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Archive for the ‘Digital Downloads’ Category

Posted with the permission of the author Matthew Williams, EsquireMatthew is an intellectual property attorney practicing with the firm of Mitchell Silberberg & Knupp.  All rights reserved.

Apple’s release of the iPhone in June 2007 was an unqualified business success – 1.4 million iPhones were sold in just a few months. However, as has become the norm when a business is successful, several legal problems have arisen for Apple and its telecommunications partner, AT&T. Many of these problems began shortly after the iPhone’s release, when a New Jersey teenager announced that he had circumvented the technological ‘lock’ that renders the iPhone inoperable with wireless telephone carriers other than AT&T. The hacking of the iPhone received almost as much press attention as its release and Apple estimates that as many as 25apple_iphone0,000 iPhones have been unlocked . 

In response, Apple issued a press release which warned consumers that modifying iPhones in order to switch wireless carriers could damage the product and void Apple’s warranty. Apple also announced that future Apple software updates would likely render modified iPhones permanently inoperable. Shortly afterwards, an Apple software update did just that. Predictably, two class action lawsuits alleging unfair competition and antitrust claims were filed against Apple in October 2007: one, which also names AT&T as a defendant, in the US District Court for the Northern District of California,(1) and one in the California Superior Court in the County of Santa Clara.(2)

Among other things, the complaints allege that consumers may unlock iPhones legally on the basis of a November 2006 regulation promulgated by the librarian of Congress regarding exceptions to the Digital Millennium Copyright Act’s prohibition against circumventing technological protection measures. Furthermore, the complaints allege that the software update issued by Apple, rendering thousands of iPhones inoperable, was an illegal effort to prevent consumers from exercising this exception.

Whether the unlocking of iPhones fits within the librarian of Congress’s exception to the act depends on the answers to a number of difficult questions. It is far from clear that unlocking an iPhone is legal. The librarian crafted narrow language which limits the exception to circumstances in which “circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network”. 

At least one court(3) has ruled that unlocking a mobile phone for the purpose of reselling it to third parties violates the act and does not fall within the exception; fearing that many of the iPhone hackers purchased multiple iPhones for resale, Apple recently limited the number of iPhones that an individual may purchase and stopped accepting cash for iPhones. Determining whether the librarian’s exception applies to unlocking iPhones and, if so, how many of the class members involved in the cases fall within the scope of the exception are likely to be central issues. Copyright owners should follow these cases carefully, especially because the anti-circumvention provisions of the act are infrequently interpreted and are often critical to many business models.

Endnotes

(1) Holman v Apple, Inc.

(2) Smith v Apple, Inc.

(3) In TracFone Wireless, Inc v Dixon, 475 F Supp 2d 1236 (MD Fla 2007).

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You say you want a revolution

Well, you know
We all want to change the world . . .

 
You say you’ve got a real solution

Well, you know
We’d all love to see the plan
You ask me for a contribution
Well, you know
We are doing what we can

 
But if you want money
for people with minds that hate
All I can tell is, brother, you’ll have to wait
 
Don’t you know it’s gonna be alright?
 
-John Lennon

Perhaps John Lennon said it best:  if you push people hard enough and long enough, they will revolt.  The question is, has the RIAA gone too far for too long? A recent motion filed in their case against students at the University of Maine may very well answer that question.

The RIAA named numerous “John Doe” students in their complaint in Arista Records v. Does 1-27, as is their practice in all of their lawsuits.   The RIAA’s purpose of naming the John Doe defendants is so that they may obtain an ex parte (i.e., without the other party being notified) order from the Judge requiring the targeted university to provide the various students’ name, address, and, particularly, their IP address.

Student lawyers at the University school of law Cumberland Legal Clinic have filed a motion for Rule 11 sanctions against the RIAA claiming that this practice improperly seeks to circumvent the student’s rights under the Family Educational Rights and Privacy Act, §1232g(b)(2)(B) (“FERPA”), gain publicity for its cause, and coerce students into settling for “nominal” amounts in the $3-5000 range.

Rule 11 of the Federal Rules of Civil Procedure allows sanctions against an attorney who signs a pleading without properly investigating the facts and the law and does so with an improper purpose.

