1. 1 CLASS 8 Digital Music Computers and the Law Randy Canis

2. Music Background 2

3. Two Copyrights in Digital Music Copyright in the underlying musical composition –Notes and lyrics Copyright in the recording of a song –A particular recording –Source recording/master recording 3

4. 4 Digital Music Are portable MP3 players legal? Is file swapping (i.e., uploading and downloading) copyrighted songs legal? Are services that allow file swapping legal?

5. 5 RIAA v. Diamond Multimedia Systems Issue – is the Rio portable music player a digital audio recording device subject to the restrictions of the Audio Home Recording Act of 1992? What is the functionality of the Rio device?

6. Digital Music Players 6

7. 7 RIAA v. Diamond Multimedia Systems Who is the RIAA? Why does digital music scare the RIAA? –“Digital copying thus allows thousands of perfect or near perfect copies (and copies of copies) to be made from a single original recording. Music ‘pirates’ use digital recording technology to make and to distribute near perfect copies of commercially prepared recordings for which they have not licensed the copyrights.”

8. 8 RIAA v. Diamond Multimedia Systems RIAA suit –Enjoin the manufacture and distribution of the Rio because Rio does not meet the requirements for digital audio recording devices under the Audio Home Recording Act of 1992, 17 U.S.C. § 1001 et seq. (the "Act"), because it does not employ a Serial Copyright Management System ("SCMS") that sends, receives, and acts upon information about the generation and copyright status of the files that it plays. See id. §1002(a)(2). –RIAA also sought payment of the royalties owed by Diamond as the manufacturer and distributor of a digital audio recording device. What happened at the preliminary injunction stage?

9. RIAA v. Diamond Multimedia Systems What did the AHRA do? –All digital recording devices must include serial copy management system (SCMS) technology 9

10. 10 RIAA v. Diamond Multimedia Systems Does the Rio device fall within the ambit of the Act? –“[T]o fall within the SCMS and royalty requirements in question, the Rio must be a ‘digital audio recording device,’...” A "digital audio copied recording" is defined as: –a reproduction in a digital recording format of a digital musical recording, whether that reproduction is made directly from another digital musical recording or indirectly from a transmission. Id. § 1001(1) … A "digital musical recording" is defined as: a material object- (i) in which are fixed, in a digital recording format, only sounds, and material, statements, or instructions incidental to those fixed sounds, if any, and (ii) from which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Id. § 1001(5)(A)... In sum, to be a digital audio recording device, the Rio must be able to reproduce, either "directly" or "from a transmission," a "digital music recording."

11. 11 RIAA v. Diamond Multimedia Systems Directly Is the Rio device capable of directly reproducing a digital music recording? –What is the significance of a hard drive of a computer? –“The district court concluded that the exemption of hard drives from the definition of digital music recording, and the exemption of computers generally from the Act's ambit, "would effectively eviscerate the [Act]" because "any recording device could evade [] regulation simply by passing the music through a computer and ensuring that the MP3 file resided momentarily on the hard drive." … While this may be true, the Act seems to have been expressly designed to create this loophole.”

12. 12 RIAA v. Diamond Multimedia Systems Directly “Under the plain meaning of the Act's definition of digital audio recording devices, computers (and their hard drives) are not digital audio recording devices because their ‘primary purpose’ is not to make digital audio copied recordings. … Unlike digital audio tape machines, for example, whose primary purpose is to make digital audio copied recordings, the primary purpose of a computer is to run various programs and to record the data necessary to run those programs and perform various tasks.”

13. 13 RIAA v. Diamond Multimedia Systems Directly “… [B]ecause computers are not digital audio recording devices, they are not required to comply with the SCMS requirement and thus need not send, receive, or act upon information regarding copyright and generation status. … And, as the district court found, MP3 files generally do not even carry the codes providing information regarding copyright and generation status. …Thus, the Act seems designed to allow files to be ‘laundered’ by passage through a computer, because even a device with SCMS would be able to download MP3 files lacking SCMS codes from a computer hard drive, for the simple reason that there would be no codes to prevent the copying.”

14. 14 RIAA v. Diamond Multimedia Systems Transmission “Even though it cannot directly reproduce a digital music recording, the Rio would nevertheless be a digital audio recording device if it could reproduce a digital music recording ‘from a transmission.’” “RIAA asserts that indirect reproduction of a transmission is sufficient for the Rio to fall within the Act's ambit as a digital audio recording device.”

15. 15 RIAA v. Diamond Multimedia Systems “RIAA's interpretation of the statutory language initially seems plausible, but closer analysis reveals that it is contrary to the statutory language and common sense. … [T]he most logical reading of the Act extends protection to direct copying of digital music recordings, and to indirect copying of digital music recordings from transmissions of those recordings.”

16. 16 RIAA v. Diamond Multimedia Systems “Thus, a device falls within the Act's provisions if it can indirectly copy a digital music recording by making a copy from a transmission of that recording. Because the Rio cannot make copies from transmissions, but instead, can only make copies from a computer hard drive, it is not a digital audio recording device.”

