Seven Things to Keep in Mind…

Last time, we looked at what customers want from online music services. To help you understand how copyright law governs online digital content (such as music files), we thought we’d provide a 40,000-feet overview of copyright law, emphasizing those aspects of copyright law most related to digital content.  These are guiding principles, not a comprehensive description of the law, and it’s sometimes a bit tongue-in-cheek.  There are details, nuances and exceptions that might apply to a specific set of facts and (as is the nature of copyright law) really change the result.

1.  Copyright law isn’t a moral code.  Yes, you will hear lawyers describe copyright infringement as “theft.” And, yes, you’ll hear that the purpose of copyright is either to vindicate the author’s creativity (the French version) or to incentivize people to create (the Anglo-American version).  But, in the end, copyright law is, for the most part, a highly detailed and technical set of laws (with one major exception*).  Well-meaning people infringe copyright all the time; and shady characters sometimes find ways around it.

*  That exception is fair use, which is about as non-technical as you can get.

To be sure, Congress might intend to punish evil-doers with copyright law–and there are some serious evil-doers out there–but Congress doesn’t always succeed in carrying out its intent.  Indeed, Congress’ intent is often every bit as complex as the law itself.  There are so many stake-holders with differing interests in copyright law–songwriters, musicians, writers, publishers, coders, websites, data storage facilities, stage producers (and consumers, one supposes)–that the resulting compromises can be very finely sliced.

From a purely legal standpoint (as opposed to a policy standpoint), it’s just not profitable to complain about a business model that’s seeking to “exploit” a “loophole” in copyright law; or to praise a company for “playing by the rules” by getting licenses.  These companies are simply following the law (or trying to follow the law).  An important corollary:  because copyright law doesn’t follow a moral map (or a reliable set of principles), it can be counter-intuitive to non-experts, and those without sufficient resources can be badly hurt.  For the reasons set forth in point 2, this goes double for digital content.

2.  Copying digital content is not only very easy, but it often happens without consumer knowledge in the course of doing something else.  The classic example of this is software.  It must not only be copied onto some sort of media (such as your hard drive), but to be used, it must be copied into your computer’s memory.  As the user, you have no reason to know that’s happening.  It’s as if to read a book you had to make a photocopy of the book before you could read it.  If you don’t have the appropriate license, just double clicking on an application’s icon is a copyright violation–even though from your point of view you’re just using something that you (think you) “own.”

3.  Copyright is a set of “exclusive rights.”  You (as the copyright holder) and only you are permitted to do certain things with the work.  You can give others permission to do some or all of these things–i.e., license the copyright (in whole or in part)–usually in exchange for a royalty or other compensation.  That’s the basis of the whole copyright ecosystem.  These rights are (simplified somewhat):  (a) the right to reproduce the work, (b) the right to make derivative works (e.g., translations or adaptations), (c) the right to distribute the work, (d) the right to publicly perform the work, and (e) the right to publicly display the work.  Building on point 1, if an act doesn’t fall into one of these categories, then that act isn’t a copyright violation, even if it seems it should.

4.  The range of punishments for copyright infringement is very broad, is unpredictably applied, and has recently tended to skew to the harsher end.  It’s unclear whether harsher penalties have any deterrent effect on consumers, since they’re well beyond what most people can pay anyway.  For established businesses, however, they can be very serious.

I blogged in some detail about copyright damages here, but here’s how it works in a nutshell:  Untimely registered works are entitled to actual damages, which are normally very difficult to prove, and injunctions only.  Timely registered works are also entitled to statutory penalties (in lieu of actual damages) and and eligible for attorney’s fees.  The normal range for statutory penalties is between $750 and $30,000, per work infringed, “as the court considers just.”  But it can be reduced to $200 for “innocent infringement” and increased to $150,000 for “willful” infringement–per work infringed!  Thus, in theory, infringing the copyright in a single work may result any of the following punishments:

  • At a minimum, you’ll probably be subject to an injunction prohibiting you from further infringement, which might be meaningless (e.g., you can’t listen to an illegal copy of a music file again), or devastating (e.g., you’re whole business model is illegal).
  • Almost nothing, if the copyright wasn’t timely registered (which happens more often than you’d think–but songs are nearly always correctly registered) and actual damage can’t be proved (which is often the case).
  • A few hundred dollars, if the copyright was timely registered, but the jury takes pity on the you and decides you’re an “innocent infringer.”*
  • Tens of thousands of dollars (including attorney’s fees), if the copyright was timely registered, and the jury hates you.*
  • $150,000, plus attorney’s fees, if the copyright was timely registered, the jury found your infringement to be “willful,” and the jury hates you.*
  • Imprisonment, if the infringement was “for commercial purposes” or had a total retail value of more than $1000, AND the local U.S. Attorney wanted to go the trouble of prosecuting you (which isn’t very often).

