Aereo Loses the War Before the Supreme Court

The question presented to the court was whether Aereo’s conduct, in recording and re-broadcasting over-the-air television broadcasts to individual subscribers to Aereo’s services, constituted copyright infringement.  Aereo’s service is a web-based system that permits subscribers to watch broadcast television through a web broadcast.  Subscribers are able to access available television programming by selecting a specific live broadcast from a menu on Aereo’s website.  The system will then direct an Aereo-controlled antenna to tune in to the program and transcode the broadcast for access by the requesting subscriber.  In the process, the Aereo system makes a digital copy of the over-the-air broadcast to permit streaming of the content to the subscriber.  The digital copy is only made available to the individual subscriber that requested the particular broadcast.  Am. Broadcasting Cos. v. Aereo, Inc., 573 U.S. ___ (2014).

The plaintiffs in this case are the broadcasters that transmit over-the-air television programming, along with the producers, marketers, and distributors of this content.  They sought a court’s order to enjoin the conduct of Aereo on the grounds that Aereo’s services infringe on the public performance right provided under section 106 of the Copyright Act.  Section 101 defines “public performance” to mean:

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

17 U.S.C. § 101.

Case law over time has helped to clarify when a performance is to the “public.”  In Columbia Pictures v. Redd Horne, 749 F.2d 154 (3rd Cir. 1984), the defendant operated a video rental and sales business.  In addition, patrons of the store could rent one of eighty five private viewing booths, permitting up to four people to view a video in the store in the booth.  The plaintiff had alleged that the private viewing booths constituted an unauthorized public performance, in spite of the defendant’s attempt to limit the number of people who could view a tape in the store.  The third circuit agreed, finding that the video store was open to the public and that it was the defendant, not the patrons, that performed the copyrighted works in the private viewing booths.

However, as technology has evolved, a separate line of cases has developed in an attempt to shield technological improvements from claims of copyright infringement.  Starting with Sony in 1984, the Supreme Court held that the VCR could be sold, even though the people purchasing the technology might use it to record copies of copyrighted materials on television, without permission or a license from the copyright holders.  Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984).[1]  In more recent years the federal courts have sided with the music industry and found infringement with certain file sharing and peer-to-peer sharing technologies, such as Napster, Grokster and Limewire, concluding that these technologies resulted in massive and wholesale infringement.[2]

The Aereo service itself is like a cloud-based VCR, in that the service permits users to request that a particular over-the-air broadcast be recorded and transmitted via the internet to the individual requesting the recording.  Aereo also went to great pains to distinguish its service from peer-to-peer sharing services by emphasizing that a user selects a broadcast he wishes to watch via the internet, and Aereo only records and directs that recording to the individual requestor, not making the copy available to any other Aereo user – even one that requests the same broadcast through the service.  Unfortunately, Aereo could not prevail on these points before the Court.  Instead, the Court found that Aereo’s service was functionally similar to community antenna television systems (“CATV”), and that Congress had specifically amended the Copyright Act to define CATV systems as copyright infringing, overturning legislatively two Supreme Court decisions holding otherwise: Fortnightly Corp.[3] and Teleprompter Corp.[4]

In each of those cases, the defendants operated a system where the defendant would collect over-the-air broadcasts from a region and transmit those broadcasts to subscribers in another broadcast market without the payment of a royalty and without a license from the copyright holders.  The Court held that these activities were outside of the scope of the Copyright Act as it stood prior to the 1976 amendments, because the CATV systems were acting more like “viewers” rather than “broadcasters” of the copyrighted content of others.  This was so, according to the Court, because the CATV system “‘no more than enhances the viewer’s capacity to receive the broadcaster’s signals [by] provid[ing] a well-located antenna with an efficient connection to the viewer’s television set.’”  Aereo, Inc., slip. op. at 6 (quoting from Fortnightly Corp., 392 U.S. at 399).  However, Congress disagreed with the conclusion of the Court and ultimately amended the Copyright Act to reach the conduct of CATV system providers, establishing a compulsory royalty regimen under section 111 of the Act.

Ultimately the Court held that Aereo was providing a service similar to the CATV systems, and, in spite of some differences that the dissent argued were significant, held that if the CATV systems were infringing, so to must the Aereo system.  However, the Court did not declare that Aereo is, in fact, a cable system, which would permit Aereo to take advantage of the compulsory licensing system established by Congress.  In a filing July 9, Aereo has apparently now taken the position that it is a cable system and is seeking a license to operate as such.[5]  Time will tell whether Aereo will be able to operate in this manner or whether Aereo will be unable to become a “legitimate” content distributor, like some other technology innovations that had originally been declared infringing.