17. 17 RIAA v. Diamond Multimedia Systems What would have happened if the court had ruled for the RIAA? So what if the MP3 player: –Had software to directly convert songs to MP3s, instead of software existing on a computer that was used to make and transfer MP3s? –Was capable for recording FM transmissions?

18. Digital Music Services 18

19. 19 A&M Records v. Napster What is the case history? –Plaintiffs (e.g., A&M) are engaged in the commercial recording, distribution and sale of copyrighted musical compositions and sound recordings. –Defendant (i.e., Napster) is alleged to be a contributory and vicarious copyright infringer. –A&M obtained a preliminary injunction that enjoined Napster “from engaging in, or facilitating others in copying, downloading, uploading, transmitting, or distributing plaintiffs’ copyrighted musical compositions and sound recordings protected by either federal or state law, without express permission of the rights owner.”

20. 20 A&M Records v. Napster “Napster facilitates the transmission of MP3 files between and among its users. Through a process commonly called ‘peer-to- peer’ file sharing, Napster allows its users to: (1) make MP3 music files stored on individual computer hard drives available for copying by other Napster users; (2) search for MP3 music files stored on other users' computers; and (3) transfer exact copies of the contents of other users' MP3 files from one computer to another via the Internet. These functions are made possible by Napster's MusicShare software, available free of charge from Napster's Internet site, and Napster's network servers and server-side software. Napster provides technical support for the indexing and searching of MP3 files, as well as for its other functions, including a ‘chat room,’ where users can meet to discuss music, and a directory where participating artists can provide information about their music.”

21. 21 A&M Records v. Napster “In order to copy MP3 files through the Napster system, a user must first access Napster's Internet site and download the MusicShare software to his individual computer. See http://www.Napster.com. Once the software is installed, the user can access the Napster system. A first-time user is required to register with the Napster system by creating a ‘user name’ and password. “Napster allows a user to locate other users' MP3 files in two ways: through Napster's search function and through its ‘hotlist’ function.”

22. 22 A&M Records v. Napster “Once uploaded to the Napster servers, the user's MP3 file names are stored in a server-side ‘library’ under the user's name and become part of a ‘collective directory’ of files available for transfer during the time the user is logged onto the Napster system. The collective directory is fluid; it tracks users who are connected in real time, displaying only file names that are immediately accessible.”

23. 23 A&M Records v. Napster “To transfer a copy of the contents of a requested MP3 file, the Napster server software obtains the Internet address of the requesting user and the Internet address of the" host user" (the user with the available files). …. “The Napster servers then communicate the host user's Internet address to the requesting user. The requesting user's computer uses this information to establish a connection with the host user and downloads a copy of the contents of the MP3 file from one computer to the other over the Internet, ‘peer-to-peer.’” “A downloaded MP3 file can be played directly from the user's hard drive using Napster's Music-Share program or other software. “The file may also be transferred back onto an audio CD if the user has access to equipment designed for that purpose. In both cases, the quality of the original sound recording is slightly diminished by transfer to the MP3 format.”

24. 24 A&M Records v. Napster “Plaintiffs claim Napster users are engaged in the wholesale reproduction and distribution of copyrighted works, all constituting direct infringement. The district court agreed. We note that the district court's conclusion that plaintiffs have presented a prima facie case of direct infringement by Napster users is not presently appealed by Napster. We only need briefly address the threshold requirements.”

25. 25 A&M Records v. Napster Also see note 2: “Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party. … It follows that Napster does not facilitate infringement of the copyright laws in the absence of direct infringement by its users.” Why didn’t Napster challenge what their users were doing is not copyright infringement? Let’s take a look…

26. 26 A&M Records v. Napster Infringement “Plaintiffs must satisfy two requirements to present a prima facie case of direct infringement: (1) they must show ownership of the allegedly infringed material and (2) they must demonstrate that the alleged infringers violate at least one exclusive right granted to copyright holders under 17 U.S.C. § 106. See 17 U.S.C. § 501(a) (infringement occurs when alleged infringer engages in activity listed in § 106);,,, Plaintiffs have sufficiently demonstrated ownership. The record supports the district court's determination that "as much as eighty-seven percent of the files available on Napster may be copyrighted and more than seventy percent may be owned or administered by plaintiffs."

27. 27 A&M Records v. Napster The district court further determined that plaintiffs' exclusive rights under § 106 were violated:" here the evidence establishes that a majority of Napster users use the service to download and upload copyrighted music.... And by doing that, it constitutes--the uses constitute direct infringement of plaintiffs' musical compositions, recordings." A&M Records, Inc. v. Napster, Inc., Nos. 99-5183, 00-0074, 2000 WL 1009483, at *1 (N. D. Cal. July 26, 2000) (transcript of proceedings). The district court also noted that "it is pretty much acknowledged... by Napster that this is infringement." Id. We agree that plaintiffs have shown that Napster users infringe at least two of the copyright holders' exclusive rights: the rights of reproduction, § 106(1); and distribution, § 106(3). Napster users who upload file names to the search index for others to copy violate plaintiffs' distribution rights. Napster users who download files containing copyrighted music violate plaintiffs' reproduction rights.

