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eDonkey Seeks Record Industry Deal

October 3, 2005 by

Derek Slater points to last week’s Senate hearing testimony by Sam Yagan, President of MetaMachine, the distributor of the popular eDonkey peer-to-peer file sharing software.

The hearing’s topic was “Protecting Copyright and Innovation in a Post-Grokster World”. Had the Supreme Court drawn a clearer legal line in its Grokster decision, we wouldn’t have needed such a hearing. But the Court instead chose to create a vague new inducement standard that will apparently ensnare Grokster, but that leaves us in the dark about the boundaries of copyright liability for distributors of file sharing technologies.

It has long been rumored that the record and movie industries avoided dealmaking with P2P companies during the Grokster case, because deals would undercut the industry’s efforts to paint P2P as an outlaw technology. Yagan asserts that these rumors are true:

[MetaMachine] held multiple meetings with major music labels and publishers as well as movie studios, and at one point, received verbal commitments from major entertainment firms to proceed with proof-of-concept technical testing and market trials.

The firms later rescinded these approvals, however, with the private explanation that to proceed in collaboration with eDonkey on a business solution, or even to appear to be doing so, could jeopardize the case of the petitioners in the pending MGM v. Grokster litigation.

An obvious question now is whether the record industry will sue MetaMachine on a Grokster-based inducement theory. The industry did send a cease-and-desist letter to MetaMachine, along with several other P2P vendors. Yagan asserted that MetaMachine could successfully defend a recording industry lawsuit. I don’t know whether that’s right – I don’t have access to the facts upon which a court would decide whether MetaMachine has induced infringement – but it’s at least plausible.

Whether MetaMachine could actually win such a suit is irrelevant, though, because the company can’t afford to fight a suit, and can’t afford to risk the very high statutory damages it would face if it lost. So, Yagan said, MetaMachine has no choice but to make a deal now, on the record industry’s terms.

Because we cannot afford to fight a lawsuit – even one we think we would win – we have instead prepared to convert eDonkey’s user base to an online content retailer operating in a “closed” P2P environment. I expect such a transaction to take place as soon as we can reach a settlement with the RIAA. We hope that the RIAA and other rights holders will be happy with our decision to comply with their request and will appreciate our cooperation to convert eDonkey users to a sanctioned P2P environment.

MetaMachine has decided, in other words, that it is infeasible to sell P2P tools without the record industry’s blessing. The Supreme Court said pretty clearly in its Grokster decision that record industry approval is not a necessary precondition for a P2P technology to be legal. But record industry approval may be a practical necessity nonetheless. Certainly, the industry is energetically spreading the notion that when it comes to P2P systems, “legitimate” is a synonym for “approved by the record industry”.

But just when we’re starting to feel sympathy for Yagan and MetaMachine as victims of copyright overreaching, he does some overreaching of his own. eDonkey faces competition from a compatible, free program called eMule; and Yagan wants eMule shut down.

Not only have the eMule distributors adopted a confusingly similar name, but they also designed their application to communicate with our eDonkey clients using our protocol.

In other words, eMule clients basically camouflage themselves as eDonkey clients in order to download files from eDonkey users. As a result, eMule computers actually usurp some of the bandwidth that should be allocated to eDonkey file transfers, degrading the experience of eDonkey users.

Ignoring the loaded language, what’s happening here is that the eMule program is compatible with eDonkey, so that eMule users and eDonkey users can share files with each other. This isn’t illegal, and Yagan offers no argument that it is. Indeed, his testimony is artfully worded to give the impression, without actually saying so, that creating compatible software without permission is clearly illegal. I guess he figures that if we’re going to have copyright maximalism, we might as well have it for everybody.

There’s more interesting stuff in Yagan’s testimony, but I’m out of space here. Mark Lemley’s testimony is interesting too, offering some thoughful suggestions.

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The Pizzaright Principle

September 28, 2005 by

Lately, lots of bogus arguments for copyright expansion have been floating around. A handy detector for bogus arguments is the Pizzaright Principle.

Pizzaright – the exclusive right to sell pizza – is a new kind of intellectual property right. Pizzaright law, if adopted, would make it illegal to make or serve a pizza without a license from the pizzaright owner.

Creating a pizzaright would be terrible policy, of course. We’re much better off letting the market decide who can make and sell pizza.

The Pizzaright Principle says that if you make an argument for expanding copyright or creating new kinds of intellectual property rights, and if your argument serves equally well as an argument for pizzaright, then your argument is defective. It proves too much. Whatever your argument is, it had better rest on some difference between pizzaright and the exclusive right you want to create.