[1] Admittedly, the Sony case was about unauthorized copying, rather than public performance of, copyright works, and Sony was in the suit defending against a contributory or vicarious infringement claim, where Aereo was accused of direct infringement by publicly performing copyrighted works without a license.

[2] See, e.g., Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd., 545 U.S. 913 (2005); A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001); Arista Records LLC v. Lime Group LLC, 715 F. Supp. 2d 481 (S.D.N.Y. 2010); but see Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2nd Cir. 2008) (cert. denied 557 U.S. 946 (2009)).

[3] Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968).

[4] Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394 (1974).

Google Books Ends in Fair Use Verdict for Google

The case brought by the Author’s Guild against Google, for scanning of millions of books without any author’s permission, ended without a trial when Judge Chin granted a motion for summary judgment in favor of Google at the end of 2013.  In his thirty page opinion, Judge Chin agreed that Google’s conduct is affirmatively protected by section 107 of the Copyright Act, which sets out the factors that courts consider when determining if a use of another’s copyrighted work is “fair,” meaning the defendant is not required to obtain a license or pay a royalty for the use.

This controversy started almost ten years earlier when Google began its “Library Project” to scan and index books from a variety of library collections, including Harvard, the University of Michigan, the New York Public Library, Oxford and Stanford.[1]  Millions of books were to be scanned and indexed using Google’s engineering expertise and search engine, including some books that remain under copyright protection.  Google also established a “Partner Program” under which Google worked with publishers and rights holders to index and display books with permission from the owner of the rights in the work.[2]  By Judge Chin’s decision last year, more than twenty million books had been scanned and indexed into the Google Books project.[3]

Google’s database of books includes a full digital copy of each book it scans.  Each such book is indexed for searching.  Users can navigate to and search through the index using queries of their own design.  In response, the search engine will return a list of books from the index that are relevant to the query.  Clicking on a particular book will take the user to a page which displays the cover of the book and a short summary of the content.  If the book was scanned through the Partner Program, the user is able to view what the author or publisher has consented to display on the results page.  If the book is in the public domain, the user is able to view the entire book and also to download the electronic version of the book.  However, for books still under copyright protection but not available from the Partner Program, the search result displays the book in “snippet view.”[4]  “Snippet view” is the source of controversy for the plaintiffs in the Author’s Guild because Google did not obtain permission to show portions of the indexed book in search results.[5]

Copyright infringement is the invasion of an exclusive right of an original work by another.  Among the exclusive rights of authors are the rights to reproduce, distribute, and publicly display their works.[6]  Fair use is an affirmative defense to a claim of copyright infringement.  Under section 107, courts consider four factors when determining if a defendant’s infringing use is “fair:” (a) the purpose and character of the defendant’s use, (b) the nature of the plaintiff’s work, (c) the amount and substantiality of the work used by the defendant, and (d) the impact of the use on the plaintiff’s market for his work.[7]  Determining whether fair use applies depends on the facts and circumstances of each case.[8]  Judge Chin emphasizes in his opinion that “transformative” uses of copyrighted material are more likely to be a fair use.  Citing Campbell v. Acuff-Rose,[9] the court defines “transformative” uses of a work as the creation of a new work from an old one, where the new work has a different purpose or character and the fair user alters the original expression resulting in a new work with a new meaning or message.

Fair use has been heavily litigated because the defense turns on the specific facts of each case.  In addition, while the Google Books case is an important one, it is not the first case to raise the issue of fair use in the context of technology on the internet.  More than ten years ago, the Ninth Circuit confronted a search engine that was sued for copyright infringement by a photographer, Leslie Kelly, whose photographs had ended up indexed into Arriba Soft Corp.’s internet image search engine.[10]  In that case, Kelly created, sold and licensed landscape photographs of the American West, which he made available for sale through his website.  The defendant, Arriba Soft, had crawled and indexed images available from public internet web sites, including Kelly’s web site. The Ninth Circuit held that Arriba Soft’s use of Kelly’s photographs was transformative.  Kelly’s purpose in creating his photographs was aesthetic: people would purchase Kelly’s works to have a framed photograph of a landscape in their home.  In contrast, Arriba Soft used Kelly’s photographs to create thumbnails which were placed into a search database so that search users could use keywords to find related images.[11]  The thumbnails could not supplant the original aesthetic use of the works because the thumbnails were at a considerably lower resolution.  Ultimately, Arriba Soft prevailed on the basis that its use of Kelly’s works was a fair use.[12]  Amazon obtained a similar outcome in the case Perfect 10, Inc. v., 508 F.3d 1146 (9th Cir. 2007).