28. 28 A&M Records v. Napster Napster’s claims of fair use: sampling, where users make temporary copies of a work before purchasing; space-shifting, where users access a sound recording through the Napster system that they already own in audio CD format; and permissive distribution of recordings by both new and established artists.

29. 29 A&M Records v. Napster Overview of Fair Use The district court considered factors listed in 17 U.S.C. § 107, which guide a court's fair use determination. These factors are: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the "amount and substantiality of the portion used" in relation to the work as a whole; and (4) the effect of the use upon the potential market for the work or the value of the work. See 17 U.S.C. § 107. The district court first conducted a general analysis of Napster system uses under § 107, and then applied its reasoning to the alleged fair uses identified by Napster. The district court concluded that Napster users are not fair users. We agree.

30. 30 A&M Records v. Napster Fair Use Factor 1: Purpose and Character of the Use “This factor focuses on whether the new work merely replaces the object of the original creation or instead adds a further purpose or different character. In other words, this factor asks ‘whether and to what extent the new work is 'transformative. '’ “The district court first concluded that downloading MP3 files does not transform the copyrighted work. … This conclusion is supportable. Courts have been reluctant to find fair use when an original work is merely retransmitted in a different medium.

31. 31 A&M Records v. Napster Fair Use Factor 1: Purpose and Character of the Use This "purpose and character "element also requires the district court to determine whether the allegedly infringing use is commercial or noncommercial. … A commercial use weighs against a finding of fair use but is not conclusive on the issue. Id. The district court determined that Napster users engage in commercial use of the copyrighted materials largely because (1) "a host user sending a file cannot be said to engage in a personal use when distributing that file to an anonymous requester "and (2) "Napster users get for free something they would ordinarily have to buy." Napster, 114 F. Supp. 2d at 912. The district court's findings are not clearly erroneous. Direct economic benefit is not … required to demonstrate a commercial use. Rather, repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use. “

32. 32 A&M Records v. Napster Fair Use Factor 2: The Nature of the Use “Works that are creative in nature … are ‘closer to the core of intended copyright protection’ than are more fact-based works. … The district court determined that plaintiffs' ‘copyrighted musical compositions and sound recordings are creative in nature... which cuts against a finding of fair use under the second factor.’ Napster, 114 F. Supp. 2d at 913. We find no error in the district court's conclusion.”

33. 33 A&M Records v. Napster Fair Use Factor 3: The Portion Used “The district court determined that Napster users engage in ‘wholesale copying’ of copyrighted work because file transfer necessarily ‘involves copying the entirety of the copyrighted work.’ Napster, 114 F. Supp. 2d at 913. We agree.

34. 34 A&M Records v. Napster Fair Use Factor 4: Effect of Use on Market "Fair use, when properly applied, is limited to copying by others which does not materially impair the marketability of the work which is copied.“ “A challenge to a noncommercial use of a copy-righted work requires proof either that the particular use is harmful, or that if it should become wide-spread, it would adversely affect the potential market for the copyrighted work.... If the intended use is for commercial gain, that likelihood [of market harm] may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated.” Addressing this factor, the district court concluded that Napster harms the market in "at least" two ways: it reduces audio CD sales among college students and it "raises barriers to plaintiffs' entry into the market for the digital downloading of music."

35. 35 A&M Records v. Napster a. Sampling Napster contends that its users download MP3 files to "sample" the music in order to decide whether to purchase the recording. Napster argues that the district court: (1) erred in concluding that sampling is a commercial use because it conflated a noncommercial use with a personal use; (2) erred in determining that sampling adversely affects the market for plaintiffs' copyrighted music, a requirement if the use is non-commercial; and (3) erroneously concluded that sampling is not a fair use because it determined that samplers may also engage in other infringing activity. The district court determined that sampling remains a commercial use even if some users eventually purchase the music. We find no error in the district court's determination. …

36. 36 A&M Records v. Napster Napster users download a full, free and permanent copy of the recording. … The determination by the district court as to the commercial purpose and character of sampling is not clearly erroneous. The district court further found that both the market for audio CDs and market for online distribution are adversely affected by Napster's service … The record supports the district court's preliminary determinations that: (1) the more music that sampling users download, the less likely they are to eventually purchase the recordings on audio CD; and (2) even if the audio CD market is not harmed, Napster has adverse effects on the developing digital download market.

