The MTTLR Blog

The topic of music royalties has come up time and again in 2009, from the introduction of the Performance Rights Act, currently making its way through Congress, to various digital performance royalty rate disputes, from Internet broadcasts to satellite radio.

To end the year in music royalties and law, and to help open up 2010, on the week of December 21, 2009 the owners of about 1,200 “local” television stations filed a lawsuit against performing rights organization Broadcast Music, Inc. (BMI) seeking “lower broadcast fees to reflect declining television viewership and advertising revenue,” according to a report from music industry news publication Billboard.  The suit, WPIX v. BMI, was filed in U.S. District Court, Southern District of New York.

The plaintiffs, who have periodically renegotiated the rates with BMI, now state that a federal judge should “set reasonable fees and terms” because of a decline in television viewership and advertising revenue, according to Businessweek.  According to the Businessweek article, the “television industry will end the year with lower-than- expected revenue of $15.6 billion, a 22.4 percent decline from 2008.”

One of the most prominent copyright/fair use cases over the last year has been artist Shepard Fairey’s dispute with the Associated Press (AP) over his famous poster of now-President Obama during the 2008 Presidential Campaign. The poster, which featured a stylized portrait of Obama with the word “Hope” underneath, was supposedly based off of an AP photograph taken of Obama at a 2006 event organized by George Clooney on Darfur, which Fairey then modified to create the now-iconic HOPE poster. The AP claimed that because Fairey’s work for based off an AP photograph to which the AP owned the copyright, Fairey was required under copyright law to apply for permission for use of the photograph. Fairey consistently claimed that he did not profit from the poster, but instead used the proceeds to produce additional prints, and disputed the AP’s identification of the original photo as a closeup of Obama rather than a photo of both Obama and Clooney.

Fairey, who was then represented by Anthony Falzone, Executive Director of Stanford Law School’s Fair Use Project, claimed that his use of the photograph came under the “fair use” exception and thus permission was not required. Fair use hasn’t often been applied to photographs, so the issue seemed likely to become a fascinating test case, especially after Fairey filed for declaratory judgment against the AP in February 2009 seeking a determination that his use came under the doctrine of fair use.

The case was further complicated by the claims of the original photographer, Mannie Garcia, who was working under contract for the AP when he took the photograph; Garcia claimed that the copyright for the photo belonged to him, not to the AP. Garcia’s latest position in the legal skirmish is as a defendant, counterclaim plaintiff, and cross-claim plaintiff/defendant.

At the time, it seemed that Fairey had a chance of winning. Fair use disputes are resolved by a four-factor test; the four factors are:

1. the purpose and character of the use
2. the nature of the copyrighted work
3. the amount and substantiality of the portion taken, and
4. the effect of the use upon the potential market.

The first factor relates to the use of the original material; by cropping, colorizing, and reorienting Obama’s posture from the original photograph, as Fairey claimed he’d done, it’s probable that a court would have deemed Fairey’s use sufficiently transformative to satisfy that factor.

The second factor concerns the distinction between fiction and fact; since Fairey copied from something factual (a photograph from a news event) rather than something fictional (for example, a novel), it’s possible that he would have succeeded on this factor as well, since only fictional works can be copyrighted. However, the Supreme Court ruled in Feist Publications, Inc. v. Rural Telephone Service, Co., 499 U.S. 340 (1991), that only a “spark” of originality was required in order for something to come under copyright protection, it seems probable that the original photograph would have been protected by copyright. Fairey would thus have faced a tougher battle on the second factor compared to the first.

The third factor presents one of the most interesting elements of the case. The less someone uses of the original work, the better case they have for fair use. For example, if a musician copies only a few seconds from six minute song into a remix, she’ll have a stronger basis for fair use than if she uses five minutes. Since Fairey supposedly cropped out George Clooney from the original photograph, he had a fairly good position on this factor. As the LA Times noted, how often does George Clooney get cropped out of a photograph? The fourth and final factor also seemed to weigh in Fairey’s favor. Fairey’s poster did not impede the AP from selling the rights to the original photograph to newspapers and other media outlets, especially given that the photograph was over two years old by the time Fairey began selling prints of it.

