The Court of Appeals stated that a preliminary injunction could only have been granted to the Plaintiffs if they could demonstrate that Aereo infringed upon their public performance right under the Transmit Clause (17 U.S.C. § 101) of the 1976 Copyright Act. The Defendants relied on the Cablevision analysis of the Transmit Clause, which the Court used in its analysis as precedent for what it found to be a “similar factual context.”  In Cablevision, the question was whether the company’s newly-designed Remote Storage Digital Video Recorder infringed copyright holders’ public performance and reproduction rights. In Cablevision, it was held that “unless a transmission itself is public, the transmitter does not infringe the public performance right.”  Since each subscriber is assigned a unique antenna in the Aereo business model, the transmissions were found to be private performances and did not violate the Plaintiffs’ copyrights.

The Court of Appeals decision fully affirmed the District Court’s denial of all motions for a preliminary injunction against Aereo. In a press release on April 1, 2013, Aereo’s CEO and founder Chet Kanojia declared that the Court of Appeals decision confirmed “that Aereo’s technology falls squarely within the law and that’s a great thing for consumers who want more choice and flexibility in how, when and where they can watch television.”

Mr. Kanojia’s statement may be partially true – the Aereo decision does indeed appear to be a “great thing for consumers” – but other courts already disagree with the Second Circuit on whether or not the technology is “squarely within the law”. In the Ninth Circuit, in Fox Television Stations Inc. v. BarryDriller Content Systems PLC, Plaintiffs were granted a preliminary injunction because the court found a likelihood of success on the merits. The court in BarryDriller rejected the reasoning in Cablevision, stating that in any event its holding was at odds with Ninth Circuit precedent set in On Command Video Corp. v. Columbia Pictures Industries (which held that transmissions from a hotel system to private rooms were public performances).

Unsurprisingly, several of the Plaintiffs in the Aereo case have announced their intention to continue fighting for damages and to “protect [their] copyrights …” (CBS and Fox have even threatened to become pay-for-cable channels, possibly paving the way for the other networks). The networks may be expecting the law to move in the Ninth Circuit’s direction, further motivated by the fact that even Aereo’s likely natural allies – such as Cablevision itself – are speaking out against the startup, criticizing the company’s decision not to pay for licensing and retransmission consent. The fight may not be over, but for now, Aereo and its investors are confident enough in their case to expand the service to a total of at least 23 cities across the United States.

In a niche where consumers and even certain experts feel that cable companies are running a “monopoly”, or at the very least an oligopoly, business models providing more consumer choice do meet a growing market demand. Aereo provides its services at costs much lower than those charged by cable companies – at rates starting at $1/day or $8/month. The goal of its founder is to give consumers the choice to “unbundle” packages, paying only for what they want to see (such as news or movies), when they wish to see it. However, providing a service that makes consumers happy does not resolve questions of legality, and in an online world where the east and west coasts are drawn ever closer together, it seems that the differing opinions presented by the Second and Ninth circuits will have to be reconciled before this new frontier of television can attract more conservative settlers.

The 1998 Digital Millennium Copyright Act (“DMCA”) criminalizes electronically decoupling a mobile phone from its contracted service provider, otherwise known as “unlocking”:“No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”

“Section 1201 also makes it illegal to circumvent the access controls on DVDs, e-books and video games to make bootlegged copies for sale on the street or swapping online. It also makes it illegal to manufacture or sell devices whose main purpose is to circumvent the digital locks on copyrighted material.”

The DMCA was enacted to protect, and thereby enable the continued development of, copyrighted and copyrightable advances. The regulations surrounding electronic access to digitally-stored and digitally-created media serve to protect intellectual property in a highly interconnected world from improper use and illegal secondary markets.

Instead it is requiring that we choose between our phones and the freedom to switch to our desired new cellular phone service providers.

—-

In October 2012, the Library of Congress decided against renewing the exception to the DMCA, which allowed for cell phones to be unlocked by persons other than the phone-issuing service provider.

As of January 26 of this year, newly purchased phones may not be legally unlocked by anyone other than the provider.

The texting, tweeting, pinning, and instagramming public did not take the news sitting down. They exercised their e-voice through an online “We The People” Petition to the White House.

