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.