Aereo, Scareo: the #IPnerdvigil Ends in Disappointment

Today, the United States Supreme Court handed down its highly anticipated opinion in ABC v. Aereo. The decision reverses the Second Circuit’s ruling, which had held that Aereo’s transmissions constitute private performances in line with its previous holding in Cartoon Network LP, LLLP v. CSC Holdings, Inc. (“Cablevision”). In addition to being the wrong outcome, this opinion leaves much to be desired.

The primary thing missing from the Court’s opinion is an applicable standard. The Court relied so heavily on the fact that Aereo looks like a cable service and the historic battle over broadcast programming retransmission that it completely failed to give any guidance to future actors. This has the unfortunate result of chilling future innovation, as the risk of litigation has just substantially increased.

The Court did not explicitly touch the Second Circuit’s opinion in Cablevision, but it appears as though today’s opinion effectively eviscerates the long-relied upon rule. As the Computer & Communications Industry Association pointed out in their amicus brief, the Cablevision decision had created certainty in the industry that led to approximately a billion dollars of additional incremental investment in the American cloud computing industry over two and a half years, which some have estimated is the equivalent of “$2 to $5 billion in traditional R&D investment.”

Perhaps the most offensive part of the Court’s ruling is the assertion that technological distinctions don’t matter.Screen Shot 2014-06-25 at 10.42.26 AMThe very essence of the inquiry the Court was faced with was a technological question: does Aereo transmit anything and, if so, to whom do they transmit? To say that it is feasible to answer this question without exploring the technological distinctions is naive at best. The transmissions at issue here are the result of a complicated technological process, and determining the recipients of a given transmission requires a thorough investigation into the inner workings of the technology at issue.

One of the more perplexing parts of the opinion is the Court’s assertion that Aereo’s viewers have no pre-existing relationship to the content.
Screen Shot 2014-06-25 at 5.28.09 PMSetting aside the unfortunate fact that the valet parking analogy raised at oral arguments actually made it into the opinion, this section raises a puzzling conflict with the Court’s prior precedent in Sony Corp. of America v. Universal City Studios (the Betamax case). While in Sony this discussion arose in a different legal and factual context (a fair use analysis of private time-shifting), it was still significant that this was content the public was freely invited to view.
Screen Shot 2014-06-25 at 2.31.54 PMOur communications law is premised on the fundamental principle that the spectrum licensed to broadcasters belongs to the public, for their benefit. In return for the license, broadcasters are obligated to provide, among other things, free, over-the-air programming. How is it possible then, as the Court suggests, that the viewing public has no pre-existing relationship to this content? Answer: it’s not. By virtue of its status as content transmitted over the publicly owned airwaves, all viewers have a pre-existing relationship to the content.

The Court’s attempts to allay concerns about the impacts of this ruling beyond Aereo-like services are similarly unconvincing. The Court’s adoption of an “it’s not going to be a problem because we say it won’t” approach is troublesome and does little to shelter existing and future actors from being sued out of existence. The Court’s discussion does little to distinguish Aereo from other services, such as cloud storage lockers, beyond stating that they “have not considered” the issue.
Screen Shot 2014-06-25 at 3.41.28 PMAdditionally, as Ali Sternburg points out, the Court’s pointing to fair use as a possible means to salvage some part of Aereo’s service does little to minimize the blow, because “services should only have to rely on that doctrine when they are actually infringing copyright.”

Overall, the opinion reads like the Court simply couldn’t get past the bad feeling they had about Aereo in trying to “circumvent” the law, as Chief Justice Roberts noted at oral arguments.
Screen Shot 2014-06-25 at 3.54.48 PMWhile Aereo may feel wrong to the Justices, this opinion sure feels wrong to many of us who have been following this case closely. This decision is lacking in clarity and does little more than create confusion moving forward.

Hopefully, this won’t chill innovation for web-based services for years to come. But, as with everything, there are no guarantees. The Court does note that parties are free to seek Congressional intervention, and Aereo CEO Chet Kanojia hinted that he may be ready to take up that fight.

*Many thanks to Ali Sternburg for all of her help editing this post and inspiring the title!

