actors rather than the technology that they use (which, as in the case of Bittorrent, they may not even have created), seems to be a reasonable tradeoff for being able to go after people for "inducement" whether as an element of contributory infringement or a separate and independent claim, like Orrin Hatch wants to make it.

I think it's important for any kind of liability based on "inducement" to be limited to contributory infringement and to actual bad actors. This is why I talked about Bittorrent so extensively.

In the case of Grokster and other traditional P2P networks, there are three sides: the software devleoper, the content owner, and the users. In the Bittorrent context, there are four: the software developer, the copyright owners, the users, and the web site operators who host lists of tracking files. In situations like this, it's absolutely critical to separate the bad acts from the technology itself.

This is why I side with those who think "inducement" liability, whether based on contributory infringement or some other cause of action that Congress will have to hammer out, must be limited to the bad acts, while leaving the technology behind the acts behind.

The distribution of Bittorrent doesn't infringe on copyrights. The maintenance of tracker websites does. I would like to see a definition of secondary liability based on affirmative acts of persuasion that intentionally encourage users to infringe copyrights. Furthermore, such acts should form the fundamental basis of the business. This way, you get the Suprnovas, but you don't get the Bittorrents. This preserves the technology and pursues the bad uses.

Essentially, I think "inducement" should be limited to cases where the business model is what's doing the infringing. This protects dual use technologies, but not the people who profit from encouraging others to use them for infringement. I think that a defendant could be held liable under an inducement theory if the copyright owner is able to prove that they performed affirmative acts intended to promote acts of direct copyright infringement. Further, the distribution of a technology that is capable of substantial noninfringing uses should not be a factor under this kind of analysis. The acts of encouraging infringement (providing the Bittorrent tracking files in a convenient, centralized place so that people can directly infringe copyrights by illegally downloading movies) are wrong. The distribution of the technology (Bittorrent itself) isn't.

So what we have here are two ways to get at secondary liability. One attacks a technology itself. The other attacks bad acts using an otherwise neutral technology that happens to be capable of infringing copyrights on a large scale. Are they perfect? No. I'm a human being so are the men and women who contributed significantly to the development of my position on the issue. But then again, I don't think it's reasonable to expect perfection either. Every industry has to deal with some degree of loss. Why should the entertainment industry be any different?

Sunday, December 19, 2004

NEWS - Music is More Important than Food and Medicine

Wired news reports that the recording industry, which is currently suing Australian company Sharman Networks, the makers of the Kazaa file-sharing program, for a bunch of things related to its general existence (but manly focusing on copyright infringement), may have a new target: the Red Cross.

Yes, that's right. The Red Cross.

It's not that the Red Cross is secretly hosting billions of illegally-downloaded music on its servers. One of the world's most prominent charitable organizations may get in trouble because Sharman Networks is giving it money.

The Red Cross is the only named beneficiary of a Vanatu-based trust that Sharman funds. The Recording Industry wants "to stop [the Red Cross from] disposing of any funds [paid by the trust]."


So this isn't just about stopping Sharman from distributing software widely used to infringe on copyrights.

It really is about wringing every last cent out of the world.

At least the industry is being honest about their belief that the bank accounts of label execs are more important than the work of one of the world's most well-known charities.

I'm not too familiar with Austrialian copyright law, but if this was the United States, the industry could, if it won a similar lawsuit, not only stop the distribution of Kazaa, but also recover damages.

The US Copyright Act allows copyright owners to recover statutory damages from infringers under some circumstances, meaning that the plaintiff doesn't have to prove how much money the acts of infringement cost it. This is how the RIAA extorts $5000 "settlements" out of teenagers' parents: that thousand songs isn't going to cost $1000 even though that's how much those songs would have cost over iTunes. More like $700,000. Illegally download $1000 worth of music and your parents lose your house. It doesn't matter how much what you took was worth because the Copyright Act says that the owner can collect X amount of money.

In this case, the industry wants to collect it from the Red Cross. Specifically, it's asked the charity to freeze the fund until the end of the Australian case against Sharman. According to a member of Australia’s Music Industrye Piracy Investigations, "would be incredibly disappointing if [the industry] had to sue them."

Incredibly disappointing?

Don't get me wrong. I don't believe in illegally downloading free music, but I'm appalled that the industry would stoop so low. This isn't even money that Sharman is using for its own benefit. Trust funds are set up for the benefit of a third party, in this case, the Red Cross. A trustee manages the money and makes sure that the income the fund earns is paid to th beneficiary. The settlor, in this case Sharman, doesn't usually get to use the money for its own benefit. This isn't a case of the industry trying to take back money that Sharman is applying to its own profit here. Taking this money isn't going to stop further acts of infringement.

All it's going to do is make sure that the Red Cross has less money to spend helping people so that industry stakeholders can rake in a few more dollars.

Unsurprising, but sad nonetheless.