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Hotfile getting hotter: The cyberlocker site fires back at Warner Bros.

September 16, 2011 Leave a comment

By Nickolas B. Solish

This is a follow-up to “Cyberlocker sites come under the radar of copyright holders,” which ran in the Daily Journal on Aug. 19.

Striking back against its accusers, the file-hosting website Hotfile.com has brought a countersuit against Warner Bros. Entertainment alleging copyright fraud and abuse.  The complaint accuses Warner Bros. of abusing Hotfile’s anti-piracy tool by filing false copyright take-downs notices.  These notices are only to be used for copyrighted files owned by Warner Bros..  Now the Florida-based company is seeking damages from the movie giant.

The complaint comes after an earlier suit this year against Hotfile by the Motion Picture Association of America, an association of five major Hollywood studios.  The suit is based on a larger campaign by the MPAA to attack copyright abuse on cyber-locker sites.  A cyberlocker is an online storage provider that allows users to upload and share files.  Visitors to the site then can download those files for free by clicking a link.

Cyberlocker sites came under the attention of the MPAA due to a spike in traffic since the beginning of 2011.  These sites now receive more traffic than BitTorrent sites, bringing them under scrutiny by the major studios.  Hotfile recently became one of the top 100 visited websites in the world.

Hotfile’s recent suit against Warner Bros. is a counter-claim to the original MPAA action.  The counterclaim accuses Warner Bros. of “repeated, reckless and irresponsible misrepresentations to Hotfile falsely claiming to own copyrights in material from Hotfile.com.”  The complaint goes on to say that Hotfile even told Warner Bros. about these misrepresentations, but even this did not stop the false claims.

To fight copyright abuse, Hotfile provides “special rightsholder accounts” to certain copyright owners.  Warner Bros. had such an account assigned to their manager of anti-piracy Internet operations, Michael Bentkover.  The tool allowed an unlimited amount of file-takedowns by copyright holders, so long as the complainant held the copyright to the file.

Many of the files taken down by Warner Bros. were not files for which they owned copyrights.  Hotfile alleges this was a breach of the special rightsholder account agreement, which provided that when Warner Bros. reported a file, it was asserting “under penalty of perjury that [it is] the owner or an owner or an authorized legal representative of the owner of copyrights.”  Warner Bros. also represented that it had a “good faith belief” that the owner did not authorize use of the file on Hotfile.com.

Warner Bros. is accused of “willful blindness” in its use of the special rightsholder account.  The complaint points out that Warner Bros. searched for a file entitled “The Rite,” which had been uploaded to filesonic.net, not Hotfile.com.  “[B]ecause Warner apparently went to a third party search site looking for links to The Rite, it returned a page containing not only the filesonic link to The Rite but also dozens of seemingly unrelated links to other files at filsonic.com, Hotfile.com and other sites.”  Warner then “used the [special rightsholder account] to delete each of the twenty or so Hotfile links listed on that page even though . . . none appear to have any relationship to The Rite or to Warner.”  Warner Bros. is accused of deleting “hundreds if not thousands” of similar files in this manner.

Interestingly, there is speculation that Warner Bros. had a financial incentive other than preventing infringement for taking these files down.  A deal was proposed by Warner Bros. to replace files removed for infringement with links to purchase Warner-owned content.  If Warner Bros. takes down more files, they create more links to paid content sites.

The three counts Hotfile alleges are violations of the Digital Millennium Copyright Act, intentional interference with a contractual or business relationship, and negligence.  The complaint demands a jury trial and asks for compensation for lost revenues caused by Warner Bros’s actions.  Finally, the complaint asks for a permanent injunction requiring Warner Bros. to individually review every file they request to be taken down.

This suit and the original MPAA suit have the potential to greatly alter the legal landscape for cyberlocker sites on the Internet.  Hotfile’s countersuit will also clarify how much legal recourse websites have against big copyright holders under the DMCA.  A trial date has not yet been set.

Sink or Swim: Can Grooveshark Maneuver the Ocean of Copyright Laws?

By Nick Solish

Imagine using the Internet to listen to any song you wanted to for free.  Now imagine putting those songs into playlists, sharing them with friends, and listening to them from your mobile phone.  This is the concept behind Grooveshark.com, listed in Time Magazine’s “Best Websites of 2010,” a Web site where users can upload music and listen to other users’ musical uploads.

Recently, Google.com removed Grooveshark’s application from the Android mobile store for violating Google’s terms of service.  Google did not mention any specific violation, but has recently courted record labels and copyright holders in anticipation of Google’s new music downloading service.  There was also speculation that record companies pressured Google to remove the application or face legal action.  Apple Inc. similarly removed its iPhone Grooveshark application in August, 2010 after receiving a complaint from Universal Music Group, who is currently in litigation against Grooveshark.

In response to Google’s recent action, Grooveshark’s Senior Vice President of Information Products, Paul Geller, wrote an open letter claiming their operation is entirely legal.  Geller cites Grooveshark’s FAQ page, which states they will honor “take down claims” that fully comply with the Digital Millennium Copyright Act (DMCA) terms and will remove infringing content.  Compliance with DMCA “take down claims,” argues Grooveshark, brings them under the same protection as Youtube.com, who is only required to take down offending videos if a proper “take down claim” is filed and deemed legitimate.

