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Clever cyber criminals scam iTunes for “Madonna-level” royalties

Originally published in the Los Angeles Daily Journal in April, 2012

By Nickolas Solish

 

In an era when most cyber-criminals are ordinary people accused of violating copyright through illegal downloading, an Internet-savvy group has found a novel way to defraud the online music world.  A group of twelve criminals worked out a unique scheme to defraud major music sellers through an elaborately devised method of laundering money.

The hooligans took advantage of online music vendors, iTunes and Amazon, by putting their own music up for sale and then using stolen credit cards to purchase it, receiving payments in royalties.

The gang of 12 was led by 24 year-old Craig Anderson, who organized the scheme and purchased two-dozen laptops to carry it out.  Anderson recruited the rest of his “team” to purchase the music using stolen credit card numbers.  In an attempt to avoid unwanted attention, each purchase was under £10 and the IP address of each computer was masked using a website called Hide My IP.

During 2008 and 2009, the group brought in £500,000 in royalty payments from the illegal purchases. The tip-off for iTunes was when they realized just how much in royalties they were paying to “DJ Denver,” a small, unheard of musician from Wolverhampton, England. The frequency and amount of royalty payments matched what iTunes pays to artists like Madonna.

Authorities noticed that DJ Denver was selling so well he was charting on high-volume download sales charts.

The scheme cost iTunes and Amazon between £750,000 and £1 million, according to English prosecutors. Interestingly, the thieves’ attempt to use the Hide My IP website backfired, as it failed to mask their computers’ specific IP addresses. The police were able to trace the purchases back to the computers and link them with Paypal addresses, which lead them to the gang.

Once the scheme was discovered, royalty payments were withheld, at which point a “Daniel Thompson” called Tunecore demanding payment of the outstanding royalties. Unbeknownst to him, Tunecore was aware of the fraud and persuaded him that the only way he could get his royalties was if he flew to New York to pick them up.

Tunecore offered to send him free plane tickets, at which point he gave he real name and address. From there, the police were able to uncover the entire scheme, netting twelve people total involved.

Ringleader Anderson was given a four year and eight month prison sentence. The musician who provided the songs was one James Batchelor, who pled guilty to conspiracy to defraud and received a two-year sentence. Other members of the group were given suspended sentences and ordered to do community service.

First sale: do you own or rent your digital media files?

February 19, 2013 3 comments

Originally published in the Los Angeles Daily Journal on 2/12/13

By Nick Solish

A report by Billboard Media and Nielsen Soundscan showed that digital music purchases accounted for 50.3 percent of total music sales in 2011, overtaking physical media for the first time. With the rise in digital purchases, music stores and bookstores, along with other retailers, are closing all over the country.

Any person who has ever owned a book or CD knows that either can be resold or given to a friend without violating copyright law. This principle is an important limitation on copyright law known as the first sale doctrine and is codified at 17 U.S.C. Section 109. The United States Attorney’s Manual explains that the first sale doctrine “provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of [that particular copy], notwithstanding the interests of the copyright owner. The right to distribute ends, however, once the owner has sold [that particular copy].”

Lawmakers are faced with the question of whether the first sale doctrine should apply to purchases of digital media, including mp3s and eBooks. Digital media transfers invoke two different protected rights under copyright law. The first is the distribution right, allowing the copyright holder exclusive the exclusive right to make a work available to the public by sale, rental, lease or lending. The first sale doctrine acts as an exception to this rule, allowing purchasers of a particular copy of a copyrighted work to sell, rent or lend that copy to another.

Digital media transfers also implicate the reproduction right, which states that no one other than the copyright owner may make any reproductions or copies of the work. A transfer of a physical book or CD does not leave the original owner with a copy. However, every time a digital file is sent via email or saved to a disc a copy is made, leaving both the sender and the receiver with a copy of the file. Thus, the argument is made that first sale doctrine should not apply to digital media purchases because it violates the copyright owner’s exclusive right to make copies of a protected work.