The motion also questions whether the joinder of plaintiffs and defendants under the RIAA-type lawsuits is proper because the actions do not, in fact, arise out of the same transaction.  Rule 20 of the Federal Rules of Procedure provides that multiple plaintiffs can join in one action if “they assert any right to relief jointly, severally, or in the alternative with respect or arising out of the same transaction, occurrence, or series of transactions or occurrences…and any question of law or fact common to all plaintiffs will arise in the action.” Fed. R. Civ. P. 20(a).  Similarly, multiple defendants can be joined in one action if “any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transaction or occurrences . . . and any question of law or fact common to all defendants will arise in the action.” Id.  The student motion alleges that the RIAA does not, in fact, believe that all of these copyright infringements arise out of the same facts, but join together against multiple defendants for the sole purpose of trimming litigation and discovery costs.

In this case, the student lawyers are seeking more than just monetary damages under this Rule 11 motion:  they also seek dismissal of the complaint and a permanent injunction preventing the RIAA from filing “fishing expedition” type complaints against “unconnected” defendants in the future.  These types of injunctions may be applied in jurisdictions other than the one in which it was issued, so in theory such an order may be applied to thwart lawsuits in other Federal courts across the country.

This in one ruling that should be very interesting.

 

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New York Times technology columnist and Emmy-award winning CBS news correspondent David Pogue is featured in this YouTube video singing a fun diddy about the digital wave of media on the Internet, ending with a humorous take on the RIAA and its wave of litigation against college students nationwide.  Enjoy

 

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U.S. District Judge for the District of Connecticut  Justice Janet Bond Arterton, handed down a very pointed and decisive opinion hammering the RIAAR.I.A.A. for its boilerplate style of pleading in the nationwide wide campaign against illegal file sharing.   Justice Arterton was appointed by President Clinton in 1995.  The full decision is here:  Decision.  At several key junctures in the opinion, Justice Arterton based her opinion on the fact that the Plaintiff’s complaint was based on “information and belief” rather than direct evidence.

The two areas of concern in the opinion, one is whether to grant a default judgment under Federal Rule of Civil Procedure 55(b)(2) and the second is whether the complaint fails to state a claim for which relief can be granted under Rule 12(b).

Default Judgment Analysis under Rule 55(b)(2)

The granting of default judgment is generally almost a “rubber stamp” kind of process.  If the defendant is properly served and fails to respond to the complaint, a default judgment is almost always automatic.  If the complaint demands an exact amount as judgment, the default judgment can even be entered by the court’s clerk under Rule 55(b)(1).  If not, then the court holds a hearing to determine the amount of damages under Rule 55(b)(2).  In this instance, however, the court stepped in and took it upon herself to examine the validity of the claims.

Reasoning from a 2nd Circuit case, Au Bon Pain Corp.v. Artect, Inc., 653 F.2d 61 (2d Cir. 1981), the court found that the default judgment process is not, in fact, automatic, but that “a district court has discretion . . . to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action.”  Artect, at 65, citing Wright & Miller, a well known legal treatise on procedure. 

Looking a another legal treatise, Moore’s Federal Practice, Justice Arterton reasoned that the analysis should combine elements from Rule 55(c), the rule allowing the setting aside of a default judgment, and Rule 60(b), a more generic rule allowing  a court to set aside judgments.  Finding support for this analysis in 2nd Circuit case law, the court held that three factors arose in determining whether to set aside a judgment under either of the two rules:  (1) “the willfulness of default”; (2) “the existence of a meritorious defense”; and (3) “the possibility of prejudice to the plaintiffs should the default judgment be vacated.”

In weighing these factors, the judge determined that the latter two factors shifted in favor of the defendant, i.e., there were abundant meritorious defenses raised in similar cases filed by the RIAA across the country, and the Plaintiff would not be prejudiced by being required to produce more specific evidence.  In both instances, the court again mentioned the language that the Plaintiff’s complaint was based on “information and belief.”