Reflections on the Second Circuit’s Decision in Authors Guild v. HathiTrust

This morning, the Second Circuit Court of Appeals released its long awaited opinion in Authors Guild, Inc. v. HathiTrust. The Second Circuit toned down the rhetoric of Judge Baer’s opinion for the district court while affirming its ultimate holding: that creating a full-text searchable database of copyrighted works and providing those works in accessible formats to the print disabled is fair use. The opinion fully embraces contextual transformations (transformations that do not physically alter a work, but instead serve a new and different purpose) as clearly eligible for fair use. Additionally, it makes clear that the heart of the fourth factor analysis, the effect of the use upon the potential market for or value of the copyrighted work, is whether the use serves as a market substitution for the original. However, there are a few points that are worth exploring in more detail, excerpted and discussed below.

Contrary to what the district court implied, a use does not become transformative by making an “invaluable contribution to the progress of science and cultivation of the arts.” HathiTrust, 902 F. Supp. 2d at 464. Added value or utility is not the test: a transformative work is one that serves a new and different function from the original work and is not a substitute for it.

On its face, this reads like it narrows the definition of what constitutes a transformative use from that which adds value or utility to that which serves a new and different function from the original and is not a substitute. However, upon re-reading the quoted section of the opinion below, it appears as though the Second Circuit merely took Judge Baer’s words out of context. Baer, in balancing the fair use factors in this case, was simply characterizing the HathiTrust Digital Library (HDL) as an “invaluable contribution,” not suggesting that this was the test for transformativeness. Indeed, the test the Second Circuit articulates is in no tension with Judge Baer’s analysis. However, the Second Circuit’s seeming misquotation may be used by litigants in the future to argue for a narrower application of fair use. Hopefully judges in future cases will see through this seeming discrepancy and decline to narrow the scope of what constitutes a transformative use.

[T]he fourth factor requires us to assess the impact of the use on the traditional market for copyrighted work. This is the “single most important element of fair use.” Harper & Row, 471 U.S. at 566. To defeat a claim of fair use, the copyright holder must point to market harm that results because the secondary use serves as a substitute for the original work.

While the fourth factor used to be the most important element of fair use, it has become less relevant since the Supreme Court’s decision in Campbell v. Acuff-Rose Music, Inc., particularly where the use is transformative. It is odd that the Second Circuit elevated the fourth factor here, especially given the transformative nature of the use at issue. While the role of the fourth factor may be more significant in cases where the use is not transformative (as compared to where it is transformative), it seems strange to say the fourth factor is ever more important than the first.

Importantly, as we have seen, the HDL does not allow users to view any portion of the books they are searching. Consequently, in providing this service, the HDL does not add into circulation any new, human-readable copies of any books.

While it is certainly true that the HDL does not allow users to view any portion of the books they are searching, relying heavily (or perhaps exclusively) on that fact spells trouble for future cases (notably the Guild’s case against Google for its Google Books project, where users are shown small snippets of the works). However, the second sentence may provide some safety for future users: if the test is whether the use puts new copies into circulation, presumably it would be permissible to show snippets since there are no human-readable full (or nearly full) copies put into circulation. This is still a dangerous test and risks the creation of a bright-line rule, which runs contrary to the purposes underlying fair use.

[I]t is irrelevant that the Libraries might be willing to purchase licenses in order to engage in this transformative use (if the use were deemed unfair). Lost licensing revenue counts under Factor Four only when the use serves as a substitute for the original and the full-text search use does not.

This strong, clear statement that lost potential licensing revenue is insufficient for a finding of market harm is both highly needed and critically important. The Second Circuit here acknowledges that the fact that you may be able to get a license doesn’t mean you should have to. Hopefully this will help counter the notion that if a use is proper “you can just get a license,” a popular sentiment expressed numerous times by the content industry, and slow the spread of the permission culture that appears to be taking hold.

First Sale Hearing Recap

Yesterday, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet held the latest in its series of hearings as a part of its comprehensive review of our copyright laws. The hearing, “First Sale Under Title 17,” was held at the United States District Court for the Southern District of New York in New York City. Making the trip were six members of the Committee: Judiciary Committee Chairman Bob Goodlatte (R-VA), Ranking Member Jerry Nadler (D-NY), Rep. Jason Chaffetz (R-UT), Rep. George Holding (R-NC), Rep. Hakeem Jeffries (D-NY), and Rep. Ted Deutch (D-FL). There were two primary issues discussed in the hearing: the impact of the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc. and the applicability of the first sale doctrine in the digital context.

