Archive for June, 2010

The threat of digital piracy and the opportunity to build a new market, a briefing note by Daniel Eilon

Click here to download and read this briefing note as a pdf.

On 28 May 2010 the long-awaited iPad shipped to the UK, Europe, Japan and Australia having sold its first million units at record speed in the US. The Times and various other newspapers have launched their iPad applications (“apps”), hoping for a new distribution channel for paid content. The new iBooks store has come on stream as part of the iTunes store which already offers movies, TV shows, audiobooks and apps as well as music. iBooks allows iPad users to buy and download books published by HarperCollins, Pan Macmillan, Hodder & Stoughton, Penguin and others.

Book publishers will be wondering whether they will get to sell more than one legitimate copy of each title. (On a worst case scenario, all the other digital copies will be sold or distributed free through the black market.)

The truth that is forcing itself on our recognition is that piracy is now endemic in popular contemporary culture.  Digital piracy presents rights owners with massive commercial, technical, procedural, legal and ideological challenges.

Digital piracy occurs not just online: CDs, DVDs and USB sticks and pre-loaded MP3 players are effective and damaging forms of piracy.  You could call that piracy at the retail level. It is less efficient (by several orders of magnitude) than online wholesale piracy.

Enforcement on a retail scale is unequal to the current challenge.  The music industry found that pursuing individual members of the public was a PR disaster.  It was also (obviously) nowhere near cost-effective.  Rights holders need to focus their enforcement on bigger targets.

The fundamental problem with enforcement is this: there is no point collaring the pickpocket who jostled you in the crowd.  He no longer has your wallet.  He has passed it on to a kid who is sprinting down a side street.  BitTorrent connects 160 million client computers in almost 200 jurisdictions.  That’s a lot of kids; lots of side streets.

In Stephen Pinker’s Stuff of Thought he identifies the recent cultural shift in relation to property very adeptly:

“Languages often treat a possession as a thing at a place, and giving or selling as moving it to a new place, whereupon it is no longer at the original place. For tangible chattels like chickens and cakes this can literally be true, and it is serviceable enough in its metaphorical extension to more abstract goods like money and real estate.  But intellectual property is a real conundrum for the metaphor.  Though you cannot eat your cake and have it, too, this is not true for information, which can be replicated ad infinitum without loss.  Thanks to information technology like file sharing and downloading, a person can gain possession of a song or an image or a piece of software without leaving the original owner bereft of it.  The clash of intuitions, between safeguarding an object that can be in only one place at a time and “information wanting to be free”, has incited one of the fiercest legal battles raging today: how to extend laws that were originally designed for the ownership of physical goods to the ownership of copyable ideas like words, songs, images, designs, formulas, and even genes.”

Pinker is of course right that nowadays creating perfect copies costs no effort, time or money.  But he is of course wrong to assert that this is “without loss”.  IP lawyers like myself will answer:

  1. by referring to the emotive preamble to the first modern law of copyright, namely the Statute of Anne of 1710 which records that “Printers, Booksellers, and other Persons, have of late frequently taken the Liberty of Printing, Reprinting, and Publishing, or causing to be Printed, Reprinted, and Published Books, and other Writings, without the Consent of the Authors or Proprietors of such Books and Writings, to their very great Detriment, and too often to the Ruin of them and their Families.”  This was possibly written by Jonathan Swift, who had suffered this “very great Detriment” at the hands of pirates;

  2. Aids-curing pill number two may cost pennies to manufacture but pill number one cost millions in research and development; and

  3. it make no sense for Pinker to assert that what has been taken from you is merely a copy and therefore you are still in proud possession of your wallet.  If the cash in your wallet is copied (i.e. counterfeited) all the cash in the system is devalued in consequence.  Everything else in your wallet is designed to give you unique access to your bank account, credit card account, and office.  Once you have lost that uniqueness it is of no comfort to know that you have retained plastic cards carrying embossed numbers, magnetic strips and chips.  The same applies to the unique right to control distribution of your creative work: copyright.

The Washed-up Digital Economy Act

The controversial Digital Economy Act went through the last parliament during its final days in an extraordinary rush (as part of the so-called “wash up”) and might not survive long under the new Liberal Conservative government.  The Act is Mandelson’s legacy.  Before the election the Liberal Democrats vowed to repeal it if they got the chance.  It may therefore be trashed along with various rejectamenta from the Labour period.

