Market Failure and Piracy

The historical popularity of file sharing owes as much to access as to price. Back around the turn of the century when musical lovers were clamoring for the ability to buy legal downloads, but didn’t have a way to do that easier than piracy until Apple opened the iTunes store?
Dan Messer, Not All Bits, Warner Bros. Locking Down Harry Potter and Screwing Themselves “Hey, they tried to give someone, anyone, some money for this product and they were denied a legal avenue to do so at every turn. So, right or wrong, ethical or not, they acted upon the wantingness, the desire, created by Disney, and then removed Disney from the equation. Then they went out and gave that money to someone who would sell them some popcorn to snack on while watching the movie.”
All else equal, music, TV and film buyers don’t mind spending money on media when they know that it will be convenient and high quality. The hassles and risks of file sharing make sense when the paid alternative is both more difficult and more expensive or simply does not exist at all.

Value-Added Piracy

NPR reports on the Chinese groups using P2P to distribute subtitled versions of American TV shows: Chinese Fans Follow American TV Online – for Free: “Han says they can download untranslated versions of the American shows from the peer-to-peer file-sharing site BitTorrent as soon as 10 minutes after new episodes air in the U.S. Then they find closed-captioned scripts in English; those also turn up online shortly after the show airs. The captioned scripts are the raw material. Han says they take those scripts and turn them into creative Chinese translations.”
Previously: Perestroika by Piracy

Challenges in Monitoring Infringement on P2P Networks

Michael Piatek, Tadayoshi Kohno, Arvind Krishnamurthy, Challenges and Directions for Monitoring P2P File Sharing Networks or Why My Printer Received a DMCA Takedown Notice: “The focus of this paper is to examine the tension between P2P users and enforcement agencies and the challenges raised by an escalating arms race between them. We ground this work in an experimental analysis of the methods by which copyright holders currently monitor the BitTorrent file sharing network. Our work is based on measurements of tens of thousands of BitTorrent objects. A unique feature of our approach is that we intentionally try to receive DMCA takedown notices, and we use these notices to drive our analysis.”
Freedom to Tinker: Study Shows DMCA Takedowns Based on Inconclusive Evidence: “The existence of erroneous takedowns is not news — anybody who has seen the current system operating knows that some notices are just wrong, for example referring to unused IP addresses. Somewhat more interesting is the result that it is pretty easy to ‘frame’ somebody so they get takedown notices despite doing nothing wrong. Given this, it would be a mistake to infer a pattern of infringement based solely on the existence of takedown notices. More evidence should be required before imposing punishment.”
Catherine Rampell, Chronicle of Higher Education: How It Does It: The RIAA Explains How It Catches Alleged Music Pirates: “Here’s how the process works: The RIAA maintains a list of songs whose distribution rights are owned by the RIAA’s member organizations. It has given that list to Media Sentry, a company it hired to search for online pirates. That company runs copies of the LimeWire program and performs searches for those copyrighted song titles, one by one, to see if any are being offered by people whose computers are connected to the LimeWire network. For popular songs, the search can turn up dozens, if not hundreds, of hits. A search on Madonna’s latest release, ‘4 Minutes,’ turned up more than a hundred users trading various copies of the song.”

The Generational Divide in Copyright Morality

David Pogue speaks at a college and finds out that kids today don’t believe that creative works fixed in a tangible electronic medium have any value: The Generational Divide in Copyright Morality:

“The exercise is intended, of course, to illustrate how many shades of wrongness there are, and how many different opinions. Almost always, there’s a lot of murmuring, raised eyebrows and chuckling.
Recently, however, I spoke at a college. It was the first time I’d ever addressed an audience of 100 percent young people. And the demonstration bombed.
In an auditorium of 500, no matter how far my questions went down that garden path, maybe two hands went up. I just could not find a spot on the spectrum that would trigger these kids’ morality alarm. They listened to each example, looking at me like I was nuts.”

