April 23, 2014

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RIAA IM-Spams Kazaa/Grokster Users

Many reports are circulating about the RIAA’s use of instant-messaging features of Kazaa and Grokster to send warning messsages yesterday to users of those systems.

Conventional wisdom in blogland seems to be that this will have little if any impact on users’ behavior. I disagree. Consider this excerpt from Amy Harmon’s New York Times story:

“People feel invincible when they’re doing this in the privacy of their homes,” said Cary Sherman, president of the Recording Industry Association of America. “This is a way of letting them know that what they’re doing is illegal.”

It’s all too easy for those who understand the technology to dismiss Sherman’s assertion that users feel invincible. After all, file-sharing systems don’t actually do much to protect the anonymity of their users.

But based on my conversations with file-sharers, I think Sherman has a point. File-sharers do seem to believe that they won’t be identified, even though, when pressed to explain why they feel that way, they can’t come up with a good reason. It may just be the false feeling of privacy that comes from sitting alone (or with close friends or family) in a room with a computer that doesn’t look like a portal to the rest of the world.

I think Sherman is wrong, though, when he implies that illegal file-sharers don’t know that they are breaking the law. Many of them see it as a small, harmless infraction that doesn’t merit more than a slap on the wrist. They tend to get very uncomfortable at the mention of $150,000 statutory damages.

My guess is that the RIAA’s message came as a nasty shock to quite a few people, who will now reconsider their use of Kazaa or Grokster. [Update (4:00 PM): Jim Tyre points out that the RIAA's message to file-sharers included a pointer to instructions for disabling or uninstalling the file-sharing program.]

Interestingly, though, while one hand of the RIAA is sending out these warning messages, the other hand seems to be trying to minimize their effect. An AP story by Alex Veiga quotes Cary Sherman as saying that “there’s no enforcement connected to this.”

This seems like an extraordinarily counterproductive thing for Sherman to say. One reason users feel invulnerable is that they don’t think the RIAA would ever actually sue an ordinary user. (Sure, the RIAA sued four college students, but they made a big point of accusing those students of singling themselves out by running “Napster-clones”.) By announcing that they can identify individual users but have chosen not to sue them, the RIAA will only bolster the impresssion that they will never sue ordinary users. The RIAA may try to counter this problem by saber-rattling, but that will only work for a short while. Eventually the RIAA will be forced either to accept widespread file-sharing as reality or to sue their own customers. I’m glad I’m not in their shoes.

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Where the Money Goes

Orin Kerr at the Volokh Conspiracy points to Terry Fisher’s data on where the $18 paid for a typical music CD goes: $7.00 to the retailer, $1.50 to the distributor, $9.31 for record company expenses (including performer and composer royalties of $2.85), and $0.19 for record company profit. Kerr comments:

I understand that the record companies have done some pretty bad stuff in the past, and of course they are the industry that every one loves to hate. If I understand Fisher’s figures correctly, however, record company profit makes up only about one percent of the price of a compact disc. If record companies decided to operate on a not-for-profit basis, the average price of CDs would drop from $18 to $17.81. This is certainly news to me. Am I missing something, or does downloading hurt local retailers the most– with artists, record companies, and manufacturers all taking their share of the hit as well?

The $7.00 cut for retailers is surprising. If a download replaces an in-store sale, there is a big hit for the retailer to absorb. In the long run, though, it looks like in-store sales of music will not recover from the impact of the Net, as illegal downloads will be replaced by legitimate on-line downloads (if they are replaced at all). Most of today’s in-store retailer revenue will be swept away by technology, one way or another.

Nineteen cents of record-company profit is surprisingly low, but on further reflection, I don’t think the profit numbers, by themselves, rebut the proposition that record companies are parasites. Even if the record companies made zero profit, their expenses and overhead would still account for a sizable share of a CD’s cost. According to Fisher’s data, record company overhead, A&R expenses [i.e. talent scouting and artist relations], and marketing add up to about $5 per CD. This is what pays for executives’ salaries, parties, big shiny buildings, and so on.

All of this expense is reasonable if the record companies add enough value to the process, for example by developing artists’ talent and packaging the product attractively for listeners. Whether the record companies add this much value is open to debate. The answer to that question will someday be clear to us in hindsight, but I’m not sure we know it now. In any case, record companies consume much more than nineteen cents per CD.