In the Google Books case, the court also found that Google’s use of the plaintiff’s works was transformative: “Google Books digitizes books and transforms expressive text into a comprehensive word index that helps readers, scholars, researchers, and others find books.  Google Books has become an important tool for libraries and libraries and cite-checkers as it helps to identify and find books.”[13]  The court continued: “Similarly, Google Books is also transformative in the sense it has transformed book text into data for purposes of substantive research, including data mining and text mining in new areas, thereby opening up new fields of research.”[14]

The court held that the second factor – the nature of the plaintiff’s works – also favored a finding of fair use, because most of the books indexed by Google, 93%, were non-fiction, and all of the books had been published before Google indexed them.  A court is less likely to find fair use when the defendant has used highly creative works, or works that are not yet published.  The court held that on balance, the third factor – the amount and substantiality of the use of the plaintiff’s works by Google – weighed slightly against a finding of fair use because Google had used all of the works verbatim, though that was required for the purpose of Google’s use.[15]

Finally, the court held that the last factor – the impact on the plaintiff’s market for its works – also strongly supported a finding of fair use.  In this case, the court found that the plaintiff’s market for its original works would be very unlikely to be supplanted by the “snippet” view that was available through Google’s website in response to user searches for keywords.  To the contrary, the court found that Google’s database would most likely enhance the sales of the plaintiff’s works.[16]

As a result, the court found that Google’s use of the plaintiff’s works was a fair use and entered judgment for Google.  The Author’s Guild filed notice of its intention to appeal, and subsequently filed an appeals brief with the Second Circuit in April.  Google’s reply is due in July.  Stay tuned for further developments!

[2] The Author’s Guild, Inc. v. Google, Inc., 1:05-cv-08136-DC 5 (S.D.N.Y. Nov. 14, 2013) (appeal pending in 2d circuit in case number 13-4829 CV).

[3] Id. at 1.

[5] A careful reader will note that Google also has a complete digital copy of each book it scans, which Google backs up to backup media and shares with the source library that provided the work to be scanned.  Plaintiffs alleged that these acts violate the authors’ exclusive rights of reproduction and distribution.

[6] 17 U.S.C. § 106.

[7] Id. at § 107.

[8] The Author’s Guild, Inc. at 16-17.

[9] 510 U.S. 569 (1994).

[10] Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003).

[11] Id. at 818.

[12] Id. at 822.

[13] The Author’s Guild, Inc. at 19.

[14] Id. at 20.

[15] Id. at 22-23.

[16] Id. at 25.

Creative Commons Licensing

US Copyright law provides generally broad protections for the creators (“authors”) of original works of authorship.  In particular, authors have the exclusive right to copy, distribute, publicly perform, prepare derivative works from, and publicly display their works.  In addition, these rights last for a relatively long time – for an original fixed in a tangible medium – the lifetime of the author plus seventy years.  One of the problems with the broad protection is that creative people who want to start with the work of another may be stifled by the licensing regime of an author.  Absent “fair use” (a defense raised by an infringer and one that depends on the facts and circumstances of each use), an artist may just be unable to use a work without risking a lawsuit.  One partial solution to this problem is the Creative Commons licensing.

The Commons is a copyright licensing regime (actually a set of several kinds of licenses) and searchable database that permits users to obtain re-usable creative works that are not subject to the same restrictions under US copyright law.  The database permits a user to search in a variety of individual databases for a particular work, and the database result will then display the use restrictions, if any, based on the applicable license.  The database also contains many works that are in the copyright “public domain,” which are works that require no license at all to be used (generally, works published before 1923 are now in the public domain).  In reverse, authors of works who wish the work to be more freely distributed can publish works to the Creative Commons under one of the applicable licensing agreements.

The result is that more creative works are available that require less from persons that want to use them with less risk and potentially less licensing expense.

Autodesk and the First Sale Doctrine

Autodesk, Inc. and Timothy Vernor have gotten into a dispute over Mr. Vernor’s resale of Autodesk’s AutoCAD software on eBay.  Autodesk kept filing DMCA take down notices for each of Mr. Vernor’s auctions of AutoCAD software that Mr. Vernor had started on eBay.  After this happened a few times, Mr. Vernor hired a lawyer and sued Autodesk under the Declaratory Judgment Act, seeking a declaration of rights from a federal court within the 9th Circuit that Mr. Vernor had the right to resell Autodesk’s software.

