DMCA, DRM & Piracy

Blegging for DMCA exemption ideas

by on October 7, 2005

Speaking of the DMCA, the Copyright Office this week began the triennial rulemaking that considers whether any classes of works should be exempted from the Act’s anticircumvention provisions. Initial comments are due December 1.

Making infringing uses of a work, such a unauthorized copying or displaying, has always been prohibited by the Copyright Act subject to fair use limitations. So, if you legitimately have access to a work (an ebook, say) and you circumvent technology that would otherwise prevent you from making a copy of it (say, to copy a couple of pages for a class), the DMCA would not cover this circumvention. Regular old copyright infringement would control here and you could raise a fair use defense.

The DMCA, on the other hand, prohibits circumvention of technology that would otherwise limit access to a protected work. Because fair use is not a defense to this prohibition, the DMCA says that it “shall not apply to persons who are users of a copyrighted work which is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under this title[.]” That exempted “particular class of works” is determined by the proceeding that began this week.

The standard for a class of works to be exempted is very high. For one thing, “proponents of an exemption must provide evidence either that actual harm exists or that it is ‘likely’ to occur[.] … Claims based on ‘likely’ adverse effects cannot be supported by speculation alone.” Secondly, if a work is available in an unprotected format, then it likely won’t qualify because you can always use the unprotected format to make your uninfringing use. The DMCA’s anticircumvention provision has to render the class of works completely inaccessible for uninfringing uses before it will be exempted:

For example, in the first rulemaking, many users claimed that the technological measures on motion pictures contained on Digital Versatile Disks (DVDs) restricted noninfringing uses of the motion pictures. A balancing consideration was that the record revealed that at that time, the vast majority of these works were also available in analog format on VHS tapes. Final Reg. 2000, at 64568. Thus, the full range of availability of a work for use is necessary to consider in assessing the need for an exemption to the prohibition on circumvention.

In the last rulemaking only four classes of works were exempted. So, given how strict the criteria are, can anyone think of any class of works that could be exempted this time? I would really love to hear any suggestions.

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Confused reasoning about the DMCA

by on October 6, 2005

Over at CNET, Adam’s colleague Patrick Ross has an incredibly confused defense of the Digital Millenium Copyright Act:

When content producers know that they can experiment with various protection approaches, they’re more comfortable entering the online market. Also, investors are more inclined to fund such efforts. Imagine a world of unlimited digital content, packaged with a range of TPM at varying prices. In that world, consumers can purchase exactly the amount of use they need and not pay for more.

But if HR-1201 [the Digital Media Consumers Rights Act, introduced by Rep. Boucher] becomes law, every consumer could legally hack any TPM by claiming fair use, and as fair use isn’t codified, there would be as many definitions of it as there are consumers. Consumers would be legally sanctioned to break their contracts with the content provider.

No sane business operator enters a contract in which one party has the right to disregard its terms at will, but that’s what HR-1201 permits. That hated TPM would disappear from the market, as there’s no reason to employ a lock if everyone has a legal right to the key. But as TPM leaves, so do the digital offerings that come with it.

The first sentence of the last paragraph is a simple, unambiguous falsehood. The Boucher bill specifies “that it is not a violation of [the DMCA] to circumvent a technological measure in connection with gaining access to or using a work if the circumvention does not result in an infringement of the copyright in the work.”

You tell me how that abrogates any contracts.

This isn’t just nitpicking. TPM schemes can place any kind of restriction they want on their cusomers, including restrictions imposed retroactively and without notifying their customers. (Apple, for example, unilaterally reduced the number of copies of its songs existing customers were allowed to burn to CD after the songs had already been sold) There is no reason whatsoever to assume that a TPM scheme constitutes a “contract” between a company and its customers. Prohibiting circumvention of TPM schemes doesn’t aid contract enforcement, because a TPM isn’t a contract.

On the other hand, the Boucher bill would not in any way prevent the enforcement of actual contracts. Fair use is not a defense against breach of contract, and Boucher’s legislation wouldn’t change that. So if a user signs an agreement promising not to break a TPM scheme, and then breaks it anyway, the company that designed the TPM would have every right to sue the customer.

There’s also absolutely no reason to think that content wouldn’t be made available for download without TPMs. Every CD is effectively TPM-free. I could take any CD I own, “rip” the songs on it, and upload them to a P2P network. Yet the recording industry still sells CDs. Why would we think online downloading would be any different?