Arguments have been made on both sides as to whether the first sale doctrine should protect digital purchases. Those in favor of extending the first sale doctrine to protect digital purchases argue that transmitting a file from one computer to another and deleting the original copy is the equivalent of selling or lending a book. Opponents of this change argue that the doctrine only protects the distribution right of the consumer and not the additional reproduction right that is an essential part of transferring digital content. They also argue that it would be virtually impossible to test that users had deleted the original copy after transferring a copy, leading to inevitable cheating of the system.

Weighing the above arguments, the U.S. Copyright Office has so far declined to extend first sale protections under Section 109 of the copyright code to digital purchases. “Unlike the physical distribution of digital works on a tangible medium, such as a floppy disk, the transmission of works [through the Internet] interferes with the copyright owner’s control over the intangible work and the exclusive right of reproduction. The benefits to further expansion simply do not outweigh the likelihood of increased harm.”

Some eMedia sellers have creatively taken on this challenge by changing purchasers into licensees instead of owners of content. In recent months, a Norweigan Amazon Kindle owner, Linn Nygaard, lost her Kindle and was told that since Amazon did not have offices in Norway, she would have to provide a U.K. mailing address to receive her replacement. A day later, her account was locked and she was denied access to her eBook library. Within 24 hours, several websites including BoingBoing, The Guardian and TechDirt, carried the story, bringing international attention to the issue. When her story went viral, Amazon eventually restored her access, but merely stated via employee Kinley Pearsall that, “[a]ccount status should not affect any customer’s ability to access their library. If any customer has trouble accessing their content, he or she should contact customer service for help.”

The Amazon Kindle store terms of service state that “Amazon Kindle content is licensed, not sold.” Amazon also provides that violation of any part of the agreement may result in loss of all of your purchased Kindle content: “[Termination]. Your rights under this Agreement will automatically terminate if you fail to comply with any term of this Agreement. In case of such termination, you must cease all use of the Kindle Store and the Kindle Content, and [Amazon may immediately revoke your access to the Kindle Store and the Kindle Content without refund of any fees].”

While it is unclear whether Nygaard did in fact violate the terms of service, many people do not realize that their purchased content is rented and not owned. The same terms of service limit a purchaser’s ability to resell or share content, which might otherwise be protected under the first sale doctrine: “[u]nless specifically indicated otherwise, you may not sell, rent, lease, distribute, broadcast, sublicense, or otherwise assign any rights to the Kindle Content or any portion of it to any third party.”

While there is not yet a digital marketplace for secondary sales of eBooks, the company ReDigi has created a secondary marketplace for reselling music purchased from the iTunes store. ReDigi does not purchase and resell used digital music files, but rather creates a marketplace where users sell music files from one person directly to another.

Launched in October of 2011, ReDigi was sued by Capitol Records in 2012 for copyright infringement. The complaint brings up the question of whether purchasers of digital content are licensees or owners, implicating the first sale doctrine and fair use. ReDigi argued that their Atomic Transaction software allowed the transfer of a digital file without copying it, avoiding a violation of the reproduction right.

Captiol Records argued that ReDigi is liable for copyright infringement, contributory copyright infringement, vicarious copyright infringement, and inducement of copyright infringement. Capitol also claimed that copies of music files were made when first transmitted to ReDigi’s cloud servers, and during sale transactions, thus infringing copyright, and claimed $150,000 of damages per infringement.

While the future of the first sale doctrine in the digital era is still uncertain, quite a bit of money is at stake. A Nielsen study showed over 1.34 billion digital music units were purchased in 2012. If purchasers can resell their songs, this could significantly cut into the market for new digital music. However, if the licensee model becomes the norm, users may have to get used to not “owning” their eBooks and mp3s but rather having entire libraries on long term loan from retailers.

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.

Cyberlocker sites come under the radar of copyright holders

By Nick Solish

In the war of music pirates versus record labels, cyberlockers are heating up as the next battleground for copyright suits.  A cyberlocker is an online storage provider that allows users to upload and share files.  Other users can then access those uploaded files for free, simply by clicking a link to the site and a second link to download the file.