In all this quibbling about numbers, we mustn’t lose sight of the big picture, which Kerr sees clearly. If the revenue per song is zero, it doesn’t matter what share of that zero goes to the artist. No matter what future you hope for, if you want to enjoy recorded music it had better involve some kind of payment.

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Grokster Ruling: Instant Analysis

Judge Wilson’s opinion, dismissing the music industry suit against Grokster and Morpheus, contains few surprises beyond the result itself.

Judge Wilson ruled, essentially, that although some users of the defendants’ P2P software used the software to infringe copyrights, this infringing activity was beyond the control of the defendants. Unlike Napster, these defendants had no active, ongoing involvement in the infringing activity, and hence had no ability to stop it. Simply creating a product that was capable of infringing uses was not enough to support either contributory or vicarious liability. To hold otherwise, the judge said, would be contrary to established precedent and would make common products like photocopiers illegal.

For example, here is the judge’s reasoning in disposing of the vicarious infringement claim:

While the parties dispute what Defendants feasibly could do to alter their software, unlike in Napster, there is no admissible evidence before the Court indicating that Defendants have the ability to supervise and control the infringing conduct (all of which occurs after the product has passed to end users). The doctrine of vicarious infringement does not contemplate liability based upon the fact that a product could be made such that it is less susceptible to unlawful use, where no control over the user of the product exists.

The most important part of the opinion is at the end:

The Court is not blind to the possibility that Defendants may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefitting financially from the illicit draw of their wares. While the Court need not decide whether steps could be taken to reduce the susceptibility of such software to unlawful use, assuming such steps could be taken, additional legislative guidance may be well-counseled.

To justify a judicial remedy, however, Plaintiffs invite this Court to expand existing copyright law beyond its well-drawn boundaries. As the Supreme Court has observed, courts must tread lightly in circumstances such as these:

The judiciary’s reluctance to expand the protections afforded by the copyright without explicit legislative guidance is a recurring theme. [Citations.] Sound policy, as well as history, supports our consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accomodate fully the raised permutations of competing interests that are inevitably implicated by such new technology.

In a case like this, in which Congress has not plainly marked our course, we must be circumspect in contruing the scope of rights created by a legislative enactment which never calculated such a calculus of interests.

Unless this decision is overturned quickly on appeal, the P2P policy battle will now move to Washington. Having lost in the Courts, the content industry will take the judge’s hint and lobby Congress to pass legislation changing the rules. My prediction is that we’ll see a bill circulated that creates an affirmative responsiblity to design products that make infringement as difficult as possible.

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Judge Rules Morpheus, Grokster Legal to Distribute

A Federal court has granted summary judgment in favor of Grokster et al., ruling that it is legal to distribute these peer-to-peer file sharing tools.

More later, after I have had a chance to read the ruling.

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Florida Super-DMCA Back On the Fast Track

Giles Hoover writes that the Florida version of the Super-DMCA has been put on a fast-track “Special Order Calendar”, to be voted on tomorrow. Florida residents, call your representatives and weigh in on this bill!

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Costs vs. Benefits

Yesterday, the O’Reilly Emerging Technology Conference had a session on the copy protection wars. Louis Trager reports, in a story headlined “Hollywood Survival Isn’t Worth Sacrificing Tech Freedom, Activists Say”, in today’s Washington Internet Daily:

Legal restrictions on technology and content copying pose a far greater risk to society than the extinction of the established entertainment industry for failure to adjust to a digital economy, activist speakers said Wed. at an O’Reilly Emerging Technology Conference.

Movie and music industry lobbyists portray copyright infringment as a disease whose cure is technology regulation. One way to respond is to argue that the cure is worse than the disease. That is probably a correct judgment, though it is a hard argument to win.

More to the point, it’s an argument that should be irrelevant to the real policy debate. Framing the question as a comparison between the costs of the disease and the costs of the treatment buys into an analytical mistake that the content lobbyists have injected into this debate.

The right question to ask is not whether the treatment is worse than the disease, but whether the treatment does more harm than good.