Failure to State a Claim Upon Which Relief Can be Granted under Rule 12(b)(6)

The more telling section of the opinion is the court’s ostensibly sua sponte (i.e., of its own accord) analysis of whether the Plaintiff’s complaint failed to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  This rule generally givesscales5 the defendant a right to raise this defense in a response to a complaint.   Ostensibly, the court raised this issue in the context of possible meritorious defenses.

Justice Arterton cites the recent Supreme Court opinion that a complaint “does not need detailed factual allegations, [but] a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions.”  Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65 (2007).  She then observed that Plaintiff’s complaint in this case was almost identical to the one filed in Interscope Records v. Rodriguez, where the court held:

Plaintiff here must present at least some facts to show the plausibility of their allegations of copyright infringement against the Defendant. However, other than the bare conclusory statement that on “information and belief” Defendant has downloaded, distributed and/or made available for distribution to the public copyrighted works, Plaintiffs have presented no facts that would indicate that this allegation is anything more than speculation. The complaint is simply a boilerplate listing of the elements of copyright infringement without any facts pertaining specifically to the instant Defendant. The Court therefore finds that the complaint fails to sufficiently state a claim upon which relief can be granted and entry of default judgment is not warranted.

Rodriguez, No. 06-2485, 2007 WL 2408484, at *1 (S.D. Cal. Aug. 17, 2007).  Citing the Second Circuit case Greyhound Exhibit Group, Inc. v. E.L.U.L. Realty
Corp., 973 F.2d 155, 158 (2d Cir. 1992), which held that the entry of default “constitute[s] a concession of all well pleaded allegations of liability,” Justice Arterton ruled that Plaintiff’s complaint was “speculative” and “inadequate.”

Eric Bangeman, of Ars Technica reports that the RIAA plans to file a brief, probably accompanying a motion for reconsideration, and possible an amended complaint, as they did in Interscope v. Rodriguez.  The amended complaint provided additional details about dates, times, and IP addresses.  Whether the additional details of that amendment will alter the application of Rule 12(b)(6) is still unknown, as the judge in that case has since retired.

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On Monday, January 28th, the Copyright Royalty Board (CRB) began what will be four weeks of hearings.  The CRB will hear testimony from interested parties on both sides of issues which will ultimately determine the statutory mechanical rates for songwriters and music publishers. The CRB sets these rates periodically, but these particular hearings are more critical than usual because, in addition to setting rates for physical products, rates will be set for the first time ever for digital products such as digital downloads, subscription services and ringtones.

On one side of the issue is the Recording Industry Association of America (the “RIAA”), which represents the major record labels’ interest,  is proposing that the current rate of 9.1 cents per mechanical copy produced be reduced to 6 cents!  That reduction would roll back the rates to, well, let’s just say to well before the birth date of most of the college students the RIAA is prosecuting across the country for downloading.  For digital reproductions, the RIAA is proposing an even lower rate of 5 to 5.5 cents per track.

On the other side of the issue, representing the publishers and songwriters, is the National Music Publishers Association, the NMPA.  In contrast, the NMPA proposes increasing the statutory rate to 15 cents, and for digital reproductions, a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage.

This are important issues, and I’ll try to keep you posted here on Law on the Row as developments happen.

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The Recording Industry v. the People, an anti-RIAA blog operatRIAA ed by New York attorney, Ray Beckerman, is cooperating with the Boston-based non-profit, The Free Software Foundation, to establish “a fund to help provide computer expert witnesses to combat RIAA’s ongoing lawsuits, and to defend against the RIAA’s attempt to redefine copyright law.”

The Free Software Foundation was established to promote the development and use of free software.  It manages several campaigns to achieve that goal, including one called “BadVista.org,” fighting the adoption of Microsoft Vista, and “DefectivebyDesign.org” which was established for the purpose of eliminating digital rights management in music and movies from “Big Media.”

As of the end of November, the fund had raised over $4,000.  The fund will be administered by Mr. Beckerman and will be disbursed to technical witnesses hired by RIAA litigation defense teams on a variety of criteria, including the basis of the importance of the case to critical legal issues.

To donate to the fund, click here.