The White House responded in a statement by David Edelman, White House Senior Advisor for Internet, Innovation, and Privacy:

Thank you for sharing your views on cell phone unlocking with us through your petition on our We the People platform. …

The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties. In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smart phones. And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network. It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs. …

The Obama Administration would support a range of approaches to addressing this issue, including narrow legislative fixes in the telecommunications space that make it clear: neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation.

We also believe the Federal Communications Commission (FCC), with its responsibility for promoting mobile competition and innovation, has an important role to play here. FCC Chairman Genachowski today voiced his concern about mobile phone unlocking, and to complement his efforts, NTIA will be formally engaging with the FCC as it addresses this urgent issue.

Finally, we would encourage mobile providers to consider what steps they as businesses can take to ensure that their customers can fully reap the benefits and features they expect when purchasing their devices.

We look forward to continuing to work with Congress, the wireless and mobile phone industries, and most importantly you — the everyday consumers who stand to benefit from this greater flexibility — to ensure our laws keep pace with changing technology, protect the economic competitiveness that has led to such innovation in this space, and offer consumers the flexibility and freedoms they deserve.

In a similarly staunch yet meaningless statement, the FCC’s Chairman, Julius Genachowski, stated: “From a communications policy perspective, this raises serious competition and innovation concerns, and for wireless consumers, it doesn’t pass the common-sense test… The FCC is examining this issue, looking into whether the agency, wireless providers or others should take action to preserve consumers’ ability to unlock their mobile phones.” To paraphrase his words, “Cell phones are important to the FCC, but it’s not really for our problem. Let the providers and consumers, i.e. the market, take action.” If only Adam Smith’s invisible hand had a cell phone we could call, text, or FaceTime.

—-

But seriously. This is a lot of ruckus about nothing. The FCC’s response was lackluster because that is all that was necessary. Market forces take care of pricing and demand concerns.

As hard as it is to believe, there was a time when the service, and not the phone itself, was of supreme importance. Originally, home telephones were owned by Bell Telephone Company and leased to the lucky (and affluent) homeowners who could afford them. Cellular phones were clunky and expensive. Phones became cheaper and somewhat commoditized. Then, to allow service providers and hardware manufacturers to differentiate themselves, glitzier phones were made. Then, phones with data. But, by this point, cellular phones became a staple, but computing handheld devices were quite expensive. To incentivize purchases, service providers discounted the manufacturers’ price and the iPhone generation was born. Now consumers want to own the phones – which they purchased at a discount because of the attached strings – outright.

Presidential intervention in this war for “freedom to get free stuff” is ridiculous and potentially counterproductive. If you would like to own your phone – or anything else for that matter – outright, then buy it outright.

Edelman wrote, “if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network.” But that is precisely the issue. Purchasers of heavily discounted cellular phones are bound by another obligation. Unlocked phones are available directly from both the manufacturers and service providers at the retail price. By purchasing them through a contract plan, consumers agree to be bound to that provider, although both Verizon Wireless and AT&T Wireless have expressed their willingness to unlock phones and discharge the consumers from this “other obligation” at the end of the contract term.

The present situation is materially different from one in which unlocked phones could not be obtained and where all phones were necessarily bound to one provider. Consumers may choose to contract (or not) with any service provider they so choose, including discount providers which incentivize or require the consumer to bring his or her own device. Consumers cannot have their cake and eat it too, getting both the benefit of discounted phones provided by larger service providers to incentivize consumers to choose their service and the benefit of discounted service providers.

I cannot imagine what the People will want next.

Disclaimer: The opinions espoused are for the purposes of argument only. The author does not endorse any statements texted, tweeted, posted, or blogged in this article.

Under the Digital Millennium Copyright Act (DMCA), Congress set up a mechanism to allow copyright holders to enforce penalties against individuals who bypass “copyright protection systems” (i.e. the digital locks that copyright holders use to restrict access or manipulation to copyrighted content). DMCA § 1201 grants the Library of Congress the ability to grant exemptions for certain actions bypassing copyright protection systems if the Librarian of Congress believed that the system adversely affected the ability of users of the copyrighted work to make “non-infringing uses” of the work, for example, creating digital copies of computer games on obsolete hardware. Last October, the Library of Congress issued a final ruling that would decline to extend the exemption for unlocked smartphones after a 90-day transitional period. While there is some doubt as to whether unlocking smartphones is covered under the DMCA, under the current ruling, smartphones can now only be unlocked by the owner of the phone, who, in most cases, is the carrier, not the consumer. Consumers, the White House, and the Federal Communications Commission all came out against the ruling with worries about competition and consumer flexibility.