37. 37 A&M Records v. Napster b. Space-Shifting “Napster also maintains that space-shifting is a fair use. Space- shifting occurs when a Napster user downloads MP3 music files in order to listen to music he already owns on audio CD. “We conclude that the district court did not err when it refused to apply the "shifting" analyses of Sony and Diamond. Both Diamond and Sony are inapposite because the methods of shifting in these cases did not also simultaneously involve distribution of the copyrighted material to the general public; the time or space- shifting of copyrighted material exposed the material only to the original user. … “… [I]t is obvious that once a user lists a copy of music he already owns on the Napster system in order to access the music from another location, the song becomes "available to millions of other individuals," not just the original CD owner.”

38. 38 A&M Records v. Napster The above analysis by the court shows the users of Napster are engaged in activities that constitute copyright infringement. The 9 th circuit now looks to whether … “Napster is secondarily liable for the direct infringement under two doctrines of copyright law: contributory copyright infringement and vicarious copyright infringement.”

39. 39 A&M Records v. Napster Contributory copyright infringement – “one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a 'contributory’ infringer.”

40. 40 A&M Records v. Napster “The district court determined that plaintiffs in all likelihood would establish Napster's liability as a contributory infringer. The district court did not err; Napster, by its conduct, knowingly encourages and assists the infringement of plaintiffs' copyrights.” Contributory liability requires that the secondary infringer "know or have reason to know" of direct infringement. … It is apparent from the record that Napster has knowledge, both actual and constructive, of direct infringement.

41. 41 A&M Records v. Napster Comparison to the Sony case The Sony Court declined to impute the requisite level of knowledge where the defendants made and sold equipment capable of both infringing and "substantial noninfringing uses.“ We are bound to follow Sony, and will not impute the requisite level of knowledge to Napster merely because peer-to-peer file sharing technology may be used to infringe plaintiffs' copyrights. … We depart from the reasoning of the district court that Napster failed to demonstrate that its system is capable of commercially significant noninfringing uses. … The district court improperly confined the use analysis to current uses, ignoring the system's capabilities.

42. 42 A&M Records v. Napster We agree that if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement. We nevertheless conclude that sufficient knowledge exists to impose contributory liability when linked to demonstrated infringing use of the Napster system. See Napster, 114 F. Supp. 2d at 919 ("Religious Technology Center would not mandate a determination that Napster, Inc. lacks the knowledge requisite to contributory infringement."). The record supports the district court's finding that Napster has actual knowledge that specific infringing material is available using its system, that it could block access to the system by suppliers of the infringing material, and that it failed to remove the material.

43. 43 A&M Records v. Napster B. Material Contribution Under the facts as found by the district court, Napster materially contributes to the infringing activity. Relying on Fonovisa, the district court concluded that "without the support services defendant provides, Napster users could not find and download the music they want with the ease of which defendant boasts." We affirm the district court's conclusion that plaintiffs have demonstrated a likelihood of success on the merits of the contributory copyright infringement claim.

44. 44 A&M Records v. Napster Vicarious Copyright Infringement - is an "outgrowth" of respondeat superior … [and in] the context of copyright law, vicarious liability extends beyond an employer/employee relationship to cases in which a defendant "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” Before moving into this discussion, we note that Sony's "staple article of commerce" analysis has no application to Napster's potential liability for vicarious copyright infringement. The "staple article of commerce" doctrine "provides a defense only to contributory infringement, not to vicarious infringement.

45. 45 A&M Records v. Napster A. Financial Benefit The district court determined that plaintiffs had demonstrated they would likely succeed in establishing that Napster has a direct financial interest in the infringing activity. Napster, 114 F. Supp. 2d at 921- 22. We agree. Financial benefit exists where the availability of infringing material "acts as a 'draw' for customers."

46. 46 A&M Records v. Napster B. Supervision The district court determined that Napster has the right and ability to supervise its users' conduct. Napster, 114 F. Supp. 2d at 920-21 (finding that Napster's representations to the court regarding "its improved methods of blocking users about whom rights holders complain... is tantamount to an admission that defendant can, and sometimes does, police its service"). We agree in part. The ability to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise. … To escape imposition of vicarious liability, the reserved right to police must be exercised to its fullest extent. Turning a blind eye to detectable acts of infringement for the sake of profit gives rise to liability.

47. 47 A&M Records v. Napster The district court correctly determined that Napster had the right and ability to police its system and failed to exercise that right to prevent the exchange of copyrighted material. The district court, however, failed to recognize that the boundaries of the premises that Napster "controls and patrols" are limited. Our review of the record requires us to accept the district court's conclusion that plaintiffs have demonstrated a likelihood of success on the merits of the vicarious copyright infringement claim. Napster's failure to police the system's "premises," combined with a showing that Napster financially benefits from the continuing availability of infringing files on its system, leads to the imposition of vicarious liability.

48. 48 A&M Records v. Napster Despite the possibility of facing contributory infringement and vicarious copyright infringement, are there any defenses available which will save Napster”?

49. 49 A&M Records v. Napster Defense 1 - § 1008 of the Audio Home Recording Act of 1992 “No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.”