This recent battle started earlier this year when the Motion Picture Association of America (MPAA) sued Fort Lauderdale-based Hotfile.com.  Plaintiffs Disney Enterprises Inc., Twentieth Century Fox Film Corp., Universal City Studios Productions LLLP, Columbia Pictures Industries Inc., and Warner Brothers Entertainment Inc., all sued Hotfile Corp. and Hotfile’s owner, Anton Titov, in the Southern District of Florida alleging copyright infringement.

The suit alleges that “[d]efendants actively encourage their users to upload…infringing copies of the most popular entertainment content in the world.”  Further, plaintiffs argue that defendants openly pay users to upload, and disseminate links to, infringing content.  The complaint also claims that Hotfile uses a cash incentive program to encourage users to upload infringing content.

Since January 2011, cyberlocker sites have been drawing more traffic than BitTorrent sites, bringing to the attention of copyright holders.  Predictably, these sites often contain access to copyrighted files.  Hotfile itself has become one of the top 100 most trafficked sites on the Internet, making it a target for the MPAA.

Cyberlocker sites like Hotfile.com include disclaimers about compliance with the Digital Millennium Copyright Act as well as a process for filing take-down notices.  Cyberlocker services are not inherently illegal.  However, the plaintiffs allege that Hotfile’s use of a cash incentive program encourages people to upload infringing content to the site.

Hotfile may have initially been targeted because it had a track record of settling lawsuits against its service.  However, they recently changed tactics.  In April 2011, Hotfile filed a motion to dismiss the suit, which was followed by a ruling in July that dismissed the direct infringement claims against Hotfile.  The judge found thatplaintiffs had failed to plead the necessary facts proving that Hotfile engaged in the required volitional conduct for a direct infringement of copyright law.

However, University of Texas law professor Christopher Harrison speculates that the decision throwing out the direct infringement claim may not survive on appeal.  Harrison explains that Judge Adalberto Jordan’s reliance on Cartoon Network LP v. CSC Holdings Inc., 536 F.3d 121 (2d Cir. 2008) for the proposition that “a significant difference exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct” may be misplaced.

Specifically, in Cartoon Network, defendant’s remote DVR system responded to commands from Cablevision subscribers and created a single, unique copy of a TV show for later viewing by that same subscriber.  In [Hotfile], not only are uploaded files available to anyone using the site, Hotfile’s servers automatically make five additional copies of uploaded files and five unique links for those files.  This seems to be a clear distinction. 

However, in a recent filing, Hotfile has shown that it may be willing to fight back.  Plaintiffs filed a motion to limit privilege logs that they are required to produce in the case.  Privilege logs describe documents or other items withheld from production in a civil suit under claims of attorney-client privilege, work product doctrine, or trade secrets.  The burden is on the withholding party to give the court and the opposing party enough information to test the privilege claim.

Hotfile opposed this motion, asking that the plaintiffs produce the standard, required privilege logs.  In their opposition motion, Hotfile’s lawyers stated in a footnote that “[b]eing able to determine which withheld documents are related to [p]laintiffs’ cooperative antipiracy efforts to remove material from Hotfile is also important for a counterclaim Hotfile intends to bring against at least one of the [p]laintiffs — Warner Bros. Entertainment, Inc..”  They allege that Warner has abused their anti-piracy tool by using it to remove content, which either was not infringing or for which Warner did not own the copyrights.

The MPAA complaint wasn’t the first major suit for Hotfile.  In January 2011, plaintiff Liberty Media filed suit against Hotfile and 1,000 John Does alleging that jointly and severally, with actual or constructive knowledge of or with willful blindness, reproduced and distributed certain Liberty-owned works through www.Hotfile.com.  Liberty demanded that the court freeze Hotfile’s assets held by PayPal and that the court seize Hotfile’s domain name in the meantime.

As of yet, Hotfile has not filed its counter-suit against Warner or any other copyright holders.  Should these cases be successful, they may ignite a storm of litigation against other cyberlockers that could virtually shut these services down or severely limit their inherently legal function.  The MPAA case against Hotfile will certainly be a strong indicator of what the future holds for other cyberlockers and whether they can survive legal scrutiny.