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For almost a decade now, the major labels (at the beginning there wereRIO five of them, now only four, EMI, Sony BMG, Vivendi Universal and Warner) have declared that illegal downloading is ravaging their business by destroying the sales of physical product.  One may question this declaration, however, in few of the fact that ever since the RIAA filed its 1998 litigation again the manufacturer of the Diamond Rio MP3 player and extending to its most recent lawsuits against individuals across the country, the music industry has committed more public image faux pas than Dan Quayle and George W combined, making it one of the most hated industries among high school and college students.  It should be apparent to everyone now that it is not illegal downloads that is causing the downturn in music sales, as there are many other contributing factors.

This marred image of the industry is evident in the facts.  According to an article in Rolling Stone magaine entitled The Record Industry’s Decline:

About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Last year the eighty-nine-store Tower Records chain, which represented 2.5 percent of overall retail sales, went out of business, and Musicland, which operated more than 800 stores under the Sam Goody brand, among others, filed for bankruptcy. Around sixty-five percent of all music sales now take place in big-box stores such as Wal-Mart and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artists.

Nonetheless, a new research study on the issue, commissioned by the Canadian government to explore issues related to copyright reform, was recently released.  The study is entitled The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada, and was written by Birgitte Andersen and Marion Frenz, of the Department of Management at the University of London in England.  A PDF version of the study is published here.

The results of the new study affirm many of the conclusions found in an earlier study entitled, The Effect of File Sharing on Record Sales: An Empirical Analysis.  This paper was published in the February 2007 issue of The Journal of Political Studies, and was written by Koleman Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer of the Harvard University Business School.  Both studies directly contradict the claims of the music industry that file sharing is related to revenue losses.

In fact, the new study supports an opposite assertion, i.e., that distribution of music files on P2P networks actually promotes the sale of physical product.  Andersen and Frenz found, among people who actually participate in P2P file sharing, downloading actually increases the sale of physical product by a ration of 2 to 1, in other words, on average when a P2P file sharer downloaded the equivalent of two CDs in files, he or she would purchase of one physical CD (Note:  I have extrapolated here, as the numbers set forth in the study actually say that for every 12 P2P songs downloaded, physical purchases increased by 0.44 CDs).  It is important to note that the study concluded that, when incorporating the Canadian population as a whole (i.e., including the group who participate in P2P file sharing along with those who do not), file sharing on P2P networks has neither a positive nor a negative impact on CD sales.

One fact in the report I found very intriguing is its conclusion that the owners of MP3 players are less likely to purchase physical product.  This is interesting, in my mind, because I believe it is connected to the popularity of the iPod and iTunes.  If a person purchases the iPod and uses iTunes, there is really no need to buy physical product, whereas when a person uses a different brand of MP3 player, he or she is, in my humble opinion, more likely to go out in search of alternative means of finding music, including purchasing CD’s.  I would like to see a study which compares iPod owners with owners of third party MP3 players.  It may turn out that the biggest culprit in the demise of the record industry is Apple!

One story I found really revealing is the Rolling Stones article on The Record Industry’s Decline.  In it, the author tells the story about how the major labels were unable to come to a settlement with Napster which would have given them immediate access to Napster’s 38 million users.  I don’t know the details of that meeting, but it seems to me that when the industry burst that bubble, those 38 million users disbursed into millions of subgroups on P2P networks so varied that it become virtually impossible to get the magic back.  Hindsight is, of course, always better than foresight, but this event certainly seems to me to one of the biggest turning points in our industry’s history.

Is the music industry going to survive.  Of course!  It will certainly not be in the form many traditionalists in the industry wish it to be.  CD’s eventually be ancient relics of the past, sought after by collectors much as jazz lovers currently seek out old vinyls and record players.  The radio industry will not have control over marketing and thus the role of radio consultants on the industry will be diminished.  Marketing efforst will shift to television outlets and Internet marketing.  Search engines and online communities will continue to surface new music and expose the long tail.  Major labels will no be the sole repository of the major talent, as independents will rise to fill the void, fueled by venture capital from investors.  Whatever happens, it going to be an interesting ride!

Some further reading:

The Freakonomics of Music

File Sharing:  Zero Effect on Downloads

The Record Industry’s Decline

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