Mr. Vernor won at the trial level.  A copy of the opinion is found at Vernor v. Autodesk, Inc., 555 F.Supp. 2d 1164 (2008).  At the heart of Mr. Vernor’s argument is the protections afforded by the Copyright Act under section 109, known as the “first sale doctrine.”  That section states: “Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”  17 U.S.C. § 109(a).  Mr. Vernor argued that his purchase at yard sales of copies of the AutoCAD software could have only occurred if AutoCAD had already sold copies of its software to another party prior to Mr. Vernor’s purchases.  Therefore, the first sale doctrine would immunize Mr. Vernor from further liability under the Copyright Act.

Autodesk, on the other hand, argued that effectively it had never sold a copy of its software to anyone, because any sale of its software is subject to a licensing agreement that specifically forbids transfer of the software, and the software in Mr. Vernor’s possession was not sold but was transferred to the prior holder via a settlement agreement between the prior entity and Autodesk.  Furthermore, the software itself is only offered for sale via a restrictive license, making the subsequent holder of the copy of the software a licensee.  As a result, section 109 provides such a person, such as Mr. Vernor, any defense.

After the trial court entered judgment for Mr. Vernor, Autodesk appealed.  The Ninth Circuit reversed the trial court.  A copy of their opinion is here: 09-35969, and is found at Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir. Sep. 10, 2010).  The Ninth Circuit established a three part test for determining if the subsequent holder of a copy of software owns the software or is merely a licensee: “We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.”

For fun, I downloaded a copy of the End User License Agreement that Microsoft licenses its Office Suite, which you can read here: clientallup_eula_english.  I know that you will be surprised to discover that Microsoft licenses but does not sell its software to end users.  Section 7 of this agreement provides a whole host of restrictions on use and resale of its software.  So I checked on ebay to see if anyone would sell me a copy of Microsoft Office, and this morning I found 9,623 offers.  Searching for Autocad turned up over 2,400 copies for sale. Apparently many people who possess copies of software don’t pay much attention to the license agreement that makes them licensees rather than owners, and that now makes them into copyright infringers when they started offering these software packages for sale on sites like eBay.

The licensing terms for the Microsoft EULA do suggest that “use of the software” constitutes acceptance of the agreement.  Mr. Vernor indicated that he never used the copies of AutoCAD, and therefore he wasn’t bound by the agreement with AutoCAD, but this was not dispositive for the Ninth Circuit, as he bought the software from a prior holder that could not be called an “owner” based on the agreement between that entity, CTA, and Autodesk.  I’d expect this ruling from the Ninth Circuit to cause some trouble for licensees, many of whom have probably never thought when they bought that shrink-wrapped CD that they could not re-sell it later, given how common limited licensing agreements are in the world of proprietary software today.  Open Source, here we come!

Software Licensing for Businesses

Here was a very good article on software license auditing for businesses: (click here for story).  The issues for businesses are twofold: (a) keeping track of the licensing that the business has purchased, and (b) keeping track and understanding the licensing agreements that control the software.  The former can be handled by software.  For example, Microsoft publishes Systems Management Server (SMS), which includes a software audit and metering tool.  I understand that Altiris also offers a solution, and undoubtedly there are other packages out there that can tell you what’s running on your network.

The latter, however, requires a human being to review the software licensing agreement terms, and then analyze purchase history against the usage from the audit/metering tool.  And the software license agreements themselves are often as clear as mud, especially if you have multiple, overlapping agreements for a variety of software packages.  Even small businesses may have a substantial number of software packages and licenses they have acquired over time, so keeping up with this to avoid an audit can take real effort and concentration.

Google’s Not the Only Online Book Deal

The academics have been working on digitizing their book collections with Google’s help.  (See Article here)  I suspect that, in spite of the fact that Google is ahead of the pack in total books digitized today, there may be a fair number of other groups that get together to digitize collections down the road, and as new books are written and published, most will be available electronically anyway.

In spite of the Copyright Office’s current objections to the original Google book deal, my bet is that the market in the future will push changes in how copyright ownership is managed, or perhaps streamline the management of these interests (for example, by requiring a statutory fee for access payable to the copyright owner).

