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Fair Use or Copyright Violation? WAVE0117 3/30/01 Which view is correct? Hollywood, in the form of music and movie companies, collectively seek to protect the value of the products created by musicians and producers. Hollywood, in the form of music and movie companies, is the ultimate expression of greed, interested in only its own self- preservation and not the public, which is its customer. Consumers only want reasonable opportunities to listen to music and video in their own homes. Consumers will take every opportunity to steal artistic property, pass it around and ignore any concept of property rights. It may be hard to believe but the role of consumers under each view is embodied in a law under the concept of fair use - yet, few principles invoke such strong responses. Early in the Internet era, circa 1997+, the prevailing view was that digital media would fundamentally change the relationship between consumers and media. Copies would be everywhere and fair use would be dramatically extended. Then digital Rights Management (DRM), water marking, public keys, peer to peer and other technologies entered to make boundaries all the more difficult to establish. Now, with the legal defeat of Napster the ground has shifted again. No matter where the fair use line is drawn in the sand it will have major economic consequences. At the CES show in January we began to follow the movie and recording industry's challenges to the principle of fair use, which allows consumers to make personal copies of copyrighted materials. Since that time, Gary Shapiro, President and CEO of the Consumer Electronics Association (CEA) has voiced concerns that the future growth of consumer electronics could be impacted if consumer fair use is terminated. Consumers are left somewhere in the middle, with some voicing concern over copyrighted works and artist compensation and others increasing their file downloads from their homes/offices in expectation of Napster's demise. In order to better understand the issue we will outline copyright and fair use principles and summarize the events of a conference, the Digital Download, sponsored by the CEA, to discuss these issues. Background The Digital Millennium Copyright Act was signed into law by President Clinton in October 1998. The legislation includes five titles, two 1996 World Intellectual Property Organization (WIPO) treaties and a number of copyright-related issues. The specific titles are as follows: Title I, WIPO Copyright and Performance and Phonograms Treaties Implementation Act of 1998 (the WIPO treaties were an attempt to encourage countries around the world to develop similar protection and laws for intellectual property). Title II, the Online Copyright Infringement Liability Limitation Act - sets limitations on the liability of ISPs for copyright infringement when engaging in activities Title III, the Computer Maintenance Competition Assurance Act - allows computer programs to be copied for purposes of maintenance and repair Title IV, contains six miscellaneous provisions relating to functions of the Copyright office, distance education, exceptions in the act for libraries, Webcasting of sound recordings on the Internet and bargaining agreement obligations in the case of transfers of rights in motion pictures. Title V, the Vessel Hull Design Protection Act - creates protection for the design of vessel hulls Title IV is of the most interest in this case, because it addresses fair use conditions for institutions such as libraries and educational institutions, reverse engineering and encryption research, the protection of minors and for personal privacy and security testing use. This title was purposely developed with broad policies to allow for individual interpretation. Since the enactment of DMCA, much has happened - most importantly Napster has revolutionized media sharing capabilities and transformed the media industry indefinitely. This has initiated a debate that has grown to encompass the entertainment and consumer electronics industries, consumers and the US Government. Napster Court Decision In the latest episode of Napster versus the RIAA (Recording Industry Association of America), a three-judge panel of the 9th Circuit Court of Appeals in San Francisco refused to grant the record industry's request to shut Napster down completely. The court ruled instead that Napster must remove any copyrighted material that had previously been available. Since that time, Napster has begun blocking user access to an estimated 2 million copyrighted files, but users of the service say, although it is more complicated, files can still be found and downloaded. The company had previously offered a five-year $1 billion deal to recording companies for the right to use their music, but the industry did not agree to the deal. The outcome of this battle will define how other media - books and video files - will be distributed over the Internet - and opinions differ by industry and individual. As we reported in our "2001 Global Internet Summit" article, (WAVE 0115) Jonathon Sacks, President of AOL Interactive believes that these policy and legal