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Grokster Case Lumbers On; Judge To Issue Permanent Injunction

October 17, 2007 by

Remember the Grokster case? In which the Supreme Court found the filesharing companies Grokster and StreamCast liable for indirect copyright infringement, for “inducing” infringement by their users? You might have thought that case ended back in 2005. But it’s still going on, and the original judge just issued an interesting ruling. (Jason Schultz has a two part summary of the ruling.)

The issue now before the judge is what relief to grant the copyright-owner plaintiffs against StreamCast, which is the only defendant still standing. It’s apparently a given that the judge will eventually assess monetary damages against StreamCast. And you’d think these damages would be enough to kill StreamCast, so it’s not clear why StreamCast hasn’t just thrown in the towel, shut its doors, and handed over all its assets to the plaintiffs. Instead, StreamCast fought on, so the judge had to decide what kind of injunction, if any, to impose on StreamCast – that is, what rules would govern StreamCast’s future behavior.

The judge first considered the question of whether he could impose on StreamCast obligations (beyond payment of damages) that go beyond what the law requires of ordinary companies. Would he just award money damages and sternly command StreamCast not to break the law again; or would he go further and impose a permanent injunction? After a detailed legal analysis, he concluded that a permanent injunction was appropriate. StreamCast had actively promoted itself as a haven for infringement and “that bell cannot be unrung”.

The copyright-owner plaintiffs had asked for an injunction requiring StreamCast to apply all feasible anti-infringement technologies and to stop all infringment. StreamCast had built its own filtering technology which it said was effective enough, and much cheaper and more practical than commercially available alternatives.

The judge first rejected the plaintiff’s proposal that StreamCast be required to stop all infringement using its software. He recognized, correctly, that that would be impossible, so that such an injunction would be a death sentence for StreamCast.

Instead, the judge will require StreamCast to set up a filtering system that reasonably balances effectiveness and cost, with the strong emphasis on effectiveness. The precise details will be worked out with the help of a special master: an independent technical expert to be appointed by the judge. Which means yet more legal process to choose the special master, wait for the special master’s advice, and then order specific action from StreamCast.

All of this may be proper from a legal standpoint, but it seems unlikely to matter in practice. It’s hard to see how StreamCast can sustain a business given the legal and financial strain they must be under, and the likely ruinous monetary damages they’re still facing. I can understand why the plaintiffs might want to keep StreamCast on life support, in the hope of getting legal rulings that prove helpful elsewhere. But why does StreamCast keep fighting?

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Infinite Storage for Music

October 8, 2007 by

Last week I spoke on a panel called “The Paradise of Infinite Storage”, at the “Pop [Music] and Policy” conference at McGill University in Montreal. The panel’s title referred to an interesting fact: sometime in the next decade, we’ll see a $100 device that fits in your pocket and holds all of the music ever recorded by humanity.

This is a simple consequence of Moore’s Law which, in one of its variants, holds that the amount of data storage available at a fixed size and price roughly doubles every eighteen months. Extrapolate that trend and, depending on your precise assumptions, you’ll find the magic date falls somewhere between 2011 and 2019. From then on, storage capacity might as well be infinite, at least as far as music is concerned.

This has at least two important consequences. First, it strains even further the economics of the traditional music business. The gap between the number of songs you might want to listen to, and the number you’re willing and able to pay a dollar each to buy, is growing ever wider. In a world of infinite storage you’ll be able to keep around a huge amount of music that is potentially interesting but not worth a dollar (or even a dime) to you yet. So why not pay a flat fee to buy access to everything?

Second, infinite storage will enable new ways of building filesharing technologies, which will be much harder for copyright owners to fight. For example, today’s filesharing systems typically have users search for a desired song by contacting strangers who might have the song, or who might have information about where the song can be found. Copyright owners’ technical attacks against filesharing often target this search feature, trying to disrupt it or to exploit the fact that it involves communication with strangers.

But in a world of infinite storage, no searching is needed, and filesharers need only communicate with their friends. If a user has a new song, it will be passed on immediately to his friends, who will pass it on to their friends, and so on. Songs will “flood” through the population this way, reaching all of the P2P system’s participants within a few hours – with no search, and no communication with strangers. Copyright owners will be hard pressed to fight such a system.

Just as today, many people will refuse to use such technologies. But pressure on today’s copyright-based business models will continue to intensify. Will we see new legal structures? New business models? Or new public attitudes? Something has to change.

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Jury Finds User Liable for Downloading, Awards $9250 Per Song in Damages

October 5, 2007 by

The first Recording Industry v. End User lawsuit to go to trial just ended, and the industry won big. Jammie Thomas, a single mother in northern Minnesota, was found liable for illegally downloading 24 songs via Kazaa, and the jury awarded damages of $222,000, or $9250 per song. It’s always risky to extrapolate much from a single case – outsiders, schooled by TV courtroom dramas, often see cases as broad referenda on social issues, while in reality the specific circumstances of a case are often the decisive factor. But with that caution in mind, we can learn a few things from this verdict.

