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.

Is Use of a Competitor’s Trademark for Advertising Infringement?

By Nick Solish

Originally published in the Daily Journal, Los Angeles on July 5, 2011

Suppose that you were looking for a plumber and a friend recommended Joe’s Plumbing to you.  You might type Joe’s Plimbing into Google.com’s search engine and hit enter. The first thing you see is a link for Eric’s Plumbing, who claims to be as good as Joe’s Plumbing but with much lower rates. If you hire Eric’s Plumbing instead of Joe’s Plumbing, does Joe’s Plumbing have a claim against Google for diverting a potential referral?

Advertising on Google is controlled through their AdWords service. Google’s help section explains that, “AdWords ads are displayed along with search results when someone searches Google using one of your keywords.” Advertisers can use Google’s keyword suggestion tool to generate suggested keywords with which to associate their ads. Thus, a search for a specific term will bring up a specific ad. Just as anything can be searched for on Google, any word can become a keyword for purposes of AdWords. As such, brand names and other protected trademarks can be purchased as keywords from Google AdWords.

Google’s keyword suggestion tool had been recommending “Rescuecom” to advertisers of computer repair services on AdWords. Thus, a search for “Rescuecom” would also contain advertisements for competitors of Rescuecom above and alongside regular Google search results. However, “Rescuecom” was a registered trademark. In 2006, Rescuecom brought an action against Google alleging that Google was liable under the Lanham Act for infringement, false designation of origin, and dilution of Rescuecom’s eponymous trademark. Specifically, Rescuecom alleged that Google’s placement of advertising in search results misled users into believing that competitors’ ads appearing on screen were part of a relevance-based search for Rescuecom.

Trademark law under the Lanham Act, 15 U.S.C. Sections 1114 and 1125, imposes liability for unpermitted “use in commerce” of another’s mark, which is “likely to cause confusion, or to cause mistake, or to deceive,” regarding “the origin, sponsorship or approval of his or her goods [or] services . . . by another person.” The trial court did not even reach the question of whether Google’s use was likely to cause confusion or mistake of origin because it found that Google’s actions did not constitute a use in commerce of Rescuecom’s trademark.

On appeal, the 2nd U.S. Circuit Court of Appeal, disagreed with the trial court. Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2nd Cir. 2009). Both decisions were largely governed by each court’s interpretation of the 1-800 Contacts Inc. v. WhenU.com Inc., 414 F.3d 400 (2d Cir.2005) decision, which had discussed when use of a trademarked term by an advertiser constituted a “use” for purposes of the Lanham Act. 1-800 Contacts involved an advertising program made by WhenU.com called “Save Now.” Save Now was a program that launched pop-up advertisements when users visited specific Web sites in Save Now’s index.

Unlike Google, WhenU’s software did not allow advertisers to purchase specific keywords to associate ads with. The 2nd Circuit in 1-800 Contacts also noted that Save Now only triggered ads by using the plaintiff’s Web address, not plaintiff’s protected trademark. Also, because Save Now did not publish the index of Web sites it advertised on and kept this list private, the court found that Save Now’s use of plaintiff’s trademark was not a “use in commerce” under the Lanham Act.

The trial court in Rescuecom had held that 1-800 Contacts was relevant precedent and thus, that Google’s use of the Rescuecom trademark was not a “use” under the Lanham Act. The 2nd Circuit disagreed, distinguishing 1-800 Contacts on two counts; the Web address complained of by plaintiff was not actually a protected trademark, and because of a distinction with between Save Now’s mechanism of action and Google’s.

To elaborate on the latter, while Google searches brought forth specific advertisements when specific keywords were searched for, Save Now’s pop-ups were random and not associated with specific keywords. Further, advertisers were not able to purchase keywords to trigger their advertisements using Save Now. Instead, advertisements were displayed based on general categories rather than by use of specific keywords. Save Now also did not allow for the sale of specific keywords to advertisers.