Remember, these are per work infringed, so get out your calculator and do some multiplication if there are multiple works involved.  The upper end can quickly get into the millions of dollars. 

Looking just at monetary punishments, different juries looking at the same set of facts could plausibly reach radically different punishments.  (If you don’t believe me, consider the radically different amounts Jammie Thomas-Rasset’s juries have come up with.)  If, for example, a jury believed you didn’t know copying was going on (see point 2 above), it might find you an “innocent infringer” and lowball your penalty.  If it didn’t believe you, it might find you to be a “willful infringer” and highball your penalty.  This ties into point no. 1 because a consumer might know that a certain act is wrong but completely underestimate the consequences.  A $80,000 penalty as punishment for the act of reproducing, say, a single music file, even “willfully” is beyond most people’s moral sense and experience.

5.  You can’t avoid liability by having someone else do your dirty work.  Under three distinct (and sometimes overlapping) sets of circumstances, you can be liable for infringement caused by someone else.  This is known as “secondary liability.”  They all have one thing in common:  there must be direct liability (just not committed by you).  Secondary liability makes you responsible for someone else’s wrong, but it doesn’t create a new wrong.

  • Vicarious Liability:  This is (I think) the oldest form.  You benefit from someone else’s infringement, and you’re in a position to stop the infringement, regardless of whether you actually know of the infringement.  For example, if you received a cut from sales of pirated CDs being made on your property, you’d probably be vicariously liable.
  • Contributory Infringement:   You don’t carry out the infringement yourself, but you make it much easier for others to do so, and you are aware (or should be aware) that actual infringement is happening as a result.  For example, if you provided a CD-copying machine to the CD pirate in the previous example, you’d be secondarily liable if you should have known of the use to which the pirate was going to put the machine.
  • Inducement of Infringement:  This is a relatively new form of secondary liability, dating to the 2005 Grokster decision by the U.S. Supreme Court.  In short, it’s the act of forcing, tricking or strongly tempting someone to infringe copyright.  The contours of this form of secondary liability are still being formed.  At a minimum, it requires that you actually intend for copyright infringement to result from your actions.  To take a crass example, if you special ordered ten CDs from our pirate, and you knew (1) the CDs are pirated, and (2) the pirate would have to make the CDs (i.e., they didn’t come from some pre-existing inventory), you’d be liable for inducement.  In the Grokster case itself, the Supreme Court held that providing the software for peer-to-peer file sharing was file sharing, at least when you suggested to your customers that they can use the software to share copyrighted works, and your business model is based on that encouragement.

6.  The Digital Millennium Copyright Act (“DMCA”) creates a “safe-harbor” for hosting infringing content online, but it’s not a passive safe-harbor:  you have to work fairly hard to stay within it.  We’ll go into a good deal more detail in a later post about this, but here’s a quick thumbnail of the requirements.  (a)  You have to register your website with the U.S. Copyright Office, identifying an actual human being responsible for receiving “DMCA take-down notices.”  (b)  You must timely take down a work identified in a properly prepared “DMCA take-down notice.”  (c) You must take steps to prevent repeat infringers from using your website to infringe.

7.  Fair use is like unto a religious mystery.  The best legal minds can’t figure out a principled way to apply it.  There are a few regularly-occurring situations where we are reasonably certain fair use applies (or doesn’t), but beyond that, we don’t know until a judge says so.  We can’t even agree on the nature of fair use:  is it an affirmative defense or an exception to copyright liability?  Is it a creature of the First Amendment or common law?  It’s codified in a statute:  does that mean Congress could rescind or restrict fair use if it wanted to?  And yet, it is one of the three most important aspects of copyright law–and from the consumer’s point of view, it is the most important aspect.

Fair use is supposed to take a few (non-exclusive) factors into account:  (1) the “purpose and character” of the use (e.g., educational, commercial, etc.); (2) “the nature of the work”; (3) “the amount and substantiality of the portion” used (i.e., did you take most of it? A small but crucial bit of it?); and (4) the market-effect of the use (i.e., is the use interfering with the copyright holder’s ability to monetize the copyright?).  Those factors don’t provide much guidance, and there isn’t much clarity provided by case law. (For some more detail, check out our inaugural episode of “Is it Fair Use?“)

At the same time, there are a number of actors you might think would be important but which aren’t taken into account.  Most important, your state of mind isn’t a factor.  It’s a factor in meting out the punishment, but it’s not very relevant in getting you off the hook entirely.  You might have not intended to commit copyright infringement, you might not realize it was happening, you might have been trying to save starving orphans–doesn’t really matter.  Thus, the mere fact that copying of digital content is very easy to do (see point 2) isn’t relevant to the question of fair use.

In our next post in this series, we’ll take a look at the new online music services.

Thanks for reading!