Nick Solish is a lawyer at Bryan Cave and recent graduate of the University of Texas. He can be contacted at nickolas.solish at bryancave.com.

Is Grooveshark Swimming in the Deep End?

By Nick Solish

Originally published in the Daily Journal on July 28th, 2011

Troubles seem to be never ending for music streaming site Grooveshark.com.  A complaint was recently filed by a group of songwriters and copyright holders accusing the Web site of copyright infringement.  Grooveshark allows users to listen to music via streaming, a continuous downloading and playing of a song using an Internet connection.  It is unique from services like Pandora and Last.fm because it allows users to pick the actual tracks that they listen to, whereas Pandora and Last.fm will play similar tracks but do not give users song-by-song control.

Grooveshark has been the target of copyright infringement lawsuits by big music publishers like Universal Music Group, with whom a case is currently pending.  Grooveshark has also faced EMI Music in court, with whom they are settling.  However, despite Grooveshark’s attempts to make licensing deals with copyright holders, a new complaint has been filed against the company for failure to do so.

Several music copyright companies have sued Escape Media Group (Grooveshark’s parent company, “EMG”) in the Middle District of Tennessee.  Amongst the plantiffs are former Grand Funk Railroad frontman Mark Farner and Larry Weiss, writer of “Rhinestone Cowboy.”  The plaintiffs accuse EMG of copyright infringement, including contributory copyright infringement and vicarious copyright infringement.

The plaintiffs allege that Grooveshark provided its customers access to copyrighted music without having to pay for it.  Specifically, it claims that users can listen to entire copyrighted works using “on-demand streams,” which they define as “on-demand real time digital transmissions of sound recordings using so-called streaming technology.”  The complaint also alleges that Grooveshark actively encourages users to share music through services like Facebook and Twitter, and further accuses Grooveshark of encouraging users to upload copyrighted content to the site.  This uploaded content then becomes part of the searchable database accessible by Grooveshark users.

Plaintiffs are upset because Grooveshark failed to obtain plaintiffs’ “authorization, license or permission” to use the sound recordings on its site.  They also cite EMG’s failure to obtain a compulsory license before copying plaintiffs’ music onto EMG’s computers.

EMG has faced scrutiny in the past for its approach to music.  The Grooveshark app has been removed both from the Apple Store and the Android App Store in the past few years due to mounting pressure from music copyright holders.

Defending against a recent lawsuit filed by Universal Music Group, Grooveshark’s Senior Vice President of Information Products, Paul Geller, wrote an open letter defending Grooveshark as entirely legal.  Geller cited Grooveshark’s policy of honoring “take down claims,” which allegedly put them in full compliance with the Digital Millennium Copyright Act (DMCA).  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 notes that Grooveshark has already secured thousands of licenses from copyright holders and is attempting to secure licenses for all of its music.  Finally, Geller cited over two million songs that Grooveshark has taken down in response to take down complaints, as evidence that they are trying to maintain strict compliance with copyright law.  An earlier suit between Grooveshark and EMI ended in a licensing deal, which Geller no doubt hopes will be repeated in future suits.

However, it is unclear whether removing infringing content is enough to put Grooveshark in compliance with the Copyright Act.  Grooveshark’s legal status is likely to hinge on whether it is considered 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), several large copyright holding groups led by BMG sued Yahoo’s interactive radio service, LaunchCast, under the DMCA.  Interactive services under the DMCA are required to pay licensing fees to content owners, whereas non-interactive services merely have to pay a smaller statutory licensing fee.

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.  Grooveshark’s ability to allow users to pick specific songs and create playlists seems to make the service “interactive” under the statute, which may make it vulnerable in the current suit.

The current suit appears to follow in the footsteps of the recent Universal Music Group suit. In January 2010, UMG brought suit against Grooveshark in New York state court, which is unusual because the case 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.