Last month, the entire case took on a dramatic twist when it came to light that Fairey had lied about which photograph he’d used for the HOPE poster. Instead of using a photo of Clooney and Obama, Fairey admitted that he had used the photograph that the AP had always claimed he’d used (a closeup of Obama) and that he had deleted images and submitted false ones in connection with the lawsuit. As a result, Falzone and the Fair Use Project declared their intention to withdraw from the case, as they couldn’t ethically represent Fairey after his lies came to light. Falzone noted that he still believed in the merits of Fairey’s case; the AP, however, countered that Fairey’s admission undermined his fair use argument and that they would block the withdrawal of Falzone and the Fair Use Project. The Fair Use Project’s proposed replacements are Geoffrey Stewart, a partner at Jones Day, and William Fisher and John Palfrey of Harvard’s Berkman Center for Law and Society.

Crucially, Fairey’s admission impedes his claims under the third factor of fair use, as he did not modify the original photograph as much as he claimed and took a larger proportion of the original work. Still, Falzone’s support of Fairey’s claims even after exiting the case doesn’t seem naive; it’s conceivable that a court could still find fair use. But as many have noted, it’s hard to seek a defense that uses the word “fair” when you’ve lied about the case. The case is still going forward, but Fairey’s position is far weaker than it was a few weeks ago, though the LA Times ran an editorial this week that supports Fairey’s claims on the merits. But what could have been a fascinating test case for the status of fair use in copyright law has been muddled as a result of Fairey’s deception, and it remains unclear what this could mean for other artists working in similar ways.

Expanding copyright law to bar online access to copyrighted materials without the copyright holder’s consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder’s consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

News, as well the other information found in newspapers, is available online for nothing, including at the websites of the newspapers themselves, who thus are giving away content. The fact that online viewing is rising as print circulation is falling indicates a shift of consumers from the paid to the free medium.

Copyright law has abandoned its reason for being: to encourage learning and the creation of new works. Instead, its principal functions now are to preserve existing failed business models, to suppress new business models and technologies, and to obtain, if possible, enormous windfall profits from activity that not only causes no harm, but which is beneficial to copyright owners.

When Amazon controversially deleted copies of George Orwell’s Animal Farm and 1984 from its Kindles back in July, the ironic parallels between fact and fiction sent the Internet collectively scrambling to brush up on its literary quips. Not a bad thing, at least from the view of librarians and English teachers. And at the end of it all, the Internet seemed to have won out: Amazon vowed to never carry out such a recall again.

But life doesn’t tie up as neatly as a novel. Individual acts of rebellion inevitably failed against Orwellian fictional dictatorships, but Orwell’s worlds also lacked the class-action lawsuit. One such suit has already been filed against Amazon, alleging Amazon’s actions violated its terms of service and state unfair competition laws, and constituted fraud under 18 U.S.C. § 1030 (the Computer Fraud and Abuse Act), trespass to chattels, breach of contract. Putting aside its rather humorous facts–the main class representative, a Michigan high school student, alleges that the deletion of his electronic copy of 1984 rendered useless his class notes, as they were linked directly to the ebook—this lawsuit has the potential to reach far beyond ensuring that Amazon never repeats such a mass deletion.

Most of the initial complaints against Amazon’s deletion focused on how Amazon had violated consumer expectations regarding what happens to a book after it’s been sold. Without the cooperation of the buyer, publishers normally cannot recover physical copies of books once sold, no matter what the reason for the recall. Amazon’s deletion, however, highlighted the fact that this practical limitation doesn’t exist with an ebook. Some commentators have pointed out that this technological advance allows for stronger enforcement of copyright protections. Amazon did not have the legal right to sell those ebook copies of 1984 and Animal Farm, so they were committing copyright infringement by offering them to Kindle users. Since the sales were illegal, first-sale doctrine would not have protected their unwitting customers from copyright infringement charges. Deletion is different from what would be done if the book copy had been made of paper, but perhaps changing technology should also change expectations regarding methods of law enforcement.