50. 50 A&M Records v. Napster The district court rejected Napster's argument, stating that the Audio Home Recording Act is "irrelevant" to the action because: (1) plaintiffs did not bring claims under the Audio Home Recording Act; and (2) the Audio Home Recording Act does not cover the downloading of MP3 files. Napster, 114 F. Supp. 2d at 916 n. 19. We agree with the district court that the Audio Home Recording Act does not cover the downloading of MP3 files to computer hard drives.

51. 51 A&M Records v. Napster Defense 2 - Digital Millennium Copyright Act Napster also interposes a statutory limitation on liability by asserting the protections of the "safe harbor "from copyright infringement suits for "Internet service providers" contained in the Digital Millennium Copyright Act, 17 U.S.C. § 512. See Napster, 114 F. Supp. 2d at 919 n. 24. The district court did not give this statutory limitation any weight favoring a denial of temporary injunctive relief. The court concluded that Napster "has failed to persuade this court that subsection 512(d) shelters contributory infringers."

52. 52 A&M Records v. Napster We do not agree that Napster's potential liability for contributory and vicarious infringement renders the Digital Millennium Copyright Act inapplicable per se. We instead recognize that this issue will be more fully developed at trial. At this stage of the litigation, plaintiffs raise serious questions regarding Napster's ability to obtain shelter under § 512, and plaintiffs also demonstrate that the balance of hardships tips in their favor.

53. 53 A&M Records v. Napster DMCA Issues Plaintiffs have raised and continue to raise significant questions under this statute, including: (1) whether Napster is an Internet service provider as defined by 17 U.S.C. § 512(d); (2) whether copyright owners must give a service provider "official" notice of infringing activity in order for it to have 4252 knowledge or awareness of infringing activity on its system; and (3) whether Napster complies with § 512(i), which requires a service provider to timely establish a detailed copyright compliance policy.

54. 54 A&M Records v. Napster More Defenses Waiver Implied License Misuse

55. 55 A&M Records v. Napster The preliminary injunction which we stayed is overbroad because it places on Napster the entire burden of ensuring that no "copying, downloading, uploading, transmitting, or distributing" of plaintiffs' works occur on the system. As stated, we place the burden on plaintiffs to provide notice to Napster of copyrighted works and files containing such works available on the Napster system before Napster has the duty to disable access to the offending content. Napster, however, also bears the burden of policing the system within the limits of the system. Here, we recognize that this is not an exact science in that the files are user named. In crafting the injunction on remand, the district court should recognize that Napster's system does not currently appear to allow Napster access to users' MP3 files.

56. 56 A&M Records v. Napster What was the aftermath of this case? What did we learn from this case? What can we look for in the future with similar such actions?

57. 57 MGM v. Grokster 9 th Circuit Case Issue – Can distributors of peer-to-peer file-sharing computer networking software be held contributorily or vicariously liable for copyright infringements by users? Holding – “Under the circumstances presented by this case, we conclude that the defendants are not liable for contributory and vicarious copyright infringement and affirm the district court's partial grant of summary judgment.”

58. 58 MGM v. Grokster Parties Plaintiff - Songwriters, music publishers, and motion picture studios Defendant - Grokster and StreamCast Networks

59. 59 MGM v. Grokster Background of the Case Plaintiffs allege: –>90% of the files exchanged through use of the "peer-to-peer" file-sharing software offered by the involves copyrighted material; –70% of the copyright material is owned by the Plaintiffs; –Therefore, D are liable for vicarious and contributory copyright infringement

60. 60 MGM v. Grokster Peer to Peer Software How does it differ from typical client/central server transactions? “In a peer-to-peer distribution network, the information available for access does not reside on a central server. No one computer contains all of the information that is available to all of the users. Rather, each computer makes information available to every other computer in the peer-to- peer network. In other words, in a peer-to-peer network, each computer is both a server and a client.”

61. 61 MGM v. Grokster Peer-to-Peer File Indexing Decentralization requires indexing so that users can locate files and software to connect to other users; Current methods of indexing files: (1)a centralized indexing system, maintaining a list of available files on one or more centralized servers; [Napster] (2)a completely decentralized indexing system, in which each computer maintains a list of files available on that computer only; and [ Gnutella/StreamCast] (3)a "supernode" system, in which a select number of computers act as indexing servers [KaZaa]

62. 62 MGM v. Grokster Decentralized indexing system “Under a decentralized index peer-to-peer file-sharing model, each user maintains an index of only those files that the user wishes to make available to other network users. Under this model, the software broadcasts a search request to all the computers on the network and a search of the individual index files is conducted, with the collective results routed back to the requesting computer. This model is employed by the Gnutella software system and is the type of architecture now used by defendant StreamCast. Gnutella is open-source software, meaning that the source code is either in the public domain or is copyrighted and distributed under an open-source license that allows modification of the software, subject to some restrictions.”