Psystar’s Star Dims a Bit

Psystar and Apple have been in a tech law tango based on Apple’s allegations that Psystar violated the end user licensing agreement when it started releasing the OS X operating system on non-Apple manufactured clone computers.  The federal court ruled in favor of Apple on its claims on a motion for summary judgment.  (See article here)  (You can find a copy of the judge’s decision here)

The Court’s decision to grant summary judgment for Apple is primarily based on Apple’s copyright infringement claims against Psystar.  The Court addresses the exclusive reproduction, distribution, and preparation of derivative work rights under the Copyright Act that are exclusive to Apple.  Apple alleged that Psystar, by taking a copy of OS X, modifying it so that it would boot on a non-Apple made computer, and selling that modified work to the public, had violated Apple’s copyright in OS X.  The Court examines the possibility of a section 117 defense under the Copyright Act which does grant the owner of a copy of a copyrighted work a limited right to make an additional copy of adaptation of the work.  17 U.S.C. § 117(a).  There are two possibilities under section 117: a copy of the work is made as an “essential step” in using the computer program, or the copy is made for archival purposes.

The Court held that Psystar had essentially waived this defense by not timely raising it.  In any case, Psystar had been making a lot more than a single copy of OS X when it cloned its modified copy of the operating system and installed it to computers that Psystar offered for sale to the public.  The language in section 117 is more geared towards us consumers that might make a backup copy of our OS X disk, or backup the operating system to our Time Machines in the event of a failure of our prized Macbooks.

The Court briefly addresses section 107, fair use, noting only that Psystar doesn’t attempt to justify its use as a “fair use” under section 107.  Most likely, that Psystar offered a copy of OS X for sale with its computers without paying the “customary” licensing price to Apple would have doomed such a defense anyway under the first element of this test.

Psystar then raised the first sale doctrine as a defense, under section 109.  Under this section, I have the right to resell a copyrighted work I have purchased to the general public, without responsibility to the copyright owner (for example, to resell at a set price).  So, if I were to buy a legitimate copy of Snow Leopard for $100, and offer it on ebay for $50, I have that right under section 109.  The Court found that Psystar was not doing this at all in modifying OS X and then selling this modified copy on computers to which it was installed.  Section 109 does not really help Psystar.

The Court next addressed whether Psystar was creating a derivative work of OS X, by modifying certain operating system files so that OS X would load onto a non-Apple manufactured computer.  Psystar tries to assert that because it did not modify the kernel of OS X, only the bootloader file and certain kernel extensions (disabling Apple extensions and adding its own extensions for the software to run on non-Apple hardware), it had not created a derivative work.  Again, the Court sides with Apple.  Even the modification of such humble files is the preparation of a derivative work, which was unauthorized under the Copyright Act.

Psystar also alleged that Apple was misusing its copyright.  This doctrine addresses a copyright holder who attempts to leverage his limited copyright monopoly to control areas outside of the monopoly.  For example, if I write blog software, and license it under an agreement that requires that you never write blog software, I am misusing my copyright in the work.  I don’t have the right to prevent you from writing a competing software package.

Psystar is arguing that Apple is unfairly limiting where its operating system can be installed, which is perhaps anti-competitive.  Unlike Windows, which can run on a broad range of hardware that Microsoft does not manufacture, Apple limits OS X to Apple-made hardware.  Psystar is essentially arguing that Apple should do what Microsoft does with its operating system, to allow for competition.  The Court sided with Apple on this argument as well, reasoning that Apple was only trying to control the subject matter of its copyright – the software itself.  I don’t think the Court was persuaded that Apple must license its software as others have in the market.  Apple may also have a legitimate reason for controlling the hardware on which the software is operated, given the drivers mess that is created with most Microsoft operating system releases.  Older versions of Linux also struggled with this problem, in spite of the many volunteer developers who write drivers for the Linux system in its many flavors.

Linden Labs and Virtual Sex Toys? Huh?

Oh, yeah, there is a lot of kinky virtual sex going on in Second Life.  And to support all of that activity, there are apparently a lot of vendors selling knock-offs of the “real” virtual sex toys of one vendor who is mad enough to sue.  (See Wired Article)

Yes, a few years ago, Linden Labs set up a special “mature” designation for areas in its virtual worlds that were aimed at “adult” conduct, so those under 18 and others with sensitive eyes  would not be offended by what they found.  However, probably much like the real world, virtual sex is rampant in Second Life.  As a consequence, there is a heavy trade in sex-related objects.  According to the plaintiff, Eros Products LLC, his SexGen products line has sold about $1 million (that’s U.S. dollars) within Second Life over the past five years.  (A copy of the Complaint is here)