Educating fair use

Brett Frischmann: Taking Back Educational Fair Use: “Educational fair use is shrinking. By virtue of significant improvements in the administration of copyright licensing and persistent pressure by publishers and copyright owners to license virtually all uses of works, many educators have been corralled into seeking permission and paying for licenses through institutions such as the Copyright Clearance Center. To make matters worse, there is a circular feedback loop in fair use analysis that ties fair use to market effects (or market failure) such that the availability of licensing revenues undercuts arguments for fair use and gradually leads to its demise.”
Previously: Thoughts on Fair Use

Labels v. LimeWire

Major record labels filed a law suit in the Southern District of NY against P2P file sharing company LimeWire: Arista Records LLC v. LimeWire LLC, 06-CV-5936.

“he very design and promotion of LimeWire show that Defendants know (actually as well as constructively) of the massive infringement of Plaintiffs’ copyrights occurring via LimeWire. Defendants’ knowledge and intent are apparant in other respects as well. For example, Defendants make it easy for a user to donload and install LimeWire even after indicating that he/she ‘intend[s] to use LimeWire for copyright infringement.’ Following a perfunctory refusal by Defendant’s web site, the user simply navigates back to the prior page, changes his/her answer, and is allowed to continue with the download.

The complaint establishes 5 theories of liability:

  1. Inducement of Copyright Infringement

    Defendants have induced and continue to induce infringement by, for example, aiming to satisfy a known source of demand for copyright infringement, including the market comprising users of other infringing services that were shut down or compelled to block access to Plaintiffs’ copyrighted works, such as Napster, Grokster, and Kazaa.

  2. Contributory Copyright Infringement

    Defendants are liable as contributory infringers for the copyright infringement committed via LimeWire software and services. Defendants have knowledge of the massive infringement that has occurred and continues to occur through LimeWire, and Defendants have caused, enabled, facilitated, and materially contributed to that infringement.

  3. Vicarious Copyright Infringement
  4. Defendants are liable as vicarious infringers for the copyright infringement committed via LimeWire software and services. At all times relevant to this action, Defendants (i) have had the right and ability to control and/or supervise the infringing conduct of LimeWire users, and (ii) have had a direct financial interest in, and derived substantial financial benefit from, the infringements of Plaintiffs’ copyrighted sound recordings via LimeWire.

  5. Common Law Copyright Infringement of Pre-1972 Recordings
  6. Unfair Competition as to Pre-1972 Recordings

William Patry, The Patry Copyright Blog: RIAA v. LimeWire:

We are in a new era and this complaint reflects that era.
I happen to think the new era sucks, but it is here and we had best come to grips with it. The LimeWire case is likely to provide the inducement for that waking up. Aside from what I regard as the Supreme Court’s insitutional irresponsibility, my objection to the Grokster opinion (which is not a defense of Grokster the company), is that it only added to the conceptual morass begun with Sony by creating a new, third category of third-party liability, and without any perceived need for it by the parties, Congress, or anyone else. It was, I believe, merely a way to paper over the court’s inability to do the job it took upon itself: determine how to apply Sony to the Internet. When the Court shirked that responsbility, it apparently felt it too had to something to show it was tough on pirates (you’re not alone Mr. Attorney General!), hence the inducement theory.

In 2005, Music Went Digital

The RIAA released year-end statistics for the US recorded music market. The NY Times reports: Music Industry’s Sales Post Their Sixth Year of Decline: “In the United States, overall shipments of music products, including CD’s and digital albums and singles combined, fell 3.9 percent last year.”
According to the RIAA, physical unit sales dropped by 8% from 2004 and revenues from those sales dropped by 7.9%. In contrast, digital sales increased by 166.2% in terms of unit sales and 174.5% in revenue. The overall net effect was that total unit sales grew by 35.9% from 2004 and revenues declined by six tenths of one percent.
At The Long Tail blog, Chris Anderson discusses the effect of the digital distribution market (and uses snazzy charts): Music Industry: Is digital making up the difference?: “In revenue terms the industry did about as well last year as it did before, and it’s worth noting that the margins on digital distribution are considerably higher because there are no physical goods to manufacture and ship. So 2005 may have been more profitable than 2004 (it certainly was for Warner Music Group). Who knew?”
For the entire world, IFPI also released its 2005 year-end report: Digital formats continue to drive the global music market “Record company trade revenues from digital sales globally nearly tripled in value, from $400 million to $US 1.1 billion in 2005. The total number of digital single tracks downloaded online or to mobile phones rose to 470 million units, up from 160 million in 2004. The US, Japan, UK, Germany and France are the top five digital markets. In general, countries with a greater percentage of digital sales are the strongest markets for music sales overall.”
The Silicon Valley Media Law Blog reports that PROs ASCAP and BMI also saw significant growth in new media revenue: PROs see leap in new media revenues: “Public performance rights organizations saw marked increases in new media revenues in 2005, according to their reported financial results.”
Pitchfork interviewed attorney Steve Gordon about file sharing, copyright law, the record industry and PROs: Live at the Witch Trials: “I think the culture of the labels have been unable to adapt to the impact that new technology, particularly the web, has had on the recorded music. The labels, for many years, combined two basic characters– Ivy League-trained lawyers and savvy music business types with “ears.” Sometimes one executive was both– Clive Davis, for instance. But the one culture that was never present were techies. They are there now. But they do not call the shots. The Sony DRM debacle shows they still have no clue.”