63. 63 MGM v. Grokster “Supernode" System A number of select computers on the network are designated as indexing servers. Users initiate a file search to connect with the most easily accessible supernode and conducts a search of its index and supplies the user with results Technical (e.g., hardware/network) requirements to be a supernode

64. 64 MGM v. Grokster Materials shared Digital audio, video, picture, and text files Authorization Copyrighted and shared without authorization Not copyrighted (e.g., public domain works) Copyrighted with permission

65. 65 MGM v. Grokster Theories NOT direct infringement Secondary copyright liability –contributory copyright infringement –vicarious copyright infringement

66. 66 MGM v. Grokster Contributory Copyright Infringement Requirements 1)direct infringement by a primary infringer, [undisputed] 2)knowledge of the infringement, and 3)material contribution to the infringement.

67. 67 MGM v. Grokster Knowledge Staple Article of Commerce Doctrine Defendant must show that the product was "capable of substantial" or "commercially significant noninfringing uses." –Sony – Since the video tape recorder was capable of commercially significant noninfringing uses, constructive knowledge of the infringing activity could not be imputed from the fact that Sony knew the recorders, as a general matter, could be used for infringement. –Napster – “[I]f a defendant could show that its product was capable of substantial or commercially significant noninfringing uses, then constructive knowledge of the infringement could not be imputed. Rather, if substantial non-infringing use was shown, the copyright owner would be required to show that the defendant had reasonable knowledge of specific infringing files. …”

68. 68 MGM v. Grokster Level of Knowledge Required If the product or service is not capable of substantial or commercially significant noninfringing uses –D had constructive knowledge of the infringement If the product or service is capable of substantial or commercially significant noninfringing uses –D had reasonable knowledge of specific infringing files, and –D failed to act on that knowledge to prevent infringement Why does the court find that in the present case that the software is capably of substantial noninfringing uses? Contrast with Napster…

69. 69 MGM v. Grokster Reasonable knowledge of specific infringement “[T]he Copyright Owners were required to establish that the Software Distributors had ‘specific knowledge of infringement at a time at which they contribute[d] to the infringement, and [] fail[ed] to act upon that information.’” Defendants do not facilitate and can do nothing to stop the infringement [contrast with Napster]

70. 70 MGM v. Grokster Why isn’t this case Napster all over again? “In the context of this case, the software design is of great import. As we have discussed, the software at issue in Napster I and Napster II employed a centralized set of servers that maintained an index of available files. In contrast, under both StreamCast's decentralized, Gnutella- type network and Grokster's quasi-decentralized, supernode, KaZaa-type net-work, no central index is maintained. Indeed, at present, neither StreamCast nor Grokster maintains control over index files. As the district court observed, even if the Software Distributors "closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption."

71. 71 MGM v. Grokster Material Contribution Napster - Napster was “an integrated service” that Napster provided the site and facilities for direct infringement.“ Netcom – Netcom failed to cancel a user’s infringing messag and stop the distribution of the infringing message Swap meets - defendant operated a swap meet at which infringing products were sold and provided utilities, parking, and advertising.

72. 72 MGM v. Grokster Ds do not provide the "site and facilities" for infringement and do not otherwise materially contribute to direct infringement –Infringing messages or file indices do not reside on defendants' computers [contrast with Napster] –D do not have the ability to suspend user accounts [contrast with Napster]

73. 73 MGM v. Grokster Site and facilities “While material contribution can be established through provision of site and facilities for infringement, followed by a failure to stop specific instances of infringement once knowledge of those infringements is acquired, the Software Distributors have not provided the site and facilities for infringement in the first place.” True access providers – must disable that access after acquiring specific knowledge of a user's infringement might be material contribution Stored files or indices - failure to delete the offending files or offending index listings might be material contribution. “However, the Software Distributors here are not access providers, and they do not provide file storage and index maintenance. Rather, it is the users of the software who, by connecting to each other over the internet, create the network and provide the access. ‘Failure’ to alter software located on another's computer is simply not akin to the failure to delete a filename from one's own computer, to the failure to cancel the registration name and password of a particular user from one's user list, or to the failure to make modifications to software on one's own computer.”

74. 74 MGM v. Grokster “While Grokster and StreamCast in particular may seek to be the ‘next Napster,’ … the peer-to-peer file-sharing technology at issue is not simply a tool engineered to get around the holdings of Napster I and Napster II. The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution. Especially in light of the fact that liability for contributory copyright infringement does not require proof of any direct financial gain from the infringement, we decline to expand contributory copyright liability in the manner that the Copyright Owners request.”

75. 75 MGM v. Grokster Vicarious Copyright Infringement 1)direct infringement by a primary party, [not disputed] 2)a direct financial benefit to the defendant, and [not disputed] 3)the right and ability to supervise the infringers.

76. 76 MGM v. Grokster Right and ability to supervise “A salient characteristic of that relationship often, though not always, is a formal licensing agreement between the defendant and the direct infringer. … Indeed, Napster I found especially important the fact that Napster had an express policy reserving the right to block infringers' access for any reason. 239 F.3d at 1023 ("[A]bility to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise."). Whoops!