efforts surrounding MP3 copyright have only gated legitimate standards groups, while fueling Napster with free marketing and therefore increased subscribership. This may be true - according to Reuters, since first lawsuit was filed by the RIAA in December 1999 the number of Napster users has exploded to more than 60 million. A pro-Napster argument is presented in an online article authored by Michael Boldrin, Professor of Economics at the University of Minnesota and David Levine, Armen Alchian Professor of Economic Theory at UCLA (http://levine.sscnet.ucla.edu/general/intellectual/napster.htm). These professors posit that the record industry's argument is not over the right to sell products, because no one uses Napster to steal CDs, but rather over the ability to regulate the future use of products by those who purchase them. In Napster's case, no one has accused users of stealing the CDs, just making them available to others. They liken this situation to buying a car or CD - which you can loan, sell or give to someone and become a direct competitor to the original manufacturer. The RIAA has argued that consumers should not have the right to resell the music because, by breaking their supplier monopoly, creative incentive to new artists is degraded. Boldrin and Levine conclude that, "What is at issue, then, is not "theft", but rather the legal protection of a monopoly...if the monopolist has to compete with his own past customers then his ability to extract money from his new customers is reduced." On the other hand, US House Representative Billy Tauzin, although amazed and impressed with Shawn Fanning's technological abilities, believes that Napster was, "engaging in a business plan that financially benefited at the expense of copyrighted works," and therefore the courts had no choice but to limit their services. Tauzin and the US government are becoming increasingly involved in this debate, as seen below. Congressional Action On September 25, 2000, House member Rick Boucher introduced the Music Owner's Listening Rights Act of 2000, which would allow consumers to store their own legitimately purchased music on an Internet site for access anytime, anywhere. Boucher followed that act by criticizing the decision of the Librarian of Congress in their work to define fair use policies for the DMCA, stating, "This disappointing decision has moved our Nation one step closer to a 'pay-per-use' society..." and expressed little doubt that the 107th Congress would consider revisions to the Copyright Act to preserve the consumers' rights of media usage. Since then Boucher has voiced his intent to introduce several bills that would ensure digital home recording rights and the fair use of copyrighted works for institutions such as schools, libraries and students. Tauzin has also been vocal in this debate, voicing concern that intellectual property legislation might hurt consumers' rights. Speaking at the Digital Download Conference Tauzin suggested that a balance was needed, and that the recording industry would have to find a way to live "harmoniously" with new technology and applauded the CEA's work to balance the copyright holder's rights with the consumers. Not everyone is in agreement. On February 14th of this year, Senator Orrin Hatch and Senator Leahy released a joint High Technology and Intellectual Property agenda that would include, among other things, a discussion of how the copyright system should apply to the Internet - with the intent of strengthening copyright protection. Consumer electronics and independent industry groups have also begun to work on technology solutions including the 5C protection, SDMI and watermarking, but whether they will be compatible with government or Hollywood standards or accepted in the industry is unclear. An inherent risk in each of these is the ability to alienate consumers by making the protection too restrictive. Cary Sherman, Executive Senior Vice President and General Counsel, RIAA believes that the goal should be to dissuade people from violation instead of restrict their abilities. Referring to the current state of the market - industry initiatives, Napster in the courts and legislation beginning to take shape in the government, Representative Tauzin said it well, "This is just the beginning of the battle as we see it." View of the CEA - Digital Download Conference The Consumer Electronics Association recently held a one-day conference, entitled "The Digital Download: Public Access to Content in a Digital World" to hold discussions on the "proper balance between home recording and fair use rights, intellectual property and new technologies..." CEA President and CEO Gary Shapiro began the conference making it clear that he condemns piracy but at the same time believes that consumers right to "time shift, place shift, resell and lend content they have legitimate access to, must be preserved." He cited a study conducted in February 2001 by eBrain (a service of the Consumer Electronics Association) that found that although very few people are currently paying to download digital content, many were neutral or willing to accept some form of payment in the future. Specifically, about 