Studying P2P Studies

Rufus Pollock evaluates 5 empirical studies of P2P file sharing and its effect on music purchasing: P2P, Online File-Sharing, and the Music Industry: “The basic result is that online illegal file-sharing does have a negative impact on traditional sales. The size of this effect is debated, and ranges from 0 to 100% of the sales decline in recent years, but a figure of between 20 and 40% would be a reasonable consensus value (i.e. that file-sharing accounted for 20-40% of the decline in sales not a 20-40% decline in sales).”

Protecting Copyright and Innovation in a Post-Grokster World

On Wednesday, the full Senate Judiciary Committee held hearings on “Protecting Copyright and Innovation in a Post-Grokster World,” with testimony from:

  • The Honorable Mary Beth Peters, U.S. Register of Copyrights, Copyright Office, Washington, D.C.
  • The Honorable Debra Wong Yang , U.S. Attorney for the Central District of California , and Chair of the Attorney General’s Advisory Committee , on Cyber/Intellectual Property Subcommittee , Los Angeles, CA
  • Marty Roe, Lead Singer, Diamond Rio, Nashville, TN
  • Cary Sherman, President, Recording Industry Association of America, Washington, D.C.
  • Gary Shapiro, President and Chief Executive Officer, Consumer Electronics Association, Arlington, VA
  • Mark Lemley, William H. Neukom Professor of Law, Stanford University Law School, and Director, Stanford Program in Law, Science and Technology, Stanford, CA
  • Ali Aydar, Chief Operating Officer, SNOCAP, San Francisco, CA
  • Sam Yagan, President, MetaMachine, Inc. (developer of eDonkey and Overnet), New York, New York

Details about the testimony continue after the jump…


Grokking the ‘ster

Cathy Kirkman finds two recent decisions– one patent, the other copyright– citing Grokster: Grokster cited in patent inducement case. The Federal Circuit cites Grokster for the proposition that “Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe.”
In Monotype Imaging v. Bitstream, Inc. (N.D.Ill. Jul. 12, 2005), the district court found no evidence for inducement in “contributory infringement claims over software that replicates typeface fonts.”
As we are still trying to figure out what the effects of Grokster will turn out to be, the analysis is in full effect.
Lawrence Lessig, Wired Magazine: A Rotten Ruling: “Pundits bathed the Court in praise for its “sensible balance” between the demands of Hollywood and the pleas of technologists. The pundits are idiots. The Grokster case revealed the worst in Supreme Court ivory towerism.”
Oxford Analytica, Grokster Decision Has Limited Impact: “Strong consumer demand for fee-free file swapping, the difficulty of pursuing legal judgements against individual infringers and the lack of a stable technological solution means file swapping will continue to grow. Restructuring to reduce or eliminate intermediaries in the current business model for content distribution appears inevitable.”
The Congressional Internet Caucus held a session on July 19, Interpreting Grokster: Protecting Copyright in the the Age of Peer-to-Peer with Andrew Greenberg (Carlton Fields), Don Verrilli (Jenner & Block) and Fred von Lohmann (Electronic Frontier Foundation). Streaming video and downloadable audio are available.