On the other hand, others including the parties in the class-action suit assert that Amazon violated its own terms of use with the deletion. Amazon has taken pains to emphasize that its Kindle is just updating the traditional book for the Computer Age, not changing the mode of how books work. Ebook buyers were told that just as with a physical book, once they bought an ebook, it was theirs for life. If that isn’t true and Amazon is going to take advantage of an ebook’s unique capabilities, then it should have made that clear to its customers.

And as if copyright and contractual issues weren’t enough, the lawsuit’s complaint also expressly asks the court to declare that Amazon has no legal right to delete ebooks once they’re sold, since Amazon couldn’t very well order people to give up physical books they’ve purchased. More than a kind of equality declaration for ebooks and physical books, such a ruling could potentially hamper any content provider’s ability to distribute material online without incurring liability if that content is later removed. It would have grave implications for the efforts of companies such as Google to encourage cloud computing and other technologies where data is stored on the servers, and under the control, of third-parties who then allow users to access that data remotely.

Until now, the book industry has been spared the contentious litigation that technological advances have brought to the movie and recording industries, largely because ebooks have not done well as a commercial product. But just as ebooks seem to be finally taking off, so have the legal questions surrounding them. The Kindle is no longer a mere geek trophy gadget, but has come of age as a focal point of legal, technological and social debate.

The lawsuit between rock artist Jackson Browne and Senator John McCain and the Republican Party was recently settled, and ordered dismissed on August 4, 2009, almost a year after the suit was filed by Browne.

Browne filed a lawsuit against McCain, the Republican National Committee, and the Ohio Republican Party over the unauthorized usage of Browne’s signature song “Running on Empty” in a commercial criticizing the energy policy of then-Democratic Presidential candidate Barack Obama.  The commercial, which aired on television and YouTube.com, featured parts of the sound recording of “Running on Empty” throughout.

The causes of action listed in Browne’s complaint, filed in U.S. District Court in California, included copyright infringement, trademark infringement, and violation of the California common law right of publicity.  The defendants’ motion to dismiss, relied, amongst other things, on a fair use defense against Browne’s copyright claims and a political speech exemption against the trademark claim.  The motion to dismiss was ultimately denied.

The lawsuit brought to light the clash between intellectual property rights and fair use as well as the First Amendment in the context of political speech, as political campaigns turn more and more to popular culture references in the media to reach out to voters.  McCain was also opposed by artists for his campaign’s use of popular music from the Foo Fighters, Heart, and John Mellencamp.  Even Obama ran into trouble during his campaign, when soul legend Sam Moore (of “Soul Man” fame) asked Obama to stop using one of his songs.

New Zealand copyright protesters

New Zealand’s government announced this week that their proposed “three strikes”/”graduated response” copyright law would not go into effect, and would be rewritten from the ground up.The law, which would have required ISPs to cut off internet access to users who had been accused of copyright infringement three or more times, had already been delayed from its initial effective date in February after stalled implementation negotiations and public protests caused lawmakers some concern.

Of particular note to those interested in U.S. copyright issues, Google submitted comments arguing that Internet disconnection is a disproportionate response to unproven allegations of copyright infringement. New Zealand recording industry groups had argued that the evidence of infringement they provide to ISPs is highly reliable, but Google’s comments cite to a 2006 report (summary here) that showed up to 30% of takedown notices Google received “presented an obvious question for a court”, and over half of requests to remove links appeared to be from businesses targeting competitors. Obviously, many of the takedown requests that Google fields are not from official industry groups, but given that U.S.  industry group representatives have likened innocent infringers to dolphins inevitably caught in fishing drift-nets, New Zealand ISPs and consumers had good reason to be concerned.

Image credit – “Dare not write, dare not speak, dare not feel” CC by-nc Fertala

Congressional hearings this week focused on whether or not traditional radio stations should have to pay royalties for the music they play. Billy Corgan of The Smashing Pumpkins, was among those who testified in support of H.R. 848, The Performance Royalties Act. Radio stations argue that the value of promotion they give artists outweighs the costs of any royalties due. That’s an argument that sounds familiar, and may explain some of the impetus for copyright holders to come forward now to reject such a rationale.