Why do carriers love it and consumers hate it?

Carriers see the exclusive power to unlock smartphones as a way to protect their initial investment of selling consumers smartphones at a deep discount. Prior to the final ruling, if a consumer was dissatisfied with her service, she could pay her early termination fee, unlock her phone and move to another carrier. Now, if the same consumer wants to walk she is welcome to, but she’ll have to leave her phone behind. For manufacturers, the strategy of partnering with a single carrier for high profile smartphone release is more feasible under the new ruling. While the legality of such practices has been challenged on antitrust grounds, a ban on unauthorized unlocking would make exclusive releases even more profitable for carriers, meaning more profit for manufacturers as well.

On the other hand, consumers fear that a ban on unlocking cellphones will reduce consumer choice, hurt international travelers and lower the resale value of devices paid for in full. For international travelers, the option to unlock the smartphone and purchase a short-term contract with a local carrier is no longer readily available. Now travelers must choose to either pay the high roaming charges levied by their current carrier or purchase an unlocked phone from the manufacturer at a much higher price than what is offered by carriers. The resale and gift markets would be negatively affected as well, since consumers in those markets will not have to choose between getting a locked smartphone with a potentially unsatisfactory carrier, or paying significantly more to get an unlocked smartphone.

What should you do?

For the majority of us, the answer is nothing. If you’re satisfied with your service and you’re still on contract, unlocking your smartphone won’t yield any benefits but it could yield complications. If you’re done with your contract but want to keep your device, many carriers will unlock your phone for free and let you decide whether you want to move to another carrier. If you’re looking to jump ship early, or unlock your phone for another reason, you may be in for a stern warning from your service provider with the force of law behind it (a fine up to $500,000 and up to 5 years in prison), but none of the major carriers have announced what their actual enforcement policy will be. James Baldinger, a lawyer for some of the wireless carriers, has said that “[t]he carriers’ position has always been, it’s never been about individual consumers. Individual consumers have never been the target of any of the lawsuits or enforcement proceedings or investigations.” So while it might be harder to find someone to unlock your device, its unlikely that Verizon will come knocking at your door if you do.

Non-Digital Copyright in the Digital Millennium

Thursday, February 21 at 12:10pm
William and June Warren Hall 103
1125 Amsterdam Avenue

Lunch will be provided

The presentation will be based in part on Mr. Jacobs’s Fall 2011 article, “Copyright Fraud in the Internet Age: Copyright Management Information for Non-Digital Works Under the Digital Millennium Copyright Act,” published in the Fall 2011 edition of STLR.

All are invited to attend! An RSVP to stlr@stlr.org is encouraged, but not required.

About the Article:

With the advent of the digital age, authors of creative works enjoy the benefits of quickly and inexpensively distributing their works to global audiences.  These developments have unfortunately led to the negative consequence that pirated, unauthorized, or altered copies reach potential users before the creator of the work releases the authentic version according to his or her terms.  The Digital Millennium Copyright Act of 1998 sought to address some of these concerns by punishing circumventions of technologies controlling access to copyrighted works (17 U.S.C. § 1201) and by protecting “copyright management information,” i.e. the data identifying the author and the terms of use of a copyrighted work (17 U.S.C. § 1202).

While scholars have commented extensively on section 1201, little scholarship exists on section 1202.  This Article addresses that gap.  The Article discusses a federal court split regarding the scope of application of section 1202 and demonstrates that the legislative history and the plain language of the statute call for broad application to both digital and non-digital works.  The Article then looks at section 1202 in the context of Internet fraud, and argues that this section functions as a consumer fraud statute, offering protections for the provision of accurate information and authentic works that can well serve copyright owners and consumers.

About the Author:

Corporate Counsel, Starbucks Coffee Company. J.D. (J. Kent Scholar, Hamilton Fellow), Columbia Law School; A.B. (with highest distinction), University of Michigan, Ann Arbor.

Mr. Jacobs graduated from Columbia Law School in 2002 where he was a Hamilton Fellow, a James Kent Scholar, and served as Articles Editor and Notes Editor for the Columbia Journal of Law and the Arts. He also graduated in the top 1% of his class at the University of Michigan, double majoring in History of Art and Spanish. He is currently Corporate Counsel with Starbucks Coffee Company, focusing on domestic and international intellectual property issues.