It remains to be seen whether the current suit will end in a settlement and possible licensing deal.  However, attitudes in the industry toward alleged music pirates may be changing.  This week, former Google.com chief information officer Douglas C. Merrill, once an EMI executive, said publicly that LimeWire pirates were some of the best customers on iTunes.  He was speaking at an Expo in Sydney about data he had obtained as chief operating officer of New Music and president of Digital Business at EMI.  During his time there, he profiled users of LimeWire, a music downloading service, and found that its users actually were more likely to purchase music than the average person.

The future of Grooveshark is indicative of the future of music on the Internet.  If innovative services like Grooveshark.com are shut down by music industry hold-outs, the future of digital music on the Internet is like to stagnate.  However, Grooveshark users are given free access to copyrighted music that otherwise would have to be purchased, compensating artists and copyright holders.  One thing is clear: Whatever happens to Grooveshark will be a bell-weather for other music streaming sites, and the decision will be watched closely by those within the music industry.

Nick Solish is a lawyer at Bryan Cave and recent graduate of the University of Texas. He can be contacted at nickolas.solish at bryancave.com.

Welcome to “The Law of Tomorrow, Today”

Welcome to “The Law of Tomorrow, Today,” a blog I started to explore legal issues related to intellectual property law on the internet.   Specifically, what boundaries does U.S. law create for musical content on the internet and what do websites have to do to stay within these boundaries?

An article I wrote about Grooveshark was published in the Daily Journal yesterday.  It described some of the issues Grooveshark faces as a provider of musical content and whether the site can survive a legal challenge by copyright holders.  The article is reproduced fully in my second post.

Is Amazon’s Head in the Clouds?

By Nick Solish

What’s a billion dollars between friends?  Quite a bit, when it comes to the potential revenues from Amazon’s new Cloud Drive and Cloud Player services.  These services allow customers to upload music files to private, user-specific online drives (the Cloud Drive) and then listen to these files remotely using the Cloud Player.  Amazon has encountered harsh criticism from major record labels for releasing both services without first obtaining music licenses.  Amazon maintains that it does not need to obtain new licenses from record companies because users are simply streaming content they already own.  If Amazon is required to obtain additional licenses, it would mean big business for record labels.  In the next 10 years, revenue from digital file streaming is predicted to be in the billions.

Several unanswered legal questions will greatly affect whether Amazon will have need to obtain additional licenses for its Cloud Player.  For one, can Amazon allow users to stream files they already own without obtaining a separate license?  Second, does streaming create a copy for purposes of infringement?  Finally, can Amazon allow users to stream already-licensed content under a fair use theory?  So far, it is unclear if Amazon’s failure to obtain new music licenses is risky or bold.  If successful, Amazon will have bypassed a major expense.  If not, Amazon could face lawsuits potentially ending the service.  Other players in the streaming market, Apple and Google, are watching closely to see what happens.

 “Streaming media” is video and audio content distinguished by its delivery method of being continuously received or “streamed” from a remote server.  Streaming met legal challenges as early as 2000.  In UMG Recordings Inc. v. MP3.com Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000) Universal Music Group (UMG) accused MP3.com of infringing copyright by allowing users to stream unlicensed music for free.  MP3.com copied music CDs onto its servers and then streamed the files to subscribers of the site without charge.

In MP3.com, defendants argued that their actions were protected by the Fair Use Doctrine.  Specifically, MP3.com argued that it had transformed the songs to a new medium by “space shifting” them, trying to draw parallels to the idea of “time-shifting” in Sony Corp. of America v. Universal City Studios Inc.,464 U.S. 417 (1984) (“Sony”).  “Time-shifting” is making copies of protected content to watch it later while “space-shifting” is transforming a file from one type to another, e.g. a CD track to an mp3.  The Sony decision protected time-shifting of entire television shows and also provided the first protection for makers of video recording devices.

The 9th U.S. Circuit Court of Appeals protected space shifting in RIAA v. Diamond Multimedia, 180 F.3d 1072 (9th Cir. 1999).  In this case, plaintiff claimed music files copied from a computer to the Rio MP3 player were infringing copies.  The court held that the Rio merely space-shifted files that were already on the user’s hard drive.  This use was non-commercial, personal use that did not create infringing copies under the Copyright Act.