The Supreme Court has granted cert in Reed Elsevier v. Muchnick, a case arising from settlement negotiations following New York Times v. Tasini. In Tasini (full decision), the court determined that freelancers who had not explicitly licensed electronic publication rights to their works were due compensation for those electronic uses. A settlement was reached in 2005, but in 2007, the 2d Circuit Court of Appeals voided the settlement for lack of jurisdiction over the many unregistered copyrights at issue in the negotiations.

The Supreme Court has been considering the Reed Elsevier case for some time. They granted review yesterday of the limited question, whether 17 USC § 411-a restricts the subject matter jurisdiction of the federal courts over copyright infringement actions? The case will be argued in the fall.

by: Adam Denhoff, Associate Editor, MTTLR

Image this is podcasting by Thomas Kamann. Used under a Creative Commons BY 2.0 license.

Internet radio broadcasters were given renewed hope of long-term stability when President Bush signed the Webcaster Settlement Act in October. The Act allows webcasters and record labels to continue negotiating for a reduced performance royalty rate while Congress is in recess, as it extends the deadline for a new deal to February 15, 2009. The issue stems from a March, 2007 decision by the Copyright Royalty Board (CRB), which would force webcasters to pay for each song streamed to each user at a retroactive rate as follows:

2006: $0.0008 per song, per listener
2007: $.0011
2008: $.0014
2009: $.0018
2010: $.0019

SoundExchange, the organization that represents artists and record labels, favors higher performance royalties because it believes that musicians deserve their fair share of Internet radio profits. The Digital Media Association (DiMA), a trade organization that represents a number of prominent webcasters including AOL Radio and Yahoo! Music, believes that the decision of the Copyright Royalty Board would bring about the end of Internet radio by forcing webcasters to pay outrageously high performance royalties at rates that they simply could not afford.

The Radio and Internet Newsletter (RAIN) calculates that, assuming the average Internet broadcasting station plays 16 songs per hour, a webcaster would have a royalty obligation of 1.28 cents per listener hour in 2006 (which would skyrocket almost three-fold by 2010). These royalties would only cover use of the sound recording, and webcasters also have to pay an additional fee to holders of copyrights in the composition. Using the CRB’s proposed royalty structure, it would be nearly impossible for an Internet radio station to remain profitable, and most, if not all webcasters would be forced out of business. Tim Westergren, the head of Pandora (one of the nation’s most popular Web radio services), believes that its royalty fees for this year could represent 70% of its projected $25 million dollar revenue. According to David Oxendide, a lawyer representing many smaller webcasters, CRB’s royalty structure would be a fatal blow to small and medium sized stations whose royalties would be between 100% and 300% of annual revenues.

Traditional radio broadcasters, like those represented by the National Association of Broadcasters (NAB), have seen web-based radio as a serious threat to their dominance. They lobbied against the Webcaster Settlement Act. However, they retracted their aggressive opposition to the Act when the negotiating deadline was extended to February 15; the extension will allow the NAB to negotiate its own performance royalty structure with SoundExchange. Today, terrestrial radio broadcasters pay licensing fees only, but SoundExchange is working to change that.

What does all this mean for Internet radio? Well, even SoundExchange acknowledges that the royalties in CRB’s model might be unworkably high. Nonetheless, SoundExchange officials complain that Internet radio stations have done too little to turn a profit from streaming music on the web. Webcasters counter by arguing that advertisers have yet to embrace Internet radio which makes it nearly impossible to get investment funding.

Although the music is industry is in shambles and record labels are desperate for new sources of revenue (i.e. performance royalties from online radio stations), perhaps biting the hand that feeds is not the right approach. A thriving source of online music is essential for the survival of the music industry. Surely record companies would prefer that new music be spread via web-based radio rather than on illegal file sharing networks? Introducing performance royalties into both the digital and terrestrial radio schemes makes sense; why should radio stations be required to compensate the songwriter, but not the performer or record label for use of copyrighted material? However, the Recording Industry Association of America, SoundExchange, and DiMA should negotiate a performance royalty rate that benefits all parties by ensuring that Internet radio lives on. The impossible-to-interpret “willing buyer, willing seller” model utilized by the CRB is not a transparent approach. The Webcaster Settlement Act, which allows the parties to negotiate further, is a step in the right direction.

by Lauren Strandbergh, MTTLR Associate Editor

Image The Search by Robert S.. Used under a Creative Commons BY-NC-SA 2.0 license.