These aspects were in direct contrast with the 1-800 Contacts decision, according to the 2nd Circuit. Google was selling Rescuecom’s trademark as a keyword to competitors through the AdWords service. Likewise, Save Now does not “use or display” the trademark in 1-800 Contacts, but Google “displays, offers and sells” trademarks such as Rescuecom’s to the highest bidder, thus triggering protections under 15 U.S.C. Section 1127. The court also agreed with Rescuecom that Google’s placement of sponsored links directly above search results could lead to confusion, as Rescuecom had alleged in its initial complaint.

Google compared its keyword suggestion tool to the practice of vendors placing generic products next to name brand equivalents. However, the court was largely unpersuaded by Google’s analogy; although refusing to rule on whether Google’s use of Rescuecom’s trademark actually caused likelihood of confusion or mistake, the court did vacate the trial court’s decision and remand the case for further proceedings.

On remand, Rescuecom filed for dismissal before the trial began, claiming victory over Google in a May 2010 news release. But Rescuecom’s decision not to pursue the case on remand appears to have left some legal questions unanswered. The 2nd Circuit’s opinion, however, seems to leave room for future plaintiffs to seek redress against Google and other Web advertisers for similar trademark claims.

In a memorandum and order for Jurin v. Google Inc., 2010 U.S. Dist. LEXIS 94020, a related California case, plaintiff, the owner of the trademark “Styrotrim,” sued Google alleging that it had, through AdWords, misappropriated this trademark and generated advertising revenue while committing trademark infringement. Plaintiff also claimed that advertisements appearing on searches for Styrotrim might confuse users. Plaintiff analogized his case to Rescuecom but the court disagreed, distinguishing that decision by saying it relied mostly on the “use in commerce” portion of the Lanham Act, which was not in issue in this case.

It is unclear whether future litigation will lead to profit sharing between advertisers like Google and owners of registered trademarks sold as keywords. Altogether, the courts have yet to clarify whether the Lanham Act provides protections for owners of trademarks when those trademarks are sold as keywords to advertisers. However, future litigation will almost certainly arise in this area and the outcome will likely involve a great deal of revenue, whether it remains with the advertiser such as Google or must be paid out to the rightful trademark owners.

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

YouTube and Fair Use: Through the Lenz of Prince

By Nick Solish

(First published in the Daily Journal on Tuesday, May 24th, 2011)

The creation of YouTube.com in 2005 engendered a great deal of tension between owners of copyrighted content and people who upload original videos to YouTube.com.  The Digital Millennium Copyright Act provides content owners with a mechanism by which they can challenge allegedly infringing content via a takedown notice.  However, videos protected by the fair use doctrine of the Copyright Act are frequently taken down alongside infringing works.  So the question remains, what constitutes fair use of copyrighted content when it comes to YouTube videos?

The fair use doctrine, as codified in Section 107 of the Copyright Code, limits a copyright holder’s exclusive right to reproduce, or authorize others to reproduce, a work.  It explicitly includes such works as criticism, comments, news reporting, teaching, scholarship and research as fair use. Works which do not fall within these categories are analyzed using four fair use factors: the purpose and character of the use, including whether it is for profit; the nature of the copyrighted work; the amount and substantiality of the portion used of the copyrighted work in relation to the whole; and the effect of the use on the potential market for, or value of, the copyrighted work.

YouTube.com is one of the largest fair use battlegrounds.  According to YouTomb.MIT.edu, a research website by Massachusetts Institute of Technology that monitors videos taken down from YouTube.com, at least 10,000 videos have been removed for alleged copyright infringement.  YouTube.com and its parent company Google have implemented tools to deal with takedown notices alleging infringement.  The “content ID” tool allows copyright holders to automate which videos are sent DMCA takedown notices.  YouTube’s blog explains that copyright holders may be notified automatically if an uploaded video uses any copyrighted material.  Users may dispute takedown notices using content ID; disputed takedown claims lead to reinstatement of the offending videos and shift the burden of proving copyright infringement to the copyright holder.

However, content ID alone may be insufficient to allow copyright owners to determine whether an allegedly offending video is protected by fair use.  For instance, content ID still cannot determine the context of the work, which is crucial to a determination of fair use.  This type of automated response system has led to the removal of videos that would qualify for protection under fair use.