Stephen Smith, President and CEO of John Wiley & Sons, Inc., said in his opening statement that the Kirtsaeng decision has undermined their copyright enforcement efforts while failing to result in any benefits for U.S. pricing. Additionally, he argued that the decision hurt the export market and devalued content. When asked if Wiley was seeking a legislative “fix” in response to the decision, Smith hinted that Wiley would be asking Congress to revisit the issue. However, Greg Cram, Associate Director of Copyright and Information Policy for the New York Public Library, noted that the Second Circuit’s decision in Kirtsaeng, reversed by the Supreme Court, opened libraries up to massive potential liability for copyright infringement. Cram also noted that a new rule that would only penalize permissionless initial importation of copyrighted works could still potentially expose libraries to liability, as libraries import works to add to their collections. Jonathan Band, representing the Owners’ Rights Initiative, added that the Supreme Court’s decision in Kirtsaeng is consistent with consumer’s expectations.

A large portion of the conversation regarding digital first sale was in the context of distinguishing sales from licenses. Band, Professor John Villasenor, and John Ossenmacher, CEO of ReDigi, told the Subcommittee that consumers reasonably expect that they own their digital content. Emery Simon, Counselor to BSA | The Software Alliance, disagreed, saying that consumers have long understood that when they purchase software, they’re only getting a license. He added that changing first sale would confuse consumers and undermine licensing models. Simon suggested that the notion of “buying” something is fanciful, comparing a copyright license to an Amtrak ticket. He noted that when you buy an Amtrak ticket, you know you’re not buying the actual physical seat, but rather the right to sit in that seat on the assigned train for the duration of the trip. He said that consumers understand this difference in the ticketing context, and do in the licensing context as well.

As Villasenor noted, licensing-based models are continuing to become more common, and few digital copies are being distributed using sales that confer ownership. However, he cautioned that this lack of ownership option isn’t a problem for consumers, but rather the problem is that consumers aren’t aware that they are only buying a license. He suggested that market forces should be sufficient on their own to bring about a broader offering of purchase options if consumers desire them. Sherwin Siy, Vice President of Legal Affairs at Public Knowledge, disagreed, noting that these licenses are so complex that consumers alone cannot affect the market. He reminded that in some cases, consumers don’t see the contracts until well after they have made their purchasing decisions, for example when installing a piece of software. In addition to concerns about licenses misleading consumers, Cram noted that Congress should consider whether to prohibit the enforcement of contractual limits on copyright exceptions. Adding a restriction on waiver of rights such as first sale or fair use would not be unprecedented; Congress did this in Section 203(a)(5) of the Copyright Act as well as in many other areas of law.

Rep. Deutch expressed concern that there is a “piracy problem,” and was unsure if extending first sale to digital copies would exacerbate it. Ed Shems, a self-employed graphic designer with 23 years of experience in the field, argued that a digital first sale right would make infringement harder to police, and may increase it. Matthew Glotzer, testifying on his own behalf as someone who has spent more than twenty years working in content companies, noted that the costs of distribution have been substantially decreased or eliminated in the Internet age, making transferring of files “too efficient” for the first sale right to apply. However, Ossenmacher disagreed, calling the increased speed of delivery made possible online a “red herring” in copyright discussions. Ossenmacher suggested that instead, a simple solution to piracy is to give value to digital goods by allowing first sale. He added that consumers lose billions in value annually because they are unable to resell their digital goods. Perhaps, he argued, if they could realize the value of their content, they wouldn’t be giving it away for free online. Additionally, it’s worth remembering that the first sale doctrine only applies to copies “lawfully made.” Any unlawful copies could not be permissibly transferred under this right, so it is unlikely that there would be a multiplication effect resulting from a digital first sale right.

Members were uneasy about the idea of a digital first sale right, especially without assurances that the seller did not retain the copy after the sale. Ossenmacher explained to members that there are ways to ensure this, such as by allowing transfers of title in copies only held in the cloud. He also noted that in the physical realm, there’s little guarantee that this has happened. For example, the current first sale right encompasses the sale of CDs. However, there is no way to verify that the seller has not ripped a copy to their computer and retained that copy. Rep. Jeffries hinted that he would be open to an approach where deletion could be guaranteed, but expressed concern about the ability to truly delete a copy without a user being able to recover a “ghost” copy. Rep. Holding indicated that he felt a digital first sale right would result in “government mandated” secondary markets, and that there would necessarily involve an element of surveillance that many might feel is too invasive, especially in light of “disclosures.” Simon echoed concerns about the amount of monitoring that already exists, and cautioned against a system that is too invasive.