Vicarious and contributory liability for copyright infringement is recognized by the courts as a cause of action under federal law.  This kind of liability has been raised in recent years by the various music file sharing services that came and went, such as Napster (originally a file sharing service without any copyright licensing from the music companies that owned the music being shared), Gnutella, and Limewire.  Each of these services were held to be liable for the file sharing of their users, in part based on the notion of vicarious liability.  Cases prior to Napster et al. that addressed this kind of liability along two lines: landlord-tenants where the landlord exercised no control over the leased premises, and dance-hall cases where the operator of the hall controlled the premises and obtained a direct financial benefit from the infringing performances.  Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).  Under common law, landlords have not been held to have copyright liability where dance-hall operators have.

In Fonovisa, the defendant operated a “swap meet” where the operator rented stalls to individuals who were selling unlicensed copies of bootlegged music owned by the plaintiff.    For the swap meet operator to be liable, the plaintiff had to prove that the operator controlled the marketplace and obtained a direct financial benefit from the sales of infringing works.  The Court sided with the plaintiff in this case, even though Cherry Auction did not receive a commission from the sales of the infringing materials.

Assuming that Eros Products LLC (and other plaintiffs that may join the suit should the court certify this as a class action) can prove that they are the valid owner of the copyrighted works, the question for the court is whether Linden Labs can meet the standard for contributory liability.  Linden Labs is a virtual landlord in the sense that users of Second Life pay an annual subscription in order to “own” virtual real estate within the virtual world.  The right to own this virtual property is limited by payment of the subscription.  You will note, however, that there are plenty of users that do not acquire any virtual real estate in Second Life – and for them, there is no fee to participate.

However, Linden Labs also charges fees for the conversion of Linden Dollars into U.S. Dollars through the Linden Exchange.  For infringers seeking to sell pirated works in the virtual world, the real benefit to them is the ability to take the proceeds of those sales and convert them back into hard currency for use in the real world.  Approximately 250 Linden Dollars are worth a U.S. Dollar (the trading in this currency fluctuates).  In order to convert Linden Dollars back to U.S. Dollars, Linden Labs charges a fee of 3.5% of the value of the transaction.  So, indirectly, Linden Labs benefits from the sale of infringing goods every time that the infringer converts his Linden Dollar proceeds to hard currency.

There is a question, however, of whether Linden Labs is merely a landlord who relinquished control to his infringing tenant.  Eros Products LLC claims that Linden Labs did exercise control over the activities of its users because all of the virtual worlds within Second Life are ultimately housed on servers controlled by Linden Labs.  Pl.’s Complaint at ¶ 127-128.  And furthermore, Linden Labs has ultimate control over its software that operates Second Life, and I suppose that Linden Labs could alter its software to prevent copyright infringement if it wished to do so (how, exactly, is another story).  Factually, however, I think this is going to be tough to prove.  Unlike Grokster, who marketed itself as the successor to Napster for those looking to willfully infringe on the copyrights of others, Linden Labs has not marketed itself as a safe haven for willful copyright infringers.  On the contrary, Linden Labs gave some thought to copyright in its license agreement, granting its users rights in the works they create in-world.  (See Terms of Service here at section 3.2)

The other question is whether Linden Labs, in light of the DMCA, fits within the safe harbor established for internet service providers, shielding it from liability for the infringing acts of its users.  More on that in another post.  Stay tuned!

Google: The New Public Library?

I suspect a fair number of people are really struggling with the proposed settlement between Google and the Author’s Guild over the wholesale scanning of more than 10 million copyrighted works.  At the heart of the settlement is a compromise that would allow authors to financially benefit from the sale of their works as a result of the Google index.  This would in turn allow Google to provide an index to these works that would be searchable using the google search engine.

The original thesis that permitted, according to Google, an “opt out” system for scanning and indexing these books was that Google’s use was a “fair use” as that phrase is defined within U.S. copyright law.  See 15 U.S.C. § 107.  Libraries, for example, acquire and make paper books available to the general reading public for loan.  Academics and journalists are specifically identified as “fair users” of the copyrighted works of others within the statute; these kinds of uses are recognized by federal law as having general utility that should be encouraged, in spite of the monopoly otherwise enjoyed by authors of works.  Google probably does not fit within any of the specifically mentioned groups.  Google is a very large, international, for-profit company that provides web search and related web services to internet users.