An example is the 2007 case of Stephanie Lenz, where Universal Music Corp. (UMC) filed a takedown notice with YouTube.com over a video of Lenz’s son dancing to Prince’s song “Let’s Go Crazy.”  Lenz filed a counter-notice with YouTube.com claiming that her video was a fair use of Prince’s song, due to the poor audio quality and the short duration of the song.  Six weeks after receiving Lenz’s counter notification, YouTube.com put her video back on its site. However, unsatisfied with UMC’s failure to consider fair use before sending the takedown notice, Lenz filed a complaint against UMC for misrepresentation under the DMCA and sought declaratory relief stating that her use of the song qualified as fair use.

In Lenz v. Universal Music Corp., 572 F. Supp. 2d 1150 (N.D. Cal. 2008), UMC argued that copyright holders cannot be required to evaluate fair use before sending a takedown notice because fair use is merely an excused infringement of copyright, rather than a use authorized by law or by the copyright holder.  UMC contended that the DMCA does not specifically mention fair use, and therefore copyright owners need not consider it before sending takedown notices.  Lenz countered that fair use was authorized by law as evidenced by its codification in the Copyright Act of 1972.  The court determined that the phrase “authorized by law” was unambiguous and included any activity permitted by law, which included fair use.

Lenz also alleged UMC sent the takedown notices in bad faith.  The DMCA takedown notice must include “a statement that the complaining party has a good faith belief that use of the material…is not authorized by the copyright owner, its agent, or the law.”  17 U.S.C. Section 512(c)(3)(v). The court acknowledged that the unnecessary removal of non-infringing content caused significant injury to the public and that the counter-notification remedy was insufficient.  From the evidence, the court found that UMC was a sophisticated party and failed to consider fair use before sending the takedown notice; rather, the takedown notice was sent to Lenz as part of a campaign by Prince to retake control of his art online.

The court granted partial summary judgment for Lenz based on UMC’s failure to include a statement in the takedown notice “that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.”  In other words, copyright owners must consider fair use before sending DMCA takedown notices.

However, the court never directly applied the fair use factors to Lenz’s video, focusing instead on the issue of whether UMC must consider fair use before sending a takedown notice.  Applying the Section 107 fair use test to Lenz’s video, the purpose of the work was to share a video of her son dancing, not to detract from legitimate Prince music videos.  The video was not uploaded for profit.  The nature of the work is a home movie, not a concert bootleg or reproduction of official video footage.  The amount of Prince’s song used was very little, totaling less than 20 seconds, in relation to the entire four-minute plus song.  Finally, the effect of Lenz’s video is unlikely to affect the market for Prince’s copyright works.  Thus, the video largely qualifies as fair use.

While Lenz had a strong argument that her video was fair use, other famous YouTube.com parodies may not.  For instance, a popular series of parodies take footage from the German movie “Downfall” depicting Adolf Hitler ranting about the imminent collapse of the Third Reich, and add subtitles depicting Hitler complaining about everything from his inability to get Billy Elliott tickets to not being able to find Waldo. The copyright owner, Constantin Films, began sending takedown notices for these parodies in mid-2010.  Though these parodies use original footage from the movie, their creators argue that the addition of comedic subtitles makes these videos fair use under the Copyright Act.  While these films are not for profit, they do use several minutes of original footage, albeit with added subtitles.  Although these videos would evidently be protected by fair use, it is unclear whether Constantin Films has considered this possibility before sending takedown notices.

One video testing and explaining the limits of fair use is “A Fair(y) Use Tale,” created by Bucknell University Professor Eric Faden using thousands of snippets of Disney films pasted together.  Scenes from Aladdin, Beauty and the Beast, and several other Disney movies are chopped into one-word snippets to create a narrative explaining the meaning of fair use.  As Buzz Lightyear and Aladdin lament, “unfortunately, copyright keeps getting longer,” with fair use being one of the few defenses to total control by copyright holders.

Ultimately, content ID is a powerful tool for copyright owners to police their content online.  However, given the requirement that copyright owners must now consider whether a video is fair use before sending out takedown notices, it is unclear whether automated systems such as content ID will ever become sophisticated enough to meet the strict requirements of copyright law.

Categories: Uncategorized

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.  

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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