77. 77 MGM v. Grokster Right and ability to supervise Swap meet operator - right and ability to supervise existed where a swap meet operator reserved the right to terminate vendors for any reason, promoted the swap meet, controlled access by customers, patrolled the meet, and could control direct infringers through its rules and regulations. Napster - we found Napster had the right and ability to supervise Napster users because it controlled the central indices of files, users were required to register with Napster, and access to the system depended on the validity of a user's registration. How does Grokster fit in (or fail to fit in)?

78. 78 MGM v. Grokster “[A] duty to alter software and files located on one's own computer system is quite different in kind from a duty to alter software located on another person's computer.”

79. 79 MGM v. Grokster ON TO THE SUPREME COURT Split among circuits Substantial noninfringing use standard (see note 9 for 7 th Circuit v 9 th Circuit) Where do we go from here?

80. 80 MGM v. Grokster Question addressed by Supreme Court: “[U]nder what circumstances the distributor of a product capable of both lawful and unlawful use is liable for acts of copyright infringement by third parties using the product”?

81. 81 MGM v. Grokster MGM –90% of the files on the FastTrack system are copyrighted works Grokster –Some copying may be authorized –Noninfringing uses are significant

82. 82 MGM v. Grokster Court “Grokster and StreamCast concede the infringement in most downloads, Brief for Respondents 10, n. 6, and it is uncontested that they are aware that users employ their software primarily to download copyrighted files, even if the decentralized FastTrack and Gnutella networks fail to reveal which files are being copied, and when. From time to time, moreover, the companies have learned about their users' infringement directly, as from users who have sent e-mail to each company with questions about playing copyrighted movies they had downloaded, to whom the companies have responded with guidance. …”

83. 83 MGM v. Grokster Encourages Infringement “Grokster and StreamCast are not, however, merely passive recipients of information about infringing use. The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.” What steps were taken?

84. 84 MGM v. Grokster Kiss of death “… [The] business models employed by Grokster and StreamCast confirm that their principal object was use of their software to download copyrighted works.” What about monitoring and filtering?

85. 85 MGM v. Grokster “…the Court of Appeals misapplied Sony, which it read as limiting secondary liability quite beyond the circumstances to which the case applied. Sony barred secondary liability based on presuming or imputing intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement.” How did the court believe Sony was misapplied?

86. 86 MGM v. Grokster “[W]e do not revisit Sony further … to add a more quantified description of the point of balance between protection and commerce when liability rests solely on distribution with knowledge that unlawful use will occur. It is enough to note that the Ninth Circuit's judgment rested on an erroneous understanding of Sony and to leave further consideration of the Sony rule for a day when that may be required.” What does this mean?

87. 87 MGM v. Grokster How is Sony distinguished? “Sony's rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law. … Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability.”

88. 88 MGM v. Grokster Holding “One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses.”

89. Copyright Termination 89

90. Copyright Termination Copyright termination makes it possible, in certain instances, for artists to regain the copyright in their works that they assigned to record companies 90

91. Termination Statute 203. Termination of transfers and licenses granted by the author In the case of any work other than a work made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination under the following conditions: 91

92. Termination Statute (1) In the case of a grant executed by one author, termination of the grant may be effected by that author or, if the author is dead, by the person or persons who, under clause (2) of this subsection, own and are entitled to exercise a total of more than one-half of that author's termination interest. In the case of a grant executed by two or more authors of a joint work, termination of the grant may be effected by a majority of the authors who executed it; if any of such authors is dead, the termination interest of any such author may be exercised as a unit by the person or persons who, under clause (2) of this subsection, own and are entitled to exercise a total of more than one-half of that author's interest. 92

93. Termination Statute (3) Termination of the grant may be effected at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant; or, if the grant covers the right of publication of the work, the period begins at the end of thirty-five years from the date of publication of the work under the grant or at the end of forty years from the date of execution of the grant, whichever term ends earlier. 93

94. Music Licensing 94

95. Compulsory Licensing Compulsory Licenses: 1)Cable television rebroadcast 2)Public broadcasting system 3)Jukeboxes 4)Digital performance of records 5)Digital distribution of records 6)Mechanical license 95

96. Mechanical License Right to reproduce a song in a record Once a song has been recorded and distributed, anyone can make a re- recording of the song so long as a license is obtained. Allows for making of an arrangement of the work 96

97. Copyright Act Under Section 115, a compulsory mechanical license is required when: 1)Primary purposes is to make a record for distribution to the public for private use 2)The record is of a nondramatic work 3)The record has been previously recorded and distributed to the public 97

98. Organization for Licensing Song Recording Harry Fox Agency, Inc. http://www.harryfox.com/ 98

99. Synchronization License A license to use music in timed synchronization with visual images Compositions used in movies and television shows Licensed by the music publisher 99

100. Master Use The right to reproduce and distribute a song Song recordings used in movies and television shows 100

101. Public Performance Public performance by radio, TV, and the internet; in night clubs, amusement parks, and live concerts “Whether your music is live, broadcast, transmitted or played via CD's or videos, your ASCAP license covers your performances.” 101