In MP3.com, defendant argued that it was merely space-shifting files. However, the court found that MP3.com’s use was insufficient to establish transformed character of the protected work.  MP3.com added no “‘new aesthetics, new insights and understandings’ to the original music recordings it copie[d]…but simply repackage[d] those recordings to facilitate their transmission through another medium.”  This came close to the core of intended copyright protection because MP3.com was essentially giving away protected content and earning ad revenues from users.  The company was forced to settle the case for $54 million.

Amazon’s argument is essentially that it is merely allowing users to space shift files already in their possession to a remote storage drive.  While this argument was unsuccessful for MP3.com, there are a number of differences between Amazon’s Cloud Player and MP3.com.  A clear distinction is that Amazon is only allowing users to upload and stream files which their users already possess.  Amazon is not making copyrighted content available to the general public for free, but rather is allowing users to remotely store and later access content they already possess.  Amazon itself already has licenses for a great deal of musical content, where MP3.com had none.  Finally, Amazon is only allowing users to access their own uploaded content, where MP3.com allowed all users to access all uploaded content for free.

Another legal challenge faced by Amazon is whether copies of files made to facilitate streaming are sufficient to infringe copyright.  An allegedly infringing copy must be “fixed” which is defined under Section 101 of the Copyright Act as being embodied in a phonorecord or other medium allowing it to be perceived for more than transitory duration.  (During streaming, data is contained in a buffer, allowing the stream to briefly continue uninterrupted in case of connection loss.)  There is a split of authority between the 2nd U.S. Circuit Court of Appeals and 9th Circuit as to whether this type of buffer data exists for transitory duration or not.

In MAI Systems Corp. v. Peak Computer Inc., 991 F.2d 511 (9th Cir. 1993), the 9th Circuit  held that a temporary copy of a program created in a computer’s RAM was an infringing copy –  17 U.S.C. Section 117 specifically allows the creation of copies essential to loading software without obtaining permission from the rights holder; RAM copies are both temporary and essential for the program to load.  However, since some RAM copies of MAI’s software existed for a few minutes, the 9th Circuit held that RAM copies were sufficiently fixed under the statute, thus making them infringing copies.

The 2nd Circuit took a differing view on whether buffer data created fixed copies.  The Cartoon Network LP v. CSC Holdings Inc., 536 F.3d 121 (2d Cir. 2008) case involved defendant Cablevision’s remote storage DVR (RS-DVR) system, which allowed users to stream content from a remote DVR.  Plaintiffs alleged that buffered copies were analogous to RAM copies and, based on the holding in MAI, were sufficiently fixed to infringe copyright.

Cablevision argued that buffer data was de minimis due to its short lifespan of 1.2 seconds.  The 2nd Circuit rejected the 9th Circuit view that the buffered copies used for streaming were fixed for more than transitory duration, and held that Cablevision’s buffering did not create an unlicensed copy for purposes of copyright infringement.  The U.S. Supreme Court declined review in 2009, effectively protecting Cablevision’s RS-DVR and streaming system.  However, without a Supreme Court ruling or new statute, this same issue may continue to receive inconsistent treatment in other circuits.

This legal uncertainty leaves Amazon potentially exposed to litigation and underlines why Amazon’s release of the Cloud Player and Cloud Drive was risky. If Amazon is seeking protection from Cablevision, it will have to be careful.  Amazon’s new service differs somewhat from Cablevision’s RS-DVR system.  Cablevision’s RS-DVR copied files to a central server which users could then access remotely.  Here, Amazon’s service will allow playback on multiple remote devices, including phones, tablets and PCs, among others, and there is no indication that the original files must be maintained on the user’s local machine.  Thus, Amazon’s decision to go ahead with its service without first seeking music licenses seems risky and potentially difficult to defend in court.  It would be a shame if this new technology was thwarted by Amazon’s arguably reckless failure to seek music licenses before the Cloud Player’s release.

*Originally published in the Los Angeles Daily Journal on April 11, 2011.  Reprinted with permission. 

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