I hope that it will be reconsidered and re-launched.  One commendable ingredient in the new Act is that the criminal penalty for online and physical copyright infringements under the Copyright, Designs and Patents Act (1988) has been increased to a maximum of £50,000, up from £5,000.  This does up the ante for criminal prosecutions.  This is an opportunity for rights owners: those of us who send out letters before action to directors of companies find that the reference to criminal liability for copyright and trade mark infringement (coupled with the director’s personal liability for infringements of his company in certain circumstances) does help to concentrate the mind of the recipient.

The Digital Economy Act is disappointingly narrow: it hitches its wagon to enhancing the prospects of enforcement by aiding the identification of wrong-doers by their IP addresses.  This is vulnerable to technical workarounds (like proxy servers disguising the location of the pirate), flying false colours (pinning the infringement activity on some innocent third party, which I discussed in a recent briefing note), and encryption (which has serious security implications). 

The pirates’ best three arguments

In its election manifesto the Pirate Party commented as follows on the Digital Economy Act:

“The law will not stop copyright infringement, it will simply drive it behind encryption and obfuscation techniques, and will effectively criminalise over 6 million Britons, children, teens and adults alike, all for a protectionist attempt to protect a dying industry. Parliament does not need to protect, or even encourage analogue-age business models if it wants a Digital Britain; they must either engage with new technology or suffer the consequences, as with any other business. This is an adapt-or-die situation: the struggling sectors of the content industries have failed to conform to the digital revolution, and should not be rescued for clinging to their antiquated business model.”

It is true that the Statute of Anne 1710 gave authors two 14 year periods of protection whereas now, by contrast, a young lyricist or programmer (assuming, with the help of the NHS, she lives to a ripe old age) could get 70 plus 70 years of protection.  So how long would be reasonable, in the view of the Pirate Party?

The Pirate Party proposes a 10 year copyright extensible to 15 in total.  As Chris Castle recently quipped in The Register, this suggestion is hypocritical nonsense since in fact the constituency represented by the Pirate Party recognizes a copyright duration of no more than 5 minutes i.e. upload time.

.I shall spare you the freedom of speech, anti-censorship, anti-monopolist and anti-capitalist arguments which pirates regularly enlist.  All these are pitched on quasi-ethical rather than legal foundations.  (In the mouth of a lawyer “quasi” generally means “not”.)

The pirates’ best three pieces of legal ammunition are the following:

  1. the Betamax case in the US (1984).  The defendant was found not liable for contributory infringement based on its distribution of the Betamax video recorder, because the recorder was “capable of a substantial non-infringing use,” namely “time-shifting”.  There was significant statistical evidence presented to the court suggesting that about nine percent of the Betamax recorder’s use was for time-shifting. The Court found that this data, when considered in the context of the product’s general capabilities, was sufficient to establish that the recorder was “capable of substantial non-infringing uses.”  The purpose of the Sony-Betamax rule is to “leave breathing room for innovation and a vigorous commerce” said the court in Grokster (citing the earlier Betamax case).  US law recognizes that hitting technologies that have potentially infringing applications could have a chilling effect.

  2. In Europe the E-Commerce Directive Article 12 provides a “mere conduit” exemption for ISPs and article 14 provides exemption from liability for “information society services” (websites, search engines, ISPs, etc) as long as they apply a “notice and take down” policy i.e. when on notice of adverse rights they take (allegedly) infringing works off-line.

  3. CBS v Amstrad Consumer Electronics plc (1988) AC in the UK.  In this case Lord Templeman agreed with Atkin LJ in Falcon v Famous Players Film Co (1926) who said that, in the context of copyright, authorisation means “the grant or purported grant, which may be express or implied, of the right to do the act complained of”.  Amstrad did not authorise infringement of copyright by the sale of its twin cassette tape machines, it was merely facilitating unauthorised copying.  The machines could be used for legitimate purposes. Amstrad expressly disavowed authorisation.

This last point presents us with a serious problem: on this basis if the provider of the technology plays lip service to rights owners’ interests (insisting that he provides only the means for copying but takes no responsibility for clearing the rights) then he is not caught for encouraging infringement, turning a blind eye to it, and indeed profiting from it.  Two recent cases will make it more difficult for sellers of infringement-enabling products and systems to escape liability.

Peer-to-peer (“P2P”)  file sharing of infringing copies

Napster was closed by court injunction in February 2001.  Since then Kazaa, Morpheus, Grokster, and Pirate Bay have come under attack, with a good record of success for rights owners, especially in the US.     The 2005 Grokster ruling established a US standard for secondary copyright infringement. This is where a party did not make material available, but gave others a means to do so, encouraged the activity, and profited from it.