The industry had especially strong evidence that Thomas was the person who downloaded the songs in question. Thomas’s defense was that somebody else must have downloaded the songs. But the industry showed that the perpetrator used the same distinctive username that Thomas admitted to using on other services, and that the perpetrator downloaded songs by Thomas’s favorite performers. Based on press stories about the trial, the jury probably had an easy time concluding that Thomas downloaded the songs. (Remember that civil cases don’t require proof beyond a reasonable doubt, only that it was more likely than not that Thomas downloaded the songs illegally.)

People often argue that the industry has only weak evidence when they send their initial settle-or-else demand letters to users. That may well be true. But in this case, as the trial loomed, the industry bolstered its case by gathering more evidence. The lesson for future cases is clear. If the industry has to go to trial with only the initial evidence, they might not win. But what end user, knowing that they did download illegally, will want to take the chance that more evidence against them won’t turn up?

The most striking fact about the Thomas case is that the jury awarded damages of $9250 per song to faraway corporations.. That’s more than nine hundred times what the songs would have cost at retail, and the total of $222,000 is an astronomical amount to a person in Jammie Thomas’s circumstances. There is no way that Jammie Thomas caused $222,000 of harm to the record industry, so the jury’s purpose in awarding the damages has to be seen as punishment rather than compensation.

My guess is that the jury was turned off by Thomas’s implausible defense and her apparent refusal to take responsibility for her actions. Litigants disrespect the jury at their peril. It’s easy to imagine these jurors thinking, “She made us take off work and sit through a trial for this?” Observers who hoped for jury nullification – that a jury would conclude that the law was unjust and would therefore refuse to find even an obvious violator liable – must be sorely disappointed. It sure looks like juries will find violators liable, and more significantly, that they can be convinced to sympathize with the industry against obvious violators.

All of this, over songs that would have cost $23.76 from iTunes. At this point, Jammie Thomas must wish, desperately, that she had just paid the money.

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Amazon’s MP3 Store Wisely Forgoes Watermarks

October 2, 2007 by

Last week Amazon.com launched a DRM-free music store. It sells tracks from two major labels and many independents in the unprotected MP3 file format. In addition to being DRM-free, Amazon’s songs are not individually watermarked. This is an important step forward for the music industry.

Some content companies see individualized watermarks as a consumer-friendly alternative to DRM. Instead of locking down files with restrictive technology, individualized watermarking places information in them that identifies the purchasers, who could conceivably face legal action if the files were publicly shared. Apple individually watermarks DRM-free tracks sold on iTunes, but every customer who purchases a particular track from Amazon receives the exact same file. The company has stated as much, and colleagues and I confirmed this by buying a small number of files with different Amazon accounts and verifying that they were bit-for-bit identical. (As Wired reports, some files on Amazon’s store have been watermarked by the record labels, but each copy sold contains the same mark. The labels could use these marks to determine that a pirated track originated from Amazon, but they can’t trace a file to a particular user.)

Individualized watermarks give purchasers an incentive not to share the files they buy, or so the theory goes, but, like DRM, even if watermarking does reduce copyright infringement, that doesn’t necessarily mean it makes business sense. Watermarks create legal risks even for customers who don’t engage in file sharing, because the files might still become publicly available due to software misconfigurations or other security breaches. These risks add to the effective cost of buying music for legitimate purchasers, who will buy less as a result.

The difference in risk between a customer who chooses to share purchased files and one who does not is ultimately determined by computer security issues that are outside the content industry’s control. Aside from users who are caught red-handed sharing the files, who can be sued even without watermarks, infringers and noninfringers will share a multitude of plausible defenses. Their songs might have been copied by spyware. (If watermarking becomes widespread, spyware authors will probably target watermarked files, uploading them to peer to peer networks without users’ knowledge.) They might have been leaked from a discarded hard drive or backup tape, or recovered from a stolen laptop or iPod. The industry will need to fight such claims in order to bring suit against actual infringers, leaving noninfringers to worry that they could face the same fate regardless of their good intentions.

With individualized watermarking, there’s no knob that the content industry can set that varies the disincentive for sharing purchased files independently of the disincentive for purchasing them at all. Inevitably, legitimate customers will be scared away. This makes individualized watermarking a blunt antipiracy tool and a bad bet for the content industry. Amazon was wise not to use it.

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Major Intrusion at MediaDefender

September 25, 2007 by

MediaDefender, a company providing technical countermeasures and intelligence gathering for copyright owners, suffered a severe cyber-intrusion over the past year or so. This was revealed last week when the intruders released what appears to be most of MediaDefender’s email from this calendar year, along with the source code for its products, and even one of the company’s VoIP phone calls.

Published analyses of the released material mostly confirm what was already suspected, that MediaDefender’s technical tactics had mixed effectiveness, and that the company may have edged across the ethical (and possibly legal) line by launching active cyber-attacks on suspected infringers.

The intruders, on the other hand, went far across the line, committing serious crimes. If caught, they’ll face severe punishment, and rightly so. No excuse can justify this kind of break-in.

Nor have the intruders struck a blow for online freedom. Instead, they have helped their opponents paint a (misleading) picture in which righteous copyright owners are under attack by a small cabal of scofflaw super-hackers.

Expect a backlash. And the main victims of that backlash, as usual, will be ordinary users who aren’t out to hurt anybody but just want some way to coexist peacefully with copyright owners.

[Correction (Sept. 25): Corrected the first paragraph, which previously said voice mail had been captured, to say that a VoIP phone call was captured.]

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