And, as has been spelled out in a number of federal cases on fair use, exploiting the works of another protected by copyright for profit and without paying the “customary fee” to the author almost always spells “not fair use.”  In this case, Google has reproduced wholesale into digital form the works of others without paying them any compensation.  Google’s activities are presumably part of its mission as a for profit entity.  One would anticipate that Google would be able to expand its AdWords presence to searches that turn up digital copies of the works that it scanned, and that Google could therefore gain a profit from these ads, without necessarily compensating the owner of the work whose content helped Google in getting its ad revenue.  Not fair use if we are all reading the same statute.

Nor is the phrase “opt out” found anywhere in the statute on fair use.  A copyright owner is not required to “opt out” of an infringer’s database in order to protect or reserve his rights in restricting how the work is reproduced or duplicated.  Implementing such an opt out system does not necessarily make the subsequent use a “fair use” under the Copyright Act.  For Google, I’m presuming that they would have argued that there were other overriding policy objectives that supported their project of scanning and indexing all of these books and placing them into the hands of internet searchers.  Perhaps chief among these is that Google was simply creating version 2.0 of the local public library, bringing more content to the more than one billion internet users that might be looking for an otherwise unretrievable work.  We actually pay (through taxes, at least for public libraries) the use that our brick and mortar libraries make of copyrighted works, why not tolerate a better library that its users by and large do not pay for (except by tolerating the ads that appear unctuously alongside search results)?

From a technical perspective, Google is absolutely right about its search engine as compared to the typical card catalog at the local library.  Google wins hands down.  When you consider that the majority of these books are out of print and hard to come by (about 3-4 million books are in print at any one time in the world), the settlement proposed would put back into “print” of a sort a whole lot of books that are otherwise hard to find unless you go to some “old school” library and use their card catalog.  Google’s index, however, improves the library card catalog, because the card catalogs are generally useful if you are already aware of the work, or the work happens to be cross-indexed in a meaningful way in relation to how you are searching the catalog.  Most catalogs in libraries are not full text indexes of the individual works in the library, so a google index would represent a huge leap forward for finding material online.

However, the legal argument (to the extent one has been made – Google entered into settlement negotiations promptly with the plaintiff such that Google has not had to file much in response to the Complaint) appears a little wanting.  Financially, most authors will probably be satisfied with the relatively small settlement amount per book, and the potential share of revenue for actual book sales through the Google service.  But the problem with the settlement for some is that they can get a better financial deal than Google is going to offer them.  Hopefully these authors will simply opt out of it to allow those authors that want to participate the option to do so.  But I think there is trouble ahead for this group of authors in the longer term as a consequence of what Google has been doing with its indexing.

This project poses a larger question that is aimed at the fundamental structure of what the Copyright Act protects in intellectual property: how authors can actually get paid for writing works in light of the free availability of huge amounts of information on the internet.  In years past, it was much easier to control access to information published in books, which provided a way to get paid via book sales.  I’m sure more popular books were plagiarized and reproduced without authorization of the publisher, but mass reproductions of a popular book would generally cost real money, which would limit the number of persons willing to engage in such wholesale theft.  Generally, in a paper world, authors had a way to generate revenue from book sales and royalties that was protected by the Copyright Act.

The internet has altered the level of accessibility to information.  Post 9/11, many U.S. government agencies and larger private companies began slimming down the amount of information available online (I guess posting our nuclear launch codes on the interweb was not so smart!) that was posted as part of transparent governance and the culture of openness encouraged by the internet.  However, in spite of a more security-conscious culture, the overall internet’s content continues to grow.  The information available in the written works of the world’s authors, especially highly searchable content from these works, would add substantially to the value and utility of the internet.  But can authors make a living if the information in their works is free?  Will authors continue to write works as a “hobby” and will this reduce the extent and value of works written in the future?  Can new works be written that are supported by advertising (e.g., Google Adwords on blogs)?

The “free” value of things available on the internet is challenging many of us to make a living in a new way.  And I think as a result, authors may need to seriously reconsider how they will survive as well.  To a certain extent, those that sit down to write a book must have (or develop through writing) some expertise in the subject matter for the book to have utility (not always true, but more often than not there is a correlation between authorship and subject matter expertise).  Our economy is benefitted by the high availability of specialists and experts that can help us beyond what we might self-educate ourselves about via internet research.  So there is value to the economy as a whole to the extent that authorship encourages the development of expertise.