Geller also noted that Grooveshark has secured licenses with thousands of artists and is working to secure licenses with others.  Grooveshark claims to pay copyright holders for sound recordings played through its service.  Furthermore, it has taken down almost two million infringing files and suspended over 20,000 user accounts for copyright infringement.  A 2009 suit with EMI Music, one of the big four record companies, was dropped in favor of a licensing deal; Grooveshark hopes more record companies will follow.

However, it is unclear that compliance with the DMCA is sufficient to make Grooveshark’s operations entirely legal.  Whether its operation is protected by the copyright code may hinge on whether Grooveshark is deemed an interactive service as defined in 17 U.S.C. Section 114(j)(7).  In Arista Records LLC v. LAUNCH Media Inc., 578 F.3d 148 (2d Cir. N.Y. 2009), a consortium of groups led by BMG, the third largest group of record labels, sued Yahoo’s interactive radio service, LaunchCast, under the DMCA.  The DMCA requires an interactive service to pay licensing fees to content owners, whereas a non-interactive service merely has to pay a smaller statutory licensing fee.

The appellate court in Arista Records discussed the definition of an interactive service under the DMCA as a service “enabl[ing] a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient.”  The phrase “specially created” is ambiguous and the court examined Congress’ intent in enacting the 1972 Copyright Act to determine what “specifically created” meant, finding the intent behind the protection of sound recordings was to prevent piracy.  Radio stations were exempted as radio broadcasting was considered free advertising for record companies.

In response to the growth of Internet radio, Congress enacted the Digital Performance Right in Sound Recordings Act (DPSR) in 1995. This gave copyright holders of sound recordings an exclusive, but narrow, right to perform or play sound recordings via digital audio transmission.  This right only extended to performances through paid subscription services and “interactive services.”  These service providers were required to obtain licenses for each sound recording performed, while non-interactive services qualified for the much lower statutory licensing fees set by the Copyright Royalty Board.  The law was partly enacted because it was believed that interactive services would be a greater detriment to record sales than non-interactive services, which more closely mirrored traditional radio.

The Copyright Act defines a service as interactive if it is either specially created for the user or if a user can use the service to find and play a specific song.  The 2nd Circuit determined the LAUNCHcast service would be interactive if a user could request and play a particular sound recording or have a program specially created on request.  LAUNCHcast does not do this, rather, it bases song recommendations on genres a user enjoys and on a song rating scale.  Consequently, the 2nd Circuit deemed it as non-interactive and thus, not responsible for individually licensing performed sound recordings.  Applying this criteria, Grooveshark seems to be an interactive service under the DPSR and the 1972 Copyright Act.  It allows users to play specific sound recordings at their request, meeting the 2nd Circuit’s criteria for an interactive service.  Thus, despite Grooveshark’s compliance with take down notices, it is unclear how this will shield them from liability under the DPSR interactive services provision.

In January 2010, UMG brought suit against Grooveshark in New York state court.  UMG’s suit is unusual because it was not filed in federal court and only pursued violations against pre-1972 recordings.  Filing specifically for these violations allows UMG to recover under both federal and state law, whereas post 1972 recordings would only be recoverable under federal law.  A New York case, Capitol Records Inc. v. Naxos of America Inc., 262 F.Supp.2d 204 (2003), held that pre-1972 recordings are protected under state copyright law because 17 U.S.C. Section 301(c) allows recovery for these recordings under state common law or state statutes until Feb. 15, 2067.   Grooveshark faces an uphill battle both because it is dealing with unfamiliar state common law remedies, and because it is located in Florida.

UMG does not specifically allege that Grooveshark is an interactive service and therefore owes compulsory licensing fees under the DPSR.  However, UMG does allege that users access protected content on Grooveshark through a search, and when a file is played, Grooveshark’s Web site creates a copy of that sound recording on the user’s computer, which then plays for the user via streaming.  Furthermore, UMG discusses Grooveshark’s VIP service where users are charged a monthly fee but can store music on their phones, like an mp3 player.  These allegations form the basis for its copyright infringement claim, based on illegal distribution and copying of protected content.

UMG is using the Naxos decision to seek additional remedies that may be prohibited under the 1972 Copyright Act.  The Naxos court noted that “‘where a product is placed upon the market, under…statement that the substitute or imitating product is a duplicate of the original, and where the commercial value of the imitation lies in the fact that it takes advantage of and appropriates to itself the commercial qualities, reputation, and salable properties of the original, equity should grant relief.’”  Escape Media Group (EMG), Grooveshark’s parent company and defendant in UMG’s suit, mostly denied the allegations of the complaint in their answer without further explanation.  However, EMG specifically denied that any of the features of Grooveshark’s VIP service were designed to enhance infringement and distribute any sound recordings to users.

It remains to be seen whether Naxos will be interpreted to allow common law or state statutory remedies against Grooveshark.  Its files do seem to imitate real mp3s by acting as duplicates of songs users must otherwise purchase, which makes the service commercially valuable.  Grooveshark may argue they are equivalent to an Internet radio service, but giving users control over songs played distinguishes it from traditional radio, or even Internet radio companies.

While it is unclear whether UMG will succeed in its suit, it does seem like Grooveshark will be swimming upstream.

*Originally published in the Los Angeles Daily Journal on May 2, 2011.  Reprinted with permission.  

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