Let’s apply the Pizzaright Principle to two well-known bogus arguments for intellectual property expansion.

Suppose Alice argues that extending the term of copyright is good, because it gives the copyright owner a revenue stream that can be invested in creating new works. She could equally well argue that pizzaright is good, because it gives the pizzaright owner a revenue stream that can be invested in creating new pizzas.

(The flaw in Alice’s argument is that the decision whether to invest in a new copyrighted work, or a new pizza, is rationally based only on the cost of the investment and the expected payoff. Making a transfer payment to the would-be investor doesn’t change his decision, assuming that capital markets are efficient.)

Suppose that Bob argues that the profitability of broadcasting may be about to decrease, so broadcasters should be given new intellectual property rights. He could equally well argue that if the pizza business has become less profitable, a pizzaright should be created.

(The flaw in Bob’s argument was the failure to show that the new right furthers the interests of society as a whole, as opposed to the narrow interests of the broadcasters or pizzamakers.)

The Pizzaright Principle is surprisingly useful. Try it out on the next IP expansion argument you hear.

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Google Print, Damages and Incentives

September 23, 2005 by

There’s been lots of discussion online of this week’s lawsuit filed against Google by a group of authors, over the Google Print project. Google Print is scanning in books from four large libraries, indexing the books’ contents, and letting people do Google-style searches on the books’ contents. Search results show short snippets from the books, but won’t let users extract long portions. Google will withdraw any book from the program at the request of the copyright holder. As I understand it, scanning was already underway when the suit was filed.

The authors claim that scanning the books violates their copyright. Google claims the project is fair use. Everybody agrees that Google Print is a cool project that will benefit the public – but it might be illegal anyway.

Expert commentators disagree about the merits of the case. Jonathan Band thinks Google should win. William Patry thinks the authors should win. Who am I to argue with either of them? The bottom line is that nobody knows what will happen.

So Google was taking a risk by starting the project. The risk is larger than you might think, because if Google loses, it won’t just have to reimburse the authors for the economic harm they have suffered. Instead, Google will have to pay statutory damages of up to $30,000 for every book that has been scanned. That adds up quickly! (I don’t know how many books Google has scanned so far, but I assume it’s a nontrivial numer.)

You might wonder why copyright law imposes such a high penalty for an act – scanning one book – that causes relatively little harm. It’s a good question. If Google loses, it makes economic sense to make Google pay for the harm it has caused (and to impose an injunction against future scanning). This gives Google the right incentive, to weigh the expected cost of harm to the authors against the project’s overall value.

Imposing statutory damages makes technologists like Google too cautious. Even if a new technology creates great value while doing little harm, and the technologist has a strong (but not slam-dunk) fair use case, the risk of statutory damages may deter the technology’s release. That’s inefficient.

Some iffy technologies should be deterred, if they create relatively little value for the harm they do, or if the technologist has a weak fair use case. But statutory damages deter too many new technologies.

[Law and economics mavens may object that under some conditions it is efficient to impose higher damages. That’s true, but I don’t think those conditions apply here. I don’t have space to address this point further, but please feel free to discuss it in the comments.]

In light of the risk Google is facing, it’s surprising that Google went ahead with the project. Maybe Google will decide now that discretion is the better part of valor, and will settle the case, stopping Google Print in exchange for the withdrawal of the lawsuit.

The good news, in the long run at least, is that this case will remind policymakers of the value of a robust fair use privilege.

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Movie Studios Form DRM Lab

September 20, 2005 by

Hollywood argues – or at least strongly implies – that technology companies could stop copyright infringement if they wanted to, but have chosen not to do so. I have often wondered whether Hollywood really believes this, or whether the claim is just a ploy to gain political advantage.

Such a ploy might be very effective if it worked. Imagine that you somehow convinced policymakers that the auto industry could make cars that operated with no energy source at all. You could then demand that the auto industry make all sorts of concessions in energy policy, and you could continue to criticize them for foot-dragging no matter how much they did.

If you were using this ploy, the dumbest thing you could do is to set up your own “Perpetual Motion Labs” to develop no-energy-source cars. Your lab would fail, of course, and its failure would demonstrate that your argument was bogus all along. You would only set up the lab if you thought that perpetual-motion cars were pretty easy to build.

Which brings us to the movie industry’s announcement, yesterday, that they will set up “MovieLabs”, a $30 million research effort to develop effective anti-copying technologies. The only sensible explanation for this move is that Hollywood really believes that there are easily-discovered anti-copying technologies that the technology industry has failed to find.

So Hollywood is still in denial about digital copying.