The most recent in this line of American cases is Recording Industry Association of America (RIAA: i.e. 13 record Companies) v LimeWire which was decided on 11 May 2010 New York, USA.

LimeWire is one of the largest remaining commercial peer-to-peer services,” Mitch Bainwol, the RIAA’s chairman, said in a statement. “Unlike other P2P services that negotiated licenses, imposed filters or otherwise chose to discontinue their illegal conduct following the Supreme Court’s decision in the Grokster case, LimeWire instead thumbed its nose at the law and creators.”

In this case the US District Court ruled that the company behind the LimeWire P2P software is responsible for inducing copyright infringement, even though the software theoretically has legitimate, non-infringing uses. Damages have yet to be assessed but they will be based on the tariff of $150,000 per infringement.  Bearing in mind that the service enabled hundreds of thousands of infringements daily and there were 50 million unique users each month the damages could conceivably come to trillions of dollars.

LimeWire claimed to be different from Grokster et al and to be willing to take down specific film and music files if lists were provided by the industries.  Question: should a P2P provider whose service enables file sharing without reference to the ownership of the files be entitled to require the rights owners to be so specific?

The court accepted expert evidence that 98.8% of the files requested for download through LimeWire were copyright protected and not authorized for free distribution. Judge Kimba Wood said: “The following factors, taken together, establish that LimeWire intended to encourage infringement by distributing the LimeWire software:

  • LimeWire’s awareness of substantial infringement by users;

  • LimeWire’s efforts to attract infringing users;

  • LimeWire’s efforts to enable and assist users to commit infringement;

  • LimeWire’s dependence on infringing use for the success of its business; and

  • LimeWire’s failure to mitigate infringing activities.”

The court accepted evidence of the provenance of files through analysis of the “hash” of each relevant file. A hash is an identifier of a particular digital file produced by a complex algorithm that reflects all aspects of that file, including its content, quality and resolution, length, encoding, and any “ripping” software that has been used to transfer the file. Thus, two audio files with the same hash not only have the same sound content but also have been created using the same ripping software. Based on a hash-based analysis, it was clear to the court that copyright protected digital recordings downloaded through LimeWire by Plaintiffs’ investigators were previously digitally shared and downloaded by other LimeWire users.

The court learned from experts about the availability of content filtering. In May 2006 LimeWire implemented an optional, hash-based content filter. A hash-based filter can identify a digital file that contains copyright protected content, and block a user from downloading the file.  Hash-based filtering utilizes a digital file’s hash to block infringing files. If two files have the same hash function, then they are identical. A hash-based content filter may compare files scheduled for online transfer against a database of digital files that are known to possess audio content protected by copyright.

Hash-based filtering is not 100% comprehensive: two audio files may contain the same song recording but have different hashes as a result of different settings or ripping software that have been used in the production of each of the respective files. Because of this, a hash-based filtering system cannot be expected to recognize and thwart all infringement on a file-sharing system. A hash-based filter system nevertheless has the capacity to diminish substantially unauthorized transfers through a file-sharing system.

The court was distinctly unimpressed by the fact that when LimeWire included this filtering in its software the default setting of the filter was set to “off”.  The court concluded that LimeWire’s decision to set the hash-based filter to “off” by default and its failure to take other available action (e.g. acoustic fingerprinting) revealed an intentional course of action to preserve infringing activities among LimeWire users. The court thought that the availability of the optional filter merely paid lip service to the rights of the copyright owners. 

The legal categories applied in the US are different to the UK.  They have a number of kinds of rights “violations” which have no exact equivalents in the UK: inducement, contributory, vicarious, common law copyright infringement and unfair competition.  US defendants can also avail themselves of so-called “fair use” defences not available in the UK.  Therefore we cannot directly apply this US case to our UK legal issues but we can learn from the technical sophistication of the approach.

We have a new UK case which is almost as recent: Twentieth Century Fox and others v NewzBin Limited [2010] EWHC 608.This UK judgment handed down at the end of March 2010 is a big victory for content and brand owners.  It will help them to compel certain service providers to prevent the infringements carried out by their users. Newzbin is a usenet service. In some ways usenet provides an even more ingenious approach to piracy since neither the provider of the P2P software nor any individual peer can be caught with your wallet in his possession.  The software creates a copy of the work which is broken into hundreds of thousands of fragments, all separately stored, potentially scattered across all of the jurisdictions in the world.  Like the other P2P services the spider at the centre of the web holds none of the files.  Unlike the other systems, no individual peer needs to hold an entire file.  Newzbin provided its subscribers with NZB files which contained the addresses where each of the fragments could be found.  Using the NZB file the infringer could with one click track down the fragments, download them onto his computer and reassemble them into a complete work.  Newzbin attempted to say to the court “our hands are clean”.  They described themselves as “content agnostic”. 