Facebook seeks to raise $5 Billion in its initial public stock offering, making it the largest Internet IPO on record.  It is believed that its stock offering will value the company $75 and $100 billion.  Mark Zuckerberg, however, will maintain his control over Facebook with voting power of almost 60 percent of total shares.  Meanwhile, Facebook is coming under a siege of patent lawsuits.  In 2011, Facebook was named as a defendant in 22 patent infringement suits.

Google announced its new privacy policy, which is set to become effective on March 1.  The new policy will allow it to track users’ activities across YouTube, Gmail, its search engine, and nearly all of its other sites.  Users will not be able to opt out, which may trigger more scrutiny from federal regulators.

On January 23, the Supreme Court held that attaching a GPS device to track a vehicle constitutes a search under the Fourth Amendment and requires a warrant.  The ruling is considered a victory for privacy rights in the age of advanced technology, but some argue it was too narrowly reasoned on the basis of the physical intrusion of attaching the device.

Congress indefinitely shelved the controversial antipiracy bills SOPA and PIPA after over 7,000 websites, including Wikipedia and Google protested the bills, handing a crushing blow to the traditional media industry.

Following the shutdown of file-sharing site Megaupload last month and arrest of 7 company employees, Federal prosecutors announced that Megaupload user data would be deleted as early as Thursday (Feb. 2).  However, a nonprofit group stepped in at the last minute, announcing on Wednesday that it would work with data-storage providers to create a website that will allow legitimate Megaupload users retrieve their data.

Murphy had installed a Greek satellite company’s decoder card in her pub’s satellite TV system, allowing her access to the Greek telecasts of EPL games. As a result, her pub could show live soccer games at three in the afternoon–something other pubs, subscribing to English broadcast rights-holders Sky Sports and ESPN, could not offer. Sky/ESPN are obligated by their license with the EPL to black out EPL games played from 3-5 PM, a practice aimed at keeping fans in the stadiums instead of the bar stools and sofas across England.[1]

In addition to depressing attendance at matches, the use of foreign decoder cards strikes at the very foundation of the EPL’s broadcast business model: using a foreign decoder allows pub owners to get access to their soccer content at a fraction of the cost of domestic decoder. A public display subscription to domestic service costs a pub about $747 per month, whereas a subscription to NOVA (the Greek satellite provider) costs a fraction of that amount, about $184 per month. The ability to charge English subscribers a premium for their own domestic content has allowed the EPL to sell its domestic broadcasting rights for about $1 billion a year.[2]

This week’s ECJ ruling cut to the core of this business model: they ruled that the national law that made the use of such foreign decoder cards illegal was “contrary to EU law” in that it hindered a “completion of the internal market” for goods or services. Publicans like Ms. Murphy can thus no longer be stopped from (or fined for) ordering and using foreign decoders in their satellite receivers. They furthermore ruled that the EPL cannot circumvent these rules by inserting terms into their license agreements which would prevent broadcasters from selling decoders outside of their licensed territory. The scheme by which the EPL and its partners were able to extract a premium from English subscribers, according to the court “cannot be regarded as forming part of the appropriate remuneration” that rights-holders are due. In yet another potential blow to the EPL (and sports leagues throughout Europe), the court said (in what is likely dictum) that the EPL “cannot claim copyright in the Premier League matches themselves, as they cannot be classified as works” within EU copyright law. The ECJ said that only the anthem, on-screen logos, and other visual elements added by the EPL could constitute copyrightable works.

So what is the EPL to do? Its whole raison d’etre is to leverage the value of bundling the broadcast and sponsorship rights to top-flight English soccer and offer them to the highest bidders. The League took some comfort in the ECJ’s finding that the unique visual elements that the EPL tacks onto its broadcasts are subject to copyright protection. As a practical matter, this seems to be rather slight solace: once it is legal for the bartenders to buy and use these decoders in their pubs, preventing them from showing the part of the broadcasts that feature the League anthem or the League’s iconic logo seems like a chore indeed. As a legal matter, it would seem rather illogical for the EPL to be able to circumvent competition law by copyright protection what it cannot get through contract. As soccer commentators are apt to say in a close match, there is still “all to play for,” as the English court on remand might take a more favorable stance on the copyright issue and thus give the EPL the result they seek.