On October 28, 2008, Google reached a settlement with The Authors Guild and the Association of American Publishers (AAP) after two years of negotiations.¹ The agreement would resolve the class-action lawsuit brought by the Authors Guild and book authors against Google, in addition to another lawsuit brought by five publishing companies as representatives of the AAP’s membership.² Although Judge John Sprizzo has given preliminary approval, the settlement is still subject to final court approval following a June hearing, which “will determine whether the agreement is fair, reasonable, and adequate.” ³

According to Google, the agreement would provide increased access to out-of-print books, additional ways to purchase copyrighted books online, institutional subscriptions, free access from public and university libraries in the United States, and compensation and improved control to authors and publishers.⁴ This last would be made possible by the Book Rights Registry, a new development that is one of the more important aspects of the settlement.⁵

Under the settlement agreement, Google would pay $125 million to be used to create the Book Rights Registry, cover legal fees, and resolve existing claims.⁶ The independent, non-profit Book Rights Registry would distribute “payments earned from online access provided by Google and, prospectively, from similar programs that may be established by other providers” and “locate rightsholders, collect and maintain accurate rightsholder information, and provide a way for rightsholders to request inclusion in or exclusion from the project.”⁷

The new Registry would be similar to the American Society of Composers, Authors and Publishers (ASCAP), which monitors and compensates individuals in the music industry.⁸ As one blogger put it in a somewhat sarcastic post, Google and the Registry are bringing “the Dewey Decimal System into the digital age.”⁹ The Registry will keep track of books and inserts, as well as the respective authors, publishers, and other rightsholders.¹⁰

The Registry will do much more than serve as an information depository, though; it will also be responsible for contracts and payments. The settlement provides for a board of directors with equal representation of the author sub-class and publisher sub-class.¹¹ A majority of the directors, including at least one from each sub-class, is required for the Board to act.¹² This will presumably help to protect both the authors’ and publishers’ rights in their dealings with Google, and possibly other providers somewhere down the line.

Google and the Registry will determine the subscription prices.¹³ This basically amounts to Google proposing prices, and the Registry board approving or denying, thus acting as a check on Google.¹⁴ The settlement claims that Google and the Registry will attempt to base subscription prices on two factors: “the realization of revenue at market rates for each Book and license on behalf of Rightsholders” and “the realization of broad access to the Books by the public, including institutions of higher education.”¹⁵ These are worthy guidelines if followed. Ideally, the first goal (and the cost of corporate profit) will not make the second impossible. The legal databases provided by LexisNexis and Westlaw are examples of digital libraries that are unavailable to the masses due to high cost.

Rather than litigating the fair use question at issue in these lawsuits, Google settled for a large sum of money. This means that the legal standard is no better understood, and the price for using this material is high—$125 million in this case. Microsoft already bowed out of the competition for creating a searchable library database last spring.¹⁶ This could make it far more difficult for others interested in creating digital libraries or databases to acquire rights to the media, perhaps harming some of the smaller scale enterprises that have recently been appearing on library websites.¹⁷

What does all of this mean for the average Google user? Whether or not this settlement and the new Book Rights Registry will make a real positive difference for individuals and libraries across the country is somewhat uncertain. Search capabilities will definitely increase, which is Google’s main goal behind this expensive effort. But will people have access to content as they would at a library, or will the Google Books site simply become a mammoth bookstore, crowding out Amazon and other on-line retailers? The settlement only provides for public libraries to have one terminal where users may, one at a time, view out-of-print books and print them, for a per-page fee of course.¹⁸ This does not appear to be an exceptionally user friendly model.

Whether or not institutions will subscribe to this database and individuals purchase books will depend on multiple factors. Two of the most important may be price and ease of use. Even if an institution purchases a subscription or an individual buys a particular book, they are still restricted to printing or viewing the book on the website.¹⁹ This is rather limiting and may make sense only when discussing out-of-print materials. Hopefully Google will use some of the creativity they frequently display, and work with the Author’s Guild, and AAP to engineer a system that will be accessible to everyone.