102. From ASCAP “If you want to make copies of, or re-record an existing record, tape or CD, you will probably need the permission of both the music publisher and the record label. A music publisher owns the song (that is, the words and music) and a record company owns the "sound recording" (that is, what you hear... the artist singing, the musicians playing, the entire production). “If you plan to hire your own musicians and singers and create an original recording of a copyrighted song, then you need the permission of only the music publisher. “ASCAP does not license recording rights. Recording rights for most publishers are represented by the Harry Fox Agency” 102

103. Organizations for Licensing Song Performance ASCAP –http://www.ascap.com/licensing/generallicensin g.aspx BMI –http://www.bmi.com/licensing/ SESAC –http://www.sesac.com/Licensing/Licensing.asp x 103

104. Exemptions for Certain Performances § 110. Limitations on exclusive rights: Exemption of certain performances and displays (1) performance or display of a work by instructors or pupils in the course of face-to-face teaching activities of a nonprofit educational institution, in a classroom or similar place devoted to instruction…. (2) educational transmissions 104

105. Exemptions for Certain Performances (3) performance of a nondramatic literary or musical work or of a dramatico-musical work of a religious nature, or display of a work, in the course of services at a place of worship or other religious assembly; 105

106. Exemptions for Certain Performances (4) performance of a nondramatic literary or musical work otherwise than in a transmission to the public, without any purpose of direct or indirect commercial advantage and without payment of any fee or other compensation for the performance to any of its performers, promoters, or organizers, if— (A) there is no direct or indirect admission charge; or 106

107. Exemptions for Certain Performances (B) the proceeds, after deducting the reasonable costs of producing the performance, are used exclusively for educational, religious, or charitable purposes and not for private financial gain, except where the copyright owner has served notice of objection to the performance under the following conditions: 107

108. Exemptions for Certain Performances (i) the notice shall be in writing and signed by the copyright owner or such owner's duly authorized agent; and (ii) the notice shall be served on the person responsible for the performance at least seven days before the date of the performance, and shall state the reasons for the objection; and (iii) the notice shall comply, in form, content, and manner of service, with requirements that the Register of Copyrights shall prescribe by regulation; 108

109. Exemptions for Certain Performances notwithstanding paragraph (4), the following is not an infringement of copyright: performance of a nondramatic literary or musical work in the course of a social function which is organized and promoted by a nonprofit veterans' organization or a nonprofit fraternal organization to which the general public is not invited, but not including the invitees of the organizations, if the proceeds from the performance, after deducting the reasonable costs of producing the performance, are used exclusively for charitable purposes and not for financial gain. For purposes of this section the social functions of any college or university fraternity or sorority shall not be included unless the social function is held solely to raise funds for a specific charitable purpose; and 109

110. Exemptions for Certain Performances Full listing: http://www.copyright.gov/title17/92ch ap1.html#110 110

111. Performance Master “SoundExchange is the non-profit performance rights organization that collects statutory royalties from satellite radio (such as SIRIUS XM), internet radio, cable TV music channels and similar platforms for streaming sound recordings.” SoundExchange.com 111

112. ABC, Inc. v. Aereo, Inc. Supreme Court Case 2014 Aereo is streaming over the air programming to individuals’ computing devices without paying a royalty to broadcasters Is the streaming considered a public performance? 112

113. Discussion 1.Will a social-bookmarking service be liable for contributory copyright infringement? 2.Can digitally purchased music be resold? 113

114. 114 Program Completed All course materials - Copyright 2000-14 Randy L. Canis, Esq.

115. Appendix 115

116. Compulsory Licensing Statute (a) Availability and Scope of Compulsory License.— (1) When phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner, any other person, including those who make phonorecords or digital phonorecord deliveries, may, by complying with the provisions of this section, obtain a compulsory license to make and distribute phonorecords of the work. 116

117. Compulsory Licensing Statute A person may obtain a compulsory license only if his or her primary purpose in making phonorecords is to distribute them to the public for private use, including by means of a digital phonorecord delivery. A person may not obtain a compulsory license for use of the work in the making of phonorecords duplicating a sound recording fixed by another, unless: 117

118. Compulsory Licensing Statute (i) such sound recording was fixed lawfully; and (ii) the making of the phonorecords was authorized by the owner of copyright in the sound recording or, if the sound recording was fixed before February 15, 1972, by any person who fixed the sound recording pursuant to an express license from the owner of the copyright in the musical work or pursuant to a valid compulsory license for use of such work in a sound recording. 118

119. Compulsory Licensing Statute (2) A compulsory license includes the privilege of making a musical arrangement of the work to the extent necessary to conform it to the style or manner of interpretation of the performance involved, but the arrangement shall not change the basic melody or fundamental character of the work, and shall not be subject to protection as a derivative work under this title, except with the express consent of the copyright owner. 119