Overall, the hearing was fairly subdued and predictable compared with previous ones, with the most surprising element being the number of members that showed up. I’m not expecting much to come from this hearing in particular, but look forward to following the Subcommittee’s activities while they continue their review.

Aereo Oral Argument Recap

[Originally posted on the Legislation & Policy Brief Blog on April 22, 2014]

Today, the U.S. Supreme Court heard oral arguments in ABC v. Aereo. As I wrote exactly one year ago, Aereo dynamically assigns individual dime-sized antennas to subscribers so they can stream local market over-the-air broadcast programming. A long series of litigation in multiple circuits led the Supreme Court to grant certiorari in January.

Yours truly spent the night outside One First to attend oral arguments this morning. While making predictions based on oral arguments is always risky, a few common themes emerged.

Perhaps the most important take-away from today’s arguments is the importance of the cloud. While this had been emphasized by multiple amici, including CDT and CCIA (which counts Aereo as a member), the broadcasters and the Solicitor General’s office argued that a holding against Aereo “need not threaten” cloud computing. Paul Clement, arguing on behalf of the broadcasters, asked the Court “not to decide the cloud computing question once and for all today, because not all cloud computing is created equal.” However, the Justices were not convinced. Justices Breyer and Sotomayor expressed concern that the Court’s ruling could have substantial negative effects for the cloud industry.

The Court also appeared unreceptive to the argument that a ruling in favor of Aereo would likely put us in violation of our international agreements. The argument, put forth primarily by the musical and international amici, appeared to gain some traction with Justice Ginsburg, but received very little attention otherwise. When asked, Malcolm Stewart, arguing on behalf of the United States, rejected Justice Ginsburg’s suggestion that Aereo’s view of the public performance right is incompatible with international obligations.

Some other arguments appeared in this morning’s arguments as well. Justice Sotomayor began questioning by asking Clement why Aereo isn’t, and shouldn’t be, considered a “cable system” under Section 111 of the Copyright Act. Additionally, Aereo’s longstanding argument that they are simply a hardware company leasing otherwise lawful equipment out to consumers garnered considerable attention, particularly from Justice Kagan. Interestingly, Chief Justice Roberts posited that Aereo’s “technological model is based solely on circumventing legal prohibitions,” adding that this “is fine. I mean, that’s—you know, lawyers do that.”

Ultimately, it’s uncertain how the Court will decide. The only shred of clarity today’s arguments provided was that the Court is acutely aware of the broad implications their decision will have.

A transcript of today’s arguments is available here.

Garcia and Google Continue to Spar Over “Innocence of Muslims”

[Originally posted on the American University Intellectual Property Brief Blog on April 15, 2014, CC-BY]

The “Innocence of Muslims” saga is far from over.

As Sarah O’Connor wrote last month, the Ninth Circuit issued an order which requires “Google to take down all copies of ‘Innocence of Muslims’ from YouTube and any other platforms within its control and to take all reasonable steps to prevent further uploads.” This order is highly controversial, as it not only goes beyond the scope of the so-called “take down” provisions in Section 512 of the Digital Millennium Copyright Act but also found that actors’ performances, when fixed, meet the minimum requirements to be an independently copyrightable work of authorship.

Since the controversial opinion was handed down in February, this docket has been busy. On February 27, the day after the opinion was released, Google filed an emergency motion asking the court to stay the order pending the disposition of their petition for rehearing en banc. This motion was denied the next day, and the court clarified that the take down order applied only to copies of “Innocence of Muslims” that included Cindy Lee Garcia’s performance.

On March 12, Google filed a petition for rehearing en banc arguing against both the injunction and the court’s finding that Garcia holds a copyright in her performance. Google attached a series of correspondence between Garcia’s counsel and the Copyright Office, in which Robert Kasunic, Associate Register of Copyrights and Director of Registration Policy and Practices, refused registration in Garcia’s claim in her individual performance in the motion picture. Kasunic explained that “[i]f her contribution was neither a work made for hire nor the requisite authorship to warrant a claim in a joint work, Ms. Garcia has no separable claim to copyrightable authorship in her performance.” This petition is still pending before the court.

While this petition was pending, Garcia filed an emergency motion for a finding of contempt. Garcia claimed that Google failed to comply with the take down order because a copy was available on their worldwide platform and thus viewable outside the country. Additionally, Garcia challenged Google’s assertion that compliance with this broad order is difficult. Her motion suggested that “[f]or Google, it is a pedestrian, technical exercise to take down those URLs, to hire an intern to just search for ‘Innocence of Muslims.’” Her motion sought sanctions to the tune of $150,000 per violation, presumably based on the statutory damages provisions in Section 504(c) of the Copyright Act. Garcia also asked that the court find Google in contempt for not deleting the posted videos, claiming that “merely disable[ing]” access to them is insufficient, and that the “snide message” displayed was a sign that Google was “ridiculing” the court’s authority and “thumbing its nose at the Court and making a mockery of our judicial system.”