Imagine a medieval doctor who treats a gravely ill patient by bleeding out a quart of the patient’s blood. The doctor argues that this is the correct treatment, because the blood loss does less damage to the patient than the disease is already doing. We rightly reject the doctor’s argument, because we know the treatment is harming the patient without doing anything to cure the disease.

By this standard, it’s clear that the content industries’ regulatory prescription is bad medicine. We have taken the medicine of technology regulation, but the patient’s health hasn’t improved. The disease is as bad as ever, and all Dr. Valenti has to offer is a bigger dose of the same odd-smelling exilir.

Maybe it’s time to get a second opinion.

[Text modified at 10:45 AM: The original version of this entry had implied that the speakers at the O'Reilly conference had made the analytical mistake at issue. Louis Trager, the author of the quoted article, told me that I had misinterpreted his article in reaching that conclusion, so I revised the entry so as not to pass on the misinterpretation.]

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Texas Trying to Sneak Through Super-DMCA

The Texas state legislature has reportedly suspended its rules today in order to consider the Super-DMCA legislation without the usually-required five days advance notice. This looks like an attempt to get the bill passed without allowing opponents a chance to properly debate it.

The legislative hearing is expected to start around 6:00 PM (Central time) today.

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Rounding

Cory Doctorow writes on Cruelty to Analog about an MPAA presentation to the ARDG, the group that is trying to bring Digital Restrictions Management (DRM) to analog content.

The presentation talks about a “rounding problem” that arises because of an assumption that analog DRM is unable to micromanage the use of content to the same degree that digital DRM can. When a work is converted from digital to analog form, the detailed DRM restrictions from the digital domain are supposed to be “rounded off” to some roughly equivalent analog restrictions, so that “equivalence” can be maintained between the digital and analog domains. A fight is brewing over whether to “round down” (so that the analog rules are more restrictive than the digital) or to “round up” (so that the analog rules are looser than the digital).

This debate is a wonderful illustration of how far off the rails the DRM “standardization” groups have gone. Rather than worrying about the lack of any effective digital DRM scheme, or about the lack of any effective analog DRM scheme, the group chooses instead to just assume that both exist, and to further assume that the two are incompatible. They then proceed to argue about the consequences of that incompatibility. Rather than arguing about strategy for resolving a hypothetical incompatibility between two hypothetical products, why not worry first about whether analog DRM can work at all?

There is a well-known pathology in standardization processes, in which the group argues obsessively over some trivial detail which becomes a proxy for deeper philosophical disagreements. The antidote is for somebody to yank the group back to reality by pointing out all of the deployed products that operate perfectly well without accounting for that detail. But this antidote only works when there are deployed systems that are known to work well. Perhaps it is inevitable that if you try to standardize a conjectural product category, you will become hopelessly entangled in minutiae.

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Slashdot Interview

My Slashdot interview was just posted. Slashdot readers asked me several interesting questions about law and technology.

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What Was Blackboard Thinking?

Most businesses know that it’s wise to honor the values of their customers. So you’ve got to wonder what Blackboard was thinking when it sued to block a conference presentation last weekend.

Blackboard’s customers are colleges and universities. As Karl-Friedrich Lenz observes, these are organizations that hold freedom of speech and freedom of inquiry as central values. Seeking an injunction against both speech and inquiry, as Blackboard did, and making that injunction so broad, has got to rub many of Blackboard’s customers the wrong way.

Blackboard’s defensive and somewhat misleading press release may be a sign of the bind it has created for itself. The release implies that each Blackboard product either is physically secure, or relies on cryptography for protection. The two students, Billy Hoffman and Virgil Griffith, were reportedly going to say that the product in question used neither method of security, but was basically open to abuse by anyone who could unscrew a few screws. There could have been a debate about who was right, but Blackboard wouldn’t allow that to happen. Most observers will conclude, sensibly, that Blackboard tried to block that debate because it expected to lose it.

Like most censorship attempts, Blackboad’s strategy has backfired. They have only drawn attention to the content they tried to suppress, so that more Blackboard customers know about the students’ conclusion that Blackboard’s technology is insecure. All this, plus an affront to the values of Blackboard’s customers.

Come to think of it, Blackboard may have done a small service to educators after all – by providing an instructive example of the perils of censorship.