The folks at PFF desperately want to portray the DMCA as a “free market” approach to copyright problems. But the shoe just doesn’t fit. TPM systems are not contracts, and circumventing them, as such, is not theft. Simply stated, the DMCA is a government-imposed restriction on the design of technological devices. It’s fine to argue that such restrictions are needed to curtail piracy, but such restrictions have nothing to do with freedom of contract.

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The RIAA – Satellite Radio Royalty Spat: What is the “Fair” Price of Music?

by on October 6, 2005 · 6 comments

This royalty spat between the RIAA and the satellite radio industry promises to get very ugly. Anytime major copyright owners and users get in a room to argue about prices, you can be sure that sparks will fly.

I don’t pretend to have any idea what the “fair” price for music is. Honestly, I am a bit of relativist when it comes to prices. I don’t think that there is an objectively “fair” price for anything in this world outside of the price that the contracting parties find mutually beneficial. Once two parties handshake on a deal, that’s the “fair” price in my book.

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Variable price fixing?

by on September 30, 2005

Everybody seems to be freaking out about Warner Music chief Edgar Bronfman saying earlier this week that he would like to see variable pricing on iTunes. Rather than a flat 99-cent rate for all songs, Bronfman would like to charge more for popular songs and less for songs that are older or not in demand.

Some have suggested that this would amount to price fixing. They’re thinking of resale price maintenance, where a firm requires resellers of its product to sell at a certain price. If all the resellers are locked in to the same price, they won’t compete on price, price won’t come down, and the producing firm might get a supra-competive return. But to make this work Warner would have to not only set the prices on iTunes, but everywhere else. You would also have to assume that songs aren’t substitutable, so that consumers wouldn’t just move over to non-Warner songs that are cheaper. You would have to assume that or a cartel of all the major labels, which would really be serious.

What Bronfman is really proposing isn’t that strange at all. As BusinessWeek notes,

Some books cost $25, others $15. There are magazines that sell for $4.95 a copy, while others go for $2.95. And who hasn’t secretly perused the bargain racks of CDs, looking for a $5 disc from that hair-metal band you loved so much in the ’80s? [I’m looking at you, Adam.] All Bronfman suggested was creating an environment where some songs would command a premium and others would do the equivalent of filling the bargain CD bin.

Still, some ask, what business does Bronfman have telling Apple what retail price to charge? He’s the wholesaler, they say. He can charge Apple more if he likes and let Apple decide whether it will raise its prices. The problem with this reasoning is that Apple does not license music from the labels for a flat per-song royalty. Proceeds from each download are reportedly split 35-65, Apple-label. Here’s an explanation of the agreement:

The deal is straightforward. Of the 99 cents of a download, Apple keeps a portion and the rest goes back to the label, which is then responsible for distributing back to the artists, songwriters, publishers, and so on according to the existing terms between the labels and their bands. This makes it really simple for Apple to acquire content because they don’t have to deal with stuff like licensing agreements or paying publishers–all that stuff is the labels’ responsibility.

Bronfman is just trying to make the portion kicked back to Warner variable depending on the song’s market value. And, oh yeah, Apple doesn’t have to take the deal.

Now, I agree with Steve Jobs when he says, “If the price goes up, [consumers] will go back to piracy and everybody loses.” But that just means that Bronfman’s variable pricing scheme would be a dumb business decision because I personally don’t think any song is worth more than 99 cents. Priced above this consumers will download illegally or buy other songs. But variable pricing by itself has nothing to do with illegal price fixing as some have suggested.

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Fighting Overseas IP Piracy with Price Discrimination: Will It Work?

by on September 27, 2005

The Wall Street Journal reported today that, in an effort to combat rampant movie and music piracy overseas (especially in China), some media companies are radically cutting prices on their DVDs and CDs to undercut the pirates. Warner Brothers, for example, plans to drop DVD prices to roughly $2 to $4 in China and NBC Universal is apparently planning a similar response for Russia.

I find this business strategy very interesting because I think it has legitimate chance of helping to undercut a significant chunk of the piracy that the studios have to deal with in China and other foreign markets. After all, I would think that many Chinese consumers would be willing to spend a dollar or two more to get the legitimate studio version of a film since its quality is likely better and it probably contains a host of extras not available on the pirated versions. And, hopefully, at least some Chinese consumers will also realize it’s the right thing to do instead of robbing the content companies of any compensation for the wonderful products they produce.