The First Sale Doctrine

The first sale doctrine was established by the Supreme Court in Bobbs-Merrill Co. v. Straus where a book publisher printed the following note on its copyright page: “The price of this book at retail is $1 net. No dealer is licensed to sell it at a less [sic] price and a sale at a less [sic] price will be treated as an infringement of the copyright.” The Supreme Court held that, under existing copyright law, copyright holders have the exclusive right of distribution over the “first sale” of their works, but further distributions are outside of their control.  The first sale doctrine was later codified in the Copyright Act.

As a legal principle, first sale strikes a balance between the rights of copyright holder and the rights of the owner of a copy of said material. The doctrine also embodies the general principle in property law that unreasonable constraints on alienation (gifting, selling, etc.) are void.

First sale also promotes the value of free access to information by making out of print copyrighted works widely available and lowering prices through the existence of secondary markets.

Many copyright owners justifiably dislike the first sale doctrine because it prevents them from maintaining a monopoly on their copyrighted works, and it enables secondary markets which tend to drive down prices.

The Vernor Decision and the Sale/License Distinction

The essential facts of Vernor are straightforward. Vernor purchased used software at a garage sale and attempted to sell it on eBay. The copyright holder, Autodesk, filed several DMCA take-down notices with eBay. After some back and forth, Vernor brought a declaratory action in Federal District Court to establish that his resale was protected by first sale doctrine.

The primary legal issue was whether the transfer of Autodesk’s software to the customer who had sold it to Vernor constituted a sale or a licensing. This is the legal hook: if all that was transferred was license, the “first sale” has not occurred and the doctrine does not apply.

The licensee/owner distinction was not clear law prior to Vernor. The District Court in Vernor, determining that there were conflicting precedents on point, applied the 9th Circuit case United States v. Wise and found that the critical factor in the sale/license distinction was whether the purchaser had a right to possess the copyrighted work perpetually or whether he was required to return it to the copyright holder. The court found the right to perpetual possession and thus held that Vernor was covered by the first-sale doctrine.

On appeal, the 9th Circuit held that the license/ownership distinction depended on only three factors: (1) whether the copyright owner specifies that a user is granted a license (2) whether the copyright owner significantly restricts the user’s ability to transfer the software (3) whether the copyright owner imposes notable use restrictions. Applying this test to Autodesk, the court found that the transfer in question was a mere transfer of license and, thus, that Vernor was not protected by the first sale doctrine.

Criticism of the Vernor Test

The problem with the Vernor test is clear: a copyright holder can completely avoid the first sale doctrine by using the term “license” coupled with the “significant” transfer and use restrictions. Thus, under Vernor the application of first sale doctrine depends solely on the discretion of the copyright holder and what “magic words” he chooses to place in the license agreement.

The Vernor test completely undermines the first sale doctrine and all of its underlying policies. First sale is meant to balance between the rights of copyright owners and the rights of owners of copies; Vernor undermines that balance by making its applicability contingent on a copyright holder’s preference. Under the Vernor test, if Bobbs-Merrill Co. had written its note slightly differently, referring to the purchaser as a licensee, and imposing more use and transfer restrictions, the case would have come out the other way—an absolutely preposterous result.

And finally, Vernor effectively negates the principle against unreasonable restrictions on alienation as they apply to copyrightable works. A copyright holder only has to write the “magic words” in a licensing agreement to prevent resale. Thus, there is little standing in the way of copyright holders from unilaterally destroying secondary markets—the used software, book, DVD, CD and videogame market—and maintaining a monopoly on its work.

Currently, the plaintiffs in Vernor are petitioning for an en banc rehearing in the 9th Circuit. If denied, they will likely take it to the Supreme Court. Vernor as it stands today has the potential to fundamentally change not only the legal relevance of the first sale doctrine, but the entire economic, social and legal landscape for copyrightable works.

Content Which Falls Under Fair Use Is Not Infringing

One of the elements that Lenz had to prove for her 512(f) claim was that Universal knowingly asked YouTube to take down a video that was not infringing. In its brief, Universal tries to claim that this can never happen when it argued that “because fair use is a defense to an otherwise infringing use, Universal could not – under any analysis – have made any misrepresentations (knowing or otherwise) when it notified YouTube that Plaintiff had incorporated “Let’s Go Crazy” into her video without authorization from the copyright owner.”

To understand this difