Digital Copyright
Intro to IP – Prof. Merges
3.1.2012
Agenda
• Review coevolution of Digital technology and
copyright law
– Legislation vs. litigation
• Grokster case study
• Kelly and Amazon: fair use and digital
distribution
karate
011010
110011
111101
Reverse Engineering
Typically involves
the making of
intermediate copies
Functional
specifications:
karate
011010
110011
111101
Reverse Engineering
Sega v. Accolade
• Accolade disassembled Sega’s game cartridges to
discover an initialization code necessary to make
games execute on the Sega Genesis game console.
• Ninth Circuit held the disassembly a fair use
because necessary to understand functional
requirements for Genesis compatibility
• Note: Accolade’s games competed with the
disassembled work, yet still fair use
Dual nature of software: IPNTA 5th
p. 658
• Relates to “nature of the work” element under
section 107
• Text or expression
• But also utilitarian article
• A “writing that performs work, that executes on
its own”
IPNTA 5th at 660
“[T]he use of a clean room would not
have avoided the need for
disassembly because disassembly
was necessary in order to discover
the functional specifications for a
Genesis-compatible game.”
IPNTA 5th at 662
“We conclude that where disassembly is
the only way to gain access to the ideas
and functional elements embodied in a
copyrighted computer program and
where there is a legitimate reason for
seeking such access, disassembly is a
fair use of the copyrighted work, as a
matter of law.”
Reverse Engineering
Atari v. Nintendo
• Atari disassembled “lock-out” code in the Nintendo
game console using source code obtained from the
Copyright Office deposit under false pretenses
• Fed. Cir. held disassembly a fair use where necessary
to understand the work’s ideas, processes, and methods
of operation
• Atari’s unclean hands precluded finding of
fair use
Reverse Engineering
Remaining Questions
When is disassembly “strictly necessary” (Atari)
or “the only way” to gain access to ideas (Sega)?
Digital Milliennium Copyright Act (1998)
• Prohibits circumvention of technological measures
that control access to a work and the manufacturing,
importation, and offering of any device or service that
is primarily designed for the purpose of circumventing
such measures.
• Exception for reverse engineering for the “sole purpose
of identifying and analyzing those elements of the program
that are necessary to achieve interoperability of an
independently created computer program . . .”
Interoperability and Standards
• Common criticism: patents interfere
with interoperability and standards
in the software industry
IP Rights and Interoperability
• Key Point: IP rights NOT inherently
inconsistent with interoperability
• Many standards and protocols that are
covered by various IP rights are widely
licensed and therefore de facto “open”
KEY POINT
• IP Rights ≠ Closed systems
Why have IP rights on an open
system?
• To maintain quality control, prevent
unauthorized versions
• To enable selective licensing
– Keep open the option to selectively exclude
What about the problem of “monopoly
via standard ownership”?
• Not a very common problem: usually,
standard owner wants to encourage use of
the standard
– Often, standard interface technologies are given
away for free: e.g., Adobe Acrobat
– Microsoft: the exception – antitrust law can deal
with this problem
Examples
IP Strategy
Proprietary
Open
Product
Strategy
Closed
Matsushita VHS;
Adobe Acrobat;
Sun Java
Nonproprietary
Internet
protocol; Open
Source
software
Apple II, Apple Cisco
MacIntosh,
acquisition
Microsoft
strategy;
Windows;
Disney
Sony Betamax succession
plan
Freely
license this
component
Aggressively
protect and limit
access to this
component
Core
IP Rights are OPTIONS;
you can assert them or
waive them, as strategy
dictates
Assert
more
rights;
reduce
open
component
Core
Waive more
rights –
expand open
component
Why voluntary dealmaking?
• For products that exhibit “network
effects,” the market often requires it
– No special legal rules required to get
Matsushita to license VHS technology
– No special rules required to get Sony and
Philips to license CD and DVD technology
“History may not repeat itself, but it
rhymes.”
- p. 94
Real Estate Analogy
Private parcels
Public Street
Elena G. Irwin, The Effects of Open
Spaces on Residential Property Values,
78 Land Economics 465 (2002)
- Proximity to public space increases
residential land values
Operating System Example
Private Firm
Applications:
IBM, RedHat,
HP, Sun, etc.
Linux
Appropriate Divergence
• Network Leverage: tiny property right
leveraging huge market
– Video game/fair use cases
• When property rights completely block
massive economic opportunity
– “Charles River Bridge” scenario
Markets often protect
consumers better than
regulation
• Competition for platform ownership will
lead to openness; more effective (often)
than regulation
Coevolution of digital tech and
copyright law
• Digital Audio Tape legislation, 1995
• A model accommodation of IP and new
technology?
“Media Taxes”
• Surcharge on technology and media
• Distribute pool of proceeds to
artists/creators in some way
• NB: Applies only to Digital Audio Tape and
mini-disc technology (obsolete)
Terry Fisher – “Promises to Keep”
Music compulsory license
• Lessig proposes
an internet-wide
compulsory
license for
downloading of
music
• Separate
compensation
from control
Larry Lessig and Terry Fisher
• Compulsory
license, paid
for via a tax on
all content
• Is there a
better way? I
think so …
This form of property is a wrong turn, I
would argue
• Merges,
“Contracting into
Liability Rules:
Intellectual
Property Rights and
Collective Rights
Organizations,” 84
CLR 1293 (1996)
Alternative Proposal
• Collective Rights Organizations, such as ASCAP
and BMI, will form if © is defined and enforced
• The pressure to reach a collective bargain is too
great
• Case study: Apple iTunes/iPod
He Pushed a Reluctant Industry
Toward Digital Music
When the iTunes store opened, the music
industry’s revenue from digital sales was
negligible, but by last year it had grown to
$4.6 billion around the world, representing
29 percent of all revenue from recorded
music. This week at Apple’s unveiling of the
iPhone 4S, it noted that the store has sold 16
billion songs in its eight and a half years
operation. – NYTimes Oct. 11, 2011
This is why I am a “transaction
cost optimist” in IP Field
• Merges, Justifying Intellectual Property
(2011)
• “There is a solution.”
Rightholders can continue to receive rights, while
consumers and users can gain access to the works
they want to use, if resources are directed to
creating efficient transactional mechanisms that
allow IP rights to flow through commercial
channels as smoothly, or almost as smoothly, as
do the works covered by those rights. Recognize
that, in a world with numerous IP rights, the
market for creative works necessitates also a
(separate, but related) market for the rights
covering those works. Encourage market making
in this secondary market! – p. 290
Webcasting: Case Study
• Compulsory license vs. private negotiations
• Current law: “Interactive services” must
negotiate directly with © owners; noninteractive services have compulsory license
Sec. 106. Exclusive Rights in
Copyrighted Works
(6) in the case of sound
recordings, to perform the
copyrighted work publicly by
means of a digital audio
transmission.
(a) The exclusive rights of the owner
of copyright in a sound recording
are limited to the rights specified by
clauses (1), (2), (3) and (6) of section
106, and do not include any right of
performance under section 106(4).
Section 114: 3 main categories
• “Exempt” transmissions: digital broadcasts by
established broadcasters
• Non-exempt transmissions: compulsory
license for non-interactive subscription
services
• Interactive services (not really broadcasting):
requires license from sound recording
copyright owner
Why this treatment?
• Interactive services provide more control,
operator can include or exclude songs at will
• Maybe encourages specialized services –
country only, jazz only, etc.
• Noninteractive: more like traditional radio
broadcasts; ASCAP and BMI already in place
Arista Records, L.L.C. v. Launch
Media, Inc., 578 F.3d 148 (2d Cir.
2009), the Second Circuit held
that LAUNCHcast, a service that
creates customized radio stations
based on user rankings and
other input, was not interactive.
Sec. 114
(d) Limitations on Exclusive Right. —
Notwithstanding the provisions of section
106(6) —
(1) Exempt transmissions and retransmissions.
— The performance of a sound recording
publicly by means of a digital audio
transmission, other than as a part of an
interactive service, is not an infringement of
section 106(6) if the performance is part of —
Sec. 114 (cont’d)
(A) a nonsubscription broadcast transmission;
(B) a retransmission of a nonsubscription
broadcast transmission: Provided, That, [the
retransmission is basically by analog
broadcast repeater, and not over the
internet]
[114(d)](2) Statutory Licensing of Certain
Transmissions. — The performance of a sound
recording publicly by means of a subscription
digital audio transmission not exempt under
paragraph (1), an eligible nonsubscription
transmission, or a transmission not exempt under
paragraph (1) that is made by a preexisting
satellite digital audio radio service shall be subject
to statutory licensing, in accordance with
subsection (f) if —
(A)(i) the transmission is not part of an interactive
service;
(3) Licenses for transmissions by interactive services.
—…
(C) Notwithstanding the grant of an exclusive or
nonexclusive license of the right of public
performance under section 106(6), an interactive
service may not publicly perform a sound
recording unless a license has been granted for the
public performance of any copyrighted musical
work contained in the sound recording: Provided,
That such license to publicly perform the
copyrighted musical work may be granted either
by a performing rights society representing the
copyright owner or by the copyright owner.
Technology and © Enforcement
• Rio digital MP3 recorder/player
• Replay TV recording device
• These and other examples show delicate
interplay of (1) business models, (2)
technologies, (3) Congress and (4) Courts