Needless to say, Google filed a thorough response to the motion. Google’s response points out that Google has worked under “tremendous time pressure to develop a new method . . . to identify and block new uploads,” which is far beyond any legal obligation any online service provider would be under absent this order. Google also notes that Garcia’s assertion that this is a “pedestrian, technical exercise” “reflects a deep lack of technical understanding and vastly underestimates the burdens involved” in complying with such a “sweeping take-down, stay-down order.” Google adds that the one copy of the film Garcia cited in her motion “was identified by YouTube before Garcia brought it to Google’s attention and blocked it before she filed her motion.” Additionally, Google points out that the order doesn’t require that YouTube remove copies, but rather disable access to them, citing Section 512. As Google says, “[r]equiring deletion would turn the preliminary injunction into a de facto permanent injunction by leaving YouTube unable to restore the videos if it ultimately prevails.” In response to assertions that copies of “Innocence of Muslims” can be found via search, Google notes that the order only requires removal of copies of the video from platforms under Google’s control, not links to third-party sites. Google notes that “Garcia’s fundamental complaint appears to be that ‘Innocence of Muslims’ is still on the Internet. But Google and YouTube do not operate the Internet.” On March 31, the court denied Garcia’s motion in a one sentence order.

Hopefully the Ninth Circuit will grant Google’s petition for rehearing later this month. While this case has been amusing to watch, bad facts make for bad law.

Notice-and-Takedown in the Spotlight

[Originally posted on the American University Intellectual Property Brief Blog on March 25, 2014, CC-BY]

This month, Section 512 of the Digital Millennium Copyright Act (DMCA) has been in the spotlight so much that some have branded it DMCA Month.

The operation of Section 512, which creates a safe harbor for online service providers for the infringing activities of their users, has been highly controversial among stakeholders. Service providers are overwhelmed by the sheer number of takedown notices they receive; as of March 23, 2014, Google reports receiving more than 23 million requests in the past month for URL removal from its search engine from over 4,000 copyright owners and nearly 2,000 reporting organizations. Meanwhile, rightsholders lament that they must seek out infringing content and that after allegedly infringing content is taken down, the same content is reposted elsewhere. Others are concerned about the frequency of takedown notice abuse and the failure of rightsholders to consider whether uses are non-infringing before sending takedown notices.

On March 13, 2014 the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet held a hearing on Section 512. The hearing included a heavy focus on the concept of a “notice and staydown” requirement, which is strongly supported by Representatives Judy Chu (D-CA) and Tom Marino (R-PA). However, the technical feasibility and free speech implications of such a system raise serious red flags. As Professor Lawrence Lessig recently reminded the world, not all uses of a copyrighted work are infringing, and many creators support legitimate unlicensed use of their works. In addition, according to at least one study, the recording industry earns more money from fan videos than from official music videos.

As Joel Thayer discussed, Google and Viacom announced in a joint statement on March 18th that they were settling the long-running lawsuit against YouTube. Viacom alleged that YouTube was ineligible for protection under Section 512 because there was knowledge of infringing content being shared on the service. However, the court consistently ruled against Viacom.

On March 20, 2014, the National Telecommunications & Information Administration (NTIA) and the United States Patent and Trademark Office (USPTO) convened the first meeting of the Multistakeholder Forum on the DMCA Notice and Takedown System. This process, which arises out of last summer’s Green Paper on Copyright Policy, Creativity, and Innovation in the Digital Economy, is intended to enable stakeholders to come to a voluntary agreement about improving the operation of the existing process. One of the first issues to be tacked, standardizing notices, is relatively uncontroversial.

While these processes all look to deal with alleged infringement after the fact, none look to eliminate the cause. As I’ve written here before, there are serious questions about the validity of the numbers rightsholders use to demonstrate significant harm to their bottom line. There are also a significant number of more reputable reports stating that the best means to reduce infringement is to offer good legal alternatives to piracy. As Kevin Spacey said: “Give the people what they want. When they want it. At a reasonable price. And they’ll watch it, and they won’t pirate it.”