On the other hand, I’m also wondering if this new strategy might backfire on the movie and music studios. In particular, I’m wondering (a) if this will open up global arbitrage opportunities; and (b) if this sort of price discrimination will rub a lot of other consumers back here in the States the wrong way.

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Grokster: No Impetus for New Copyright Legislation

by on July 21, 2005

At the Congressional Internet Caucus Advisory Committee panel discussion on Tuesday, most people seemed to agree on one point about the Grokster decision – we don’t need new copyright legislation (at least not yet).

This general consensus concurs with my recent article on Grokster. It’s just too early to tell how the courts will apply the court’s active inducement test. And I’ve heard it said somewhere that it takes three years to feel the effects of a Supreme Court decision (not including grants of habeas corpus petitions of course).

Yet some groups want action now. According to EFF’s Fred von Lohmann, “the Supreme Court left too many unanswered questions, von Lohmann said, adding, “I don’t believe that uncertainty is balance. We need clear, bright-line rules so that technology companies can know in advance what they are and are not allowed to build.”

According to the CNET article in which he was quoted, von Lohmann suggested two possible ways to legislate:

First, Congress should implement a “collective licensing” system for peer-to-peer file sharing, wherein users would pay a “reasonable fee,” which would in turn be passed on to the copyright holders. Second, lawmakers should scrap the idea of statutory damages–that is, money awarded to copyright owners because of provisions in the law–but leave open the option of awarding actual damages and injunctions through the court action.

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Grokster Loses

by on June 27, 2005

I would say I called the Grokster decision. The “substantial non-infringing use” standard did not exist in a vacuum. Rather, it was embedded in a set of considerations concerning the motivations and impact of a company’s business model. In Sony’s case, the Betamax was clearly an innovative new piece of hardware that incidentally enabled copyright infringement. Grokster, in contrast, was a novel way to evade copyright law that incidentally allowed people to share a few legal files. Rather than buying Grokster’s fatuous arguments and mechanistically applying the “substantial non-infringing use” standard where it clearly didn’t make sense, they looked at Grokster’s actual behavior and business model and concluded–correctly in my opinion–that Grokster was obviously a program designed to facilitate copyright infringement.

The interesting question is whether the court has created a new standard, a successor to “substantial non-infringing use”, that will provide the technology industry with a safe harbor for innovation. On a cursory reading, it appears that the opinion is decided narrowly enough–focusing on Grokster’s specific business model and the ample evidence that they fully intended to attract illegal file-traders–that this shouldn’t strike fear into the hearts of future entrepreneurs. As long as a product is designed for a legitimate use, the fact that many of its users engage in piracy shouldn’t put the product under a legal cloud. I could be wrong, though.

(Cross-posted to the Bit Bucket)

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If you infringe copyrights, the terrorists have already won

by on May 27, 2005

When I saw this article yesterday about agents from DHS shutting down a BitTorrent site, I thought that there’s no way anyone could be suggesting that copyright infringement and terrorism are related. Turns out, that’s exactly what some folks in law enforcement think.

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Broadcast Flag Burning

by on May 9, 2005

In my latest Brainwash column, I cheer on Friday’s “broadcast flag” ruling.

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Protecting Digital Property With Intellectual Contract

by on February 17, 2005

Digital rights management is technical term for digital packaging. It is also a digital contract. An article I published earlier this week talks about the future of digital content that draws from both property and contract law. We should not be scared by contract law’s growing role in copyright. Nor should we attempt to provide affirmative consumer rights as a sort of public policy exception to certain contractual provisions. I write:

Most consumers would welcome the benefit of a DRM contractual bargain, but only if they perceive that the agreement is fair. What is a fair bargain in the marketplace and what is “fair use” according to copyright law are much different, though not necessarily conflicting, concepts. The legal conception of fair use is a loose definition that is a defense to infringement, often associated with free speech such as for criticism or parody. Fair use, in a colloquial sense, is often used as a proxy for consumer expectations and preferences–the desirability for backup copies, transfer to different hardware devices, etc.

Consumer expectations of “fair use” that extend beyond criticism, news reporting, etc. should also be defined by contract, not property law. Competition in the digital content market will dictate that consumer preferences be met.

Adam’s entry indicates that the market is working to utilize DRM with P2P and that the result will be pro-consumer. After all, a government that is big enough to provide affirmative content rights is big enough to restrict content (see the entry by James on broadcast censorship).

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