The pressure will be on MovieLabs to find strong anti-copying technologies, because a failure by MovieLabs can’t be blamed on the tech industry. Failure will show, instead, that stopping digital copying is much harder than Hollywood thought. And MovieLabs will fail, just as Perpetual Motion Labs would.

When MovieLabs fails, expect the spinners to emerge again, telling us that MovieLabs has a great technology that it can’t tell us about, or that there’s a great technology that isn’t quite finished, or that the goal all along was not to stop P2P copying but only to reduce some narrow, insignificant form of copying. Expect, most of all, that MovieLabs will go to almost any length to avoid independent evaluation of its technologies.

This is a chance for Hollywood to learn what the rest of us already know – that cheap and easy copying is an unavoidable side-effect of the digital revolution.

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Aussie Judge Tweaks Kazaa Design

September 8, 2005 by

A judge in Australia has found Kazaa and associated parties liable for indirect copyright infringement, and has tentatively imposed a partial remedy that requires Kazaa to institute keyword-based filtering.

The liability finding is based on a conclusion that Kazaa improperly “authorized” infringement. This is roughly equivalent to a finding of indirect (i.e. contributory or vicarious) infringement under U.S. law. I’m not an expert in Australian law, so on this point I’ll refer you to Kim Weatherall’s recap.

As a remedy, the Kazaa parties will have to pay the 90% of the copyright owners’ trial expenses, and will have to pay damages for infringement, in an amount to be determined by future proceedings. (According to Kim Weatherall, Australian law does not allow the copyright owners to reap automatic statutory damages as in the U.S. Instead, they must prove actual damages, although the damages are boosted somehow for infringements that are “flagrant”.)

More interestingly, the judge has ordered Kazaa to change the design of their product, by incorporating keyword-based filtering. Kazaa allows users to search for files corresponding to certain artist names and song titles. The required change would disallow search terms containing certain forbidden patterns.

Designing such a filter is much harder than it sounds, because there are so many artist names and song names. These two namespaces are so crowded that a great many common names given to non-infringing recordings are likely to contain forbidden patterns.

The judge’s order uses the example of the band Powderfinger. Presumably the modified version of Kazaa would ban searches with “Powderfinger” as part of the artist name. This is all well and good when the artist name is so distinctive. But what if the artist name is a character string that occurs frequently in names, such as “beck”, “smiths”, or “x”? (All are names of artists with copyrighted recordings.) Surely there will be false positives.

It’s even worse for song names. You would have to ban simple words and phrases, like “Birthday”, “Crazy”, “Morning”, “Sailing”, and “Los Angeles”, to name just a few. (All are titles of copyrighted recordings.)

The judge’s order asks the parties to agree on the details of how a filter will work. If they can’t agree on the details, the judge will decide. Given the enormous number of artist and song names, and the crowded namespace, there are a great many details to decide, balancing over- and under-inclusiveness. It’s hard to see how the parties can agree on all of the details, or how the judge can impose a detailed design. The only hope is to appoint some kind of independent arbiter to make these decisions.

Ultimately, I think the tradeoff between over- and under-inclusiveness will prove too difficult – the filters will either fail to block many infringing files, or will block many non-infringing files, or both.

This is the same kind of filtering that Judge Patel ordered Napster to use, after she found Napster liable for indirect infringement. It didn’t work for Napster. Users just changed the spelling of artist and song names, adopting standard misspellings (e.g., “Metallica” changed to “Metalica” or “MetalIGNOREica” or the Pig Latin “Itallicamay”), or encoding the titles somehow. Napster updated its filters to compansate, but was always one step behind. And Napster’s job was easier, because the filtering was done on Napster’s own computers. Kazaa will have to try to download updates to users’ computers every time it changes its filters.

To the judge’s credit, he acknowledges that filtering will be imprecise and might even fail miserably. So he orders only that Kazaa must use filtering, but not that the filtering must succeed in stopping infringement. As long as Kazaa makes its best effort to make the agreed-upon (or ordered) filtering scheme work, it will have have satisfied the order, even if infringement goes on.

Kim Weatherall calls the judge’s decision “brave”, because it wades into technical design and imposes a remedy that requires an ongoing engagement between the parties, two things that courts normally try to avoid. I’m not optimistic about this remedy – it will impose costs on both sides and won’t do much to stop infringement. But at least the judge didn’t just order Kazaa to stop all infringement, an order with which no general-purpose communication technology could ever hope to comply.

In the end, the redesign may be moot, as the prospect of financial damages may kill Kazaa before the redesign must occur. Kazaa is probably dying anyway, as users switch to newer services. From now on, the purpose of Kazaa, in the words of the classic poster, may be to serve as a warning to others.

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