Device Makers and Copyright Infringement
Ever since the advent of the printing press, technology has affected the distribution and use of creative works. Because of this, technology has always had an impact on copyright law. New technologies usually increase the number of ways that users can exploit works and thereby decrease the control that the copyright owner has over every use of his work. In the music industry, these “new” technologies have included player pianos, broadcast radio, recordable cassette tapes, digital audiotapes, CD-Rs, and P2P file sharing technologies. With the emergence of each, content industry representatives like the RIAA have complained that these technologies are disruptive and would affect their revenue stream (who remembers “home taping is killing music?”). These groups have tried to stall the adoption of new technologies by suing device manufacturers, and service providers, as well as the individuals who use them. The theory under which device manufacturers have been sued for their customer’s infringement is called “secondary liability.”
Background
The doctrine of secondary liability is not explicitly recognized in the copyright statute. Instead, it has evolved through court decisions. Currently there are three theories of secondary liability: contributory infringement, vicarious infringement, and inducement. Contributory infringement applies in situations where one person knows that another is going to infringe and aids in the infringement. Vicarious liability arises in situations where a person financially benefits from another's infringement, has the right and ability to stop it and yet chooses not to. For example, in Fonovisa Inc. v. Cherry Auction Inc., the Ninth Circuit Court of Appeals held that the owner of a flea market where a vendor sold infringing CDs was liable for both contributory and vicarious infringement. He was liable as a contributory infringer because he provided the site and facilities for infringement and knew of the infringement. He was liable as a vicarious infringer because he failed to police his premises and revoke the vendor’s license despite having the ability to do so. Furthermore, he benefited financially because the counterfeit CDs attracted more customers to the market. Inducement arises in situations where a person distributes a product with the “object of promoting its use to infringe copyright.” The theory was first formulated by the Supreme Court in MGM Studios, Inc. v. Grokster Ltd., a case we will discuss in further detail below.
Lawsuits Against Device Manufacturers
Universal City Studios v. Sony Corp.
The first lawsuit against a new technology under a theory of secondary liability came in 1976, in Universal City Studios v. Sony Corp. of America, a lawsuit filed by a group of movie studios against Sony. The studios claimed that Sony’s Betamax home video recorder would allow consumers to copy films as they were broadcast over the air. The studios argued that this violated their copyrights and that Sony, as the manufacturer of the device, was responsible for its customers’ infringement. By 1984, this case had made its way to the Supreme Court, which decided that Sony wasn’t liable. Even though some uses of the Betamax were infringing, and some users probably were infringing copyrights with the Betamax, the Supreme Court ruled that copying television programming for later viewing, or “time shifting,” was a fair use and therefore not infringing. Because the device was capable of “substantial non-infringing uses,” Sony was not liable for any users’ infringements just for making the device.
The significance of the Sony decision was that it created a safe harbor that technology providers could rely on. Without this safe harbor, it’s unlikely that devices such as tape recorders, photocopiers, CD burners, iPods and other digital media players would have come to market.
The P2P Cases
The emergence of P2P technologies in the early 2000s led to courts revisiting the rule that technology providers are not liable for their customers’ infringements. As the technology wasn’t mainstream, the RIAA and major labels responded by suing those who supplied P2P services to users. Those sued included Napster, Scour, Aimster, Audiogalaxy, and Grokster.
Most of the early P2P services maintained an index of files available for sharing on their own central servers. In the lawsuits against Napster and Aimster, courts reasoned that these servers allowed the services to have actual knowledge of their customers’ infringement. Because the services also provided the software necessary for file sharing they were found to be contributory infringers. The Napster court also held that Napster was a vicarious infringer because of Napster’s ability to police the central servers and cut off access to infringing files.
Unlike these services, Grokster did not have any central servers. Rather, the service operated on an ad-hoc basis, connecting machines directly without the use of a central server or database. Yet the Supreme Court found that Grokster was responsible for its customers’ infringement under a new theory: inducement.
The lawsuit against Grokster and Streamcast was filed in 2005 by MGM studios, along with 28 of the largest entertainment companies. When the case reached the Supreme Court, the court reasoned that Grokster and Streamcast were liable because they had distributed software with the intent that it be used for infringement. The court based this inference on internal communications of the companies and the fact that they did not work to develop software that would filter for infringing uses. By focusing on the intent of the technology provider rather than the designed use of the device, the Grokster court side-stepped the Sony doctrine of substantial non-infringing use. After the Grokster decision was handed down, many commentators warned that this inducement theory could be used not only against “bad actors” but also against legitimate service providers like TiVo and Slingbox. Such companies might now face greater pressures to design their products a certain way even when the product’s use is not predominantly infringing—just to avoid being seen as a potential “bad actor”.