The claimants sought a finding of infringement of copyright by NewzBin under three headings:

  1. authorising its members’ acts of infringement; 

  2. procuring, engaging and entering into a common design with its members; and 

  3. communicating the works to the public, namely its members.

They thus sought to make NewzBin secondarily liable as an accessory to the primary acts of infringement by their users (1 and 2) as well as primarily liable (3). They succeeded on all counts.

They also sought an injunction under section 97A of the Copyright, Designs and Patents Act 1988, which provides for injunctions to be granted against service providers who know their services are being used to infringe. Again they succeeded, although the judge refused to give them as wide an injunction as they had requested.

Of relevance was that:

  • NewzBin is not a typical search engine.  It is a service designed and targeted at helping its users to access material that in the vast majority of cases is unlawful;

  • users paid NewzBin in exchange for access to the service;

  • users are invited to browse the NewzBin index, including its Movies category and sub-categories including genre;

  • NewzBin grouped together individual messages containing fragments of complete movies, actively encouraging its editors to produce reports in respect of these consolidations;

  • it provided the ability to create NZBs, greatly facilitating the download of complete movies; and

  • no filtering system had been installed, despite the very large proportion of the content of the Movies category being illegitimate, and no other steps taken to remove copyrighted material.

Mr Justice Kitchin revisited many of the principles discussed by the House of Lords in the 1988 case of C.B.S. Songs Ltd v Amstrad Consumer Electronics Plc. The judge found that NewzBin had sanctioned, approved and countenanced the copying of the films. On that basis he found that NewzBin had authorised the infringements of its users by “purporting to possess the authority to grant any required permission” to copy any film that a user might choose.  While the decision in the case as a whole seems to me to be right, to deduce that this amounts to authorisation seems to me to be a problematic logical step.  Unfortunately, the half sentence in which these words appear is, in my opinion, vulnerable to appeal.  However, it may not be worth pursuing since Newzbin lost the case in so many other ways.

In the last paragraph of his judgment Mr Justice Kitchin brushed aside Newzbin’s argument that they had not been served with a notice under the E-Commerce Directive and therefore were not yet obliged to take down anything.  The judge found they were on actual notice and therefore the absence of a served notice was not fatal. 

NewzBin shows that it will not be enough for online service providers simply to claim that they have passive, “content agnostic” roles and so should not have any responsibility for what their users do.  The evidence of Newzbin’s officers as to their knowledge of how the service was to work did not convince the judge that any of their rights-protection talk was any more than window-dressing.

Conclusions: lessons to be learned from the music industry P2P experience

  • A concerted campaign against the main wrongdoers does help to close down commercial adversaries and maintain the value of legitimate material. 

  • The non-commercial adversaries (i.e. the P2P consumers) remain a serious threat.  Some of these decentralised systems survive the demise of the producer of the P2P software.

  • Technical protections are valuable and should be employed.  Music publisher have spiders crawling the web looking for infringing music files.  If book publishers are not using Audible Magic or other such techniques to watermark their e-books they are missing a trick. 

  • Technical protections are always vulnerable to technical countermeasures.  It can be argued that the reason why the Computer Misuse Act (1990) and the Data Protection Act 1998 have been relatively robust and long-lasting at a time of rapid technological advance is that they were technology neutral.  Neither act is perfect, but both are pitched at the right level of abstraction so that ingenious workarounds are difficult to devise.  This is arguably not true of the Digital Economy Act in its current form and it needs to be amended and improved.

  • Rights owners need to rise to the “Big Switch” challenge as soon as possible.  The big switch means bringing the pirates onshore.  The success of the iTunes store for music, TV shows, movies and iPhone/iPod apps shows that consumers will pay for content that is offered to them with ancillary advantages such as choice and convenience.  The P2P networks have vast potential “client lists” of keen music enthusiasts, gamers, movie fans etc (and maybe even readers!) some of whom could be induced to pay something for the content they enjoy.   Rights owners need to consider how to reach out to ordinary consumers and offer them an incentive to opt for legitimate content at an appropriate price.  Some further commercial and legal ingenuity is required here to turn a piracy free-for-all into a mature and sustainable market for creative work.

daniel.eilon@newmedialaw.biz

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