48% of the respondents were either neutral or in support of some type of payment system. The study showed that opposition was highest regarding information, reports and pictures and lowest for computing software and electronic books. Interestingly enough, the items facing the least opposition to payment, computing software and electronic books, are also the items that are most frequently paid for today. The CEA believes that this suggests willingness to pay will increase as people become familiar with having to pay. Frequency of Paying to Download Content* *Among online adults who HAVE downloaded each type of content Opinions about Charging Fees to Download Content from the Internet* Overall and MP3 File Users Support 24% and 20% *Don't know responses not shown The study polled 1,815 online US adults. During the course of the conference, representatives from the movie and recording industries voice their opinions on Napster, copyright protection and legislation. At a panel entitled Digital Freedom vs. Digital Restraint, Fritz Attaway, Executive Vice President, Government Affairs of the Motion Picture Association of America, stated his belief that the sheer enormity of works being downloaded has had a monetary affect on copyright holders already. According to the Motion Picture Association, in 1999 there were 150,000 unauthorized movie downloads per day. They estimate that this has grown to 350,000-400,000 today and will increase to over 1 million by the end of the year. He argued that this did not constitute fair use, which was meant for education and institutional use of portions of works - not entire works on this large of a scale. Hillary Rosen, President and CEO of the RIAA (not in attendance at the conference) contends on the other hand, that this, "is not a matter of profits and losses...but rather one of defending the creative community's right to do with their property how they wish. And what they wish...is to meet consumer demand and bring music to the Internet." She argues that not only profits but incentives to create are harmed by these services. On the other side of the debate, Jonathan Potter, Executive Director, Digital Media Association, argued that his organization has dozens of members waiting for licenses for secure music download and Web casting solutions that are not getting licensed because of the music industry's fear of loss of control. "Therefore the unlicensed guy [Napster] has won." In an argument similar to AOL Interactive's, Potter contends that by focusing only on control, the industry has created a market vacuum in which consumers flee to the available solution (unlicensed) - because there is no other choice. Chuck D, artist and Internet music advocate for Rapstation.com, compared the recording industry's claims of copyright protection to a "baby shield" - in order to protect their own controlling interests (while financing their own executives and lawyers with heightened salaries, houses in Bel Air...). "For the first time the public...has control over the technology a little more than the industry itself" and they are fighting to get it back. Consumer Impact There are really two scenarios. One, a scenario similar to the current Napster environment - where, representing a very liberal interpretation of fair use, there is free use of media content (which the media industries are challenging). Within this scenario, individuals like Shawn Fanning would be encouraged to create new technology solutions, which would include copyright protection along with innovative consumer services. This could enable real, full-scale video-on-demand offering hundreds of movies for anytime viewing, pre-purchase samples of music online, similar to music stores, music, video and image file rental for a limited time period with copying restrictions and the ability to move content within a household/personal space to various devices. In another scenario the media industry could restrict personal use and gate legitimate attempts at new technologies to protect their monopoly. This represents a very strict interpretation of fair use and one that Hollywood could implement quite simply with digital rights management and copy protection. Consumers would be restricted in their ability to watch or listen to content and would not be allowed to transfer content to another media source. In this situation consumers could: A) buy music and videos from a traditional source
- and then remain limited in their use of this media or B) use technologies like Napster to freely distribute music without full permission (if Hollywood does not shut this type of service down completely) Manus Cooney, Vice President of Corporate and Public Policy at Napster thinks that imposing this paradigm, where established media have complete and final control of online distribution will hurt consumers. Luckily Congressmen Rick Boucher and Billy Tauzin, the CEA and Gary Shapiro and others within the industry agree - and are willing to work towards a better solution that offers a balance between the two. In summary, the potential of fair use is now an open issue. http://www.ce.org |
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