The Music Industry vs. XM
A group of record labels including the four majors and a group of music publishers recently filed lawsuits against XM Satellite Radio. Both lawsuits allege that XM violated copyrights by marketing the Inno--a portable satellite radio with a built-in digital recorder. The Inno allows users to record upto 50 hours of music from satellite radio broadcasts, disaggregate the recordings, and listen to them in whatever order they like.
The labels and publishers claim, among other things, that XM is liable as a secondary infringer under all three theories of secondary liability: contributory infringement, vicarious infringement and inducement. They claim that XM is liable as a contributory infringer because it markets the Inno with knowledge that its customers would use it to record songs and create “libraries”. It is liable as a vicarious infringer because it fails to prevent infringement despite having the means to do so. And by marketing the Inno, advertising its librarying function, and failing to design it so as to avoid infringement, they claim that XM is inducing its customers to infringe their copyrights.
In its defense, XM has stated that, its device does not infringe copyright because it qualifies for the exemption from liability under the AHRA. That is to say that the Innoa does not allow digital recordings to be transferred from the it to another device. What’s more, the company stated that it was already paying millions of dollars per year in royalties under the AHRA, in addition to performance royalties mandated by section 114 of copyright law. Some have suggested that both lawsuits might have been filed to gain an advantage in ongoing performance royalty negotiations.
In the lawsuit filed by the recording industry, XM has reached a settlement with the major labels on undisclosed terms. However, some independent labels are still pursuing this lawsuit. In the lawsuit filed by the publishers, XM has reached a settlement with EMI Music Publishing Group. Again terms of the settlement have not been disclosed.
A Consumer's Right to Record Music - The AHRA
In the late 80s, Sony was attempting to introduce a new type of recording device to the US market: the Digital Audio Tape (DAT). Since DAT was a digital format, copies made on DATs would always be identical to the originals, unlike analog tapes which lose sound quality with each subsequent copy. Record companies therefore became concerned that this ability to serially copy sound recordings would displace record sales--their primary source of revenue. Although the recording industry and the consumer electronics industry managed to reach a settlement, Sony still ended up being sued by a group of songwriters. In an attempt to settle the dispute, in 1992, Congress passed the Audio Home Recording Act (AHRA) which resolved the outstanding lawsuits between the various parties.
The AHRA mandates that all digital recording devices, such as tape recorders, include a technological protection measure called the Serial Copyright Management System (SCMS), which prevents serial copying. The AHRA also requires importers and manufacturers of all digital audio recording devices and media to pay a royalty to record labels, artists, songwriters, and music publishers, for each device or unit of blank media sold. In other words, every sale of a digital tape recorder, blank CD, or blank digital tape results in a royalty being paid to copyright holders. In exchange for these payments, the Act immunizes consumers and electronics makers from lawsuits for copyright infringement based on consumer recordings made for personal use.
At the time of its passing, the AHRA was hailed as a compromise between the record industry and consumer electronics manufacturers, one that finally settled the dispute over home recordings and paved the way for the rollout of new digital recording technologies. However, despite the AHRA’s existence, a number of complaints have still emerged from the recording industry about new home recording technologies
Effects of These Lawsuits
New devices such as the iPod and XM’s Inno allow consumers to enjoy music in ways that were not possible with previous devices and can increase revenue streams for copyright owners. Yet, large copyright owners often view these devices as a threat to their revenue stream and sue device makers in hopes that the law will side with them. Many commentators point out that such lawsuits chill innovation because statutory damages could be awarded against device makers and these awards could easily add up to a huge amount. For example in the lawsuits against XM, both the RIAA and the music publishers claimed statutory damages of $150,000 per song infringed. As Fred vonLohmann of the Electronic Frontier Foundation points out, the RIAA’s claim alone, could add up to $37.5 million! Few device manufacturers would be willing to manufacture and market a device in the face of such massive potential damages.
Reform Efforts
Lawsuits against device manufacturers, starting with the one against Sony, were based on the false assumption that new technologies that let consumers enjoy content in new ways are inherently bad for the music and movie industries. Yet, the VCR, once a feared device, turned out to be good for the movie industry, by creating a new revenue stream: the pre-recorded videocassette. Similarly, new technologies that allow consumers to do more with their music should be viewed as potential revenue opportunities. Chances are that consumers will buy more music if they are allowed to listen to music when and where they want on the devices of their choice.
To facilitate the rollout of more innovative services, copyright law’s statutory damages regime needs to be reformed. Many including Public Knowledge, have suggested that statutory damages should not be available in cases of secondary infringement. The “Freedom and Innovation Revitalizing U.S. Entrepreneurship Act of 2007” introduced on February 27, 2007 by Congressman Rick Boucher contains a similar provision.
Both Public Knowledge and Congressman Boucher’s bill also call for a codification of the Sony standard.
As the 110th Congress is approaching the end of its term, the House Subcommittee on Courts, Internet and Intellectual Property is yet to take H.R. 1201 up for consideration. We are hopeful that if not this Congress, a future one will pass a bill like H.R. 1201.