The works created through this process also have intrinsic value to the economy to the extent that they are available for public consumption.  I certainly learned a fair amount about virtualization, for example, by reading white papers and other freely available articles online.  However, in spite of my self-education online, I would not have been comfortable implementing virtualization in a production environment without help.  Our project was benefitted greatly by the wisdom and experience of a technology professional that implemented these systems on a regular basis.  Perhaps this is how authors can make a living – by reselling their expertise in their field to more educated internet users that found the author through a Google book search.  But for those of you counting on royalty payments to make a living until 70 years after your death, I think Google is going to put you out on the street looking for a job!

Here are some links to several CNET stories that discuss the details of the proposed Google settlement.

CNET Story

CNET Story 2

CNET Story 3

Cloud Computing and Other Buzz Words

The technology that drives health care today is changing in response to increase concerns about security and reliability, and external regulations like the security regulations in HIPAA.  In addition, the HiTech portion of the stimulus law this year has provided incentives for health care providers to adopt technology that allows for health data exchange and for quality reporting (which is a data driven process for providing outcome reporting for certain quality measures as defined by the Secretary of Health and Human Services).  There are a fair number of technology vendors that provide electronic health records (EHR) systems today, and also a fair number of vendors that have developed business intelligence or more sophisticated data reporting tools.  Health data exchange is a newer field; google and Microsoft have begun developing systems that allow users to establish a personal health record database, and some states have started planning for larger scale data repositories, but this concept is still at its beginning stages.

A buzz word today in technology is “cloud computing,” which is a fancy way of describing internet systems that businesses can rent from service providers to perform business tasks.  The idea is not new, even if the buzz word is; in days of yore, we called these “application service providers” or ASP’s for short.  I suppose that the IT marketing folks got sick of being compared with a nasty snake and thought clouds were better (or maybe more humorous if they had ever read Aristophanes).  Of course, the perjorative “vaporware” which roughly translates to a software vendor that markets a product it does not yet have to actually sell to people, also rings of clouds and things in the sky.  And the old “pie in the sky” as a way of saying “that’s a nice idea but has no hope of being useful down here where mere mortals live” could also relate to clouds.

That aside, there may be something to cloud computing for us mere mortals.  One of the important aspects of technology is how complex it actually is under the covers, and the degree and scope of support actually required to get the technology to work properly.  Larger businesses that have high concentrations of technology engineers and analysts are better equipped than the average business to deal with technology issues.  In this respect, cloud computing offers a business a way to “leverage” (another business term thrown casually around) the expertise of a fair number of technology experts without having to hire all of them on full time.  One of the dilemmas for business consumers, however, is the amount that one needs to be able to trust the technology partner they rent from.  This is the same problem that ASP’s originally faced years ago.  What happens to the data in the cloud when the cloud computing vendor either stops providing the service you are using, or just goes out of business?  How do the businesses work together on transitioning from one cloud to another, or from the cloud back in-house?  What if the business wants to host its own cloud onsite or at its existing hosting facility?  How are changes to the hosted application controlled and tested?  How often are backups performed, how often are they tested?  How “highly available” is the highly available system hosted?  How are disasters mitigated and what is the service provider’s disaster recovery/business continuity plan?  How are service provider staff hired and what clearance procedures are employed to ensure that staff aren’t felons that regularly steal identities?  The list of issues is a long one.

The other dilemma for businesses that want to use cloud computing services is that many of these services have a standard form contract that may not be negotiable, or essential parts of it may not be negotiable.  For example, most cloud computing vendors have hired smart attorneys who have drafted a contract that puts all the liability on the customer if something goes wrong, or otherwise limited liability so severely that the business customer will need to buy a considerable amount of business insurance to offset the risks that exist with the cloud, should it ever fail, rain, or just leak into the basement.

On the other hand, businesses that have their own IT departments have the same set of risks.  The difference, I think, is that many businesses do not have liability contracts with their otherwise at-will IT staff.  So, if things go horribly wrong (e.g., think “negligence”), the most that might happen to the IT person responsible is immediate termination (except in cases of intentional property theft or destruction, both of which may lead to criminal but not automatic civil liability for the IT person involved).  How much time does a business have to invest to develop and implement effective system policies, the actual systems themselves, and the staff to maintain those systems?

The advent of more widely adopted EHR systems in the U.S. will likely heat up the debate over whether to use cloud computing services or virtualized desktops that are hosted centrally by a hosting company in order to roll out the functionality of these systems to a broader base of providers (currently estimated at 1 in 5 presently using some EHR).  Companies that can cost less than the Medicare benefit to providers while helping providers comply with the security regulations will likely have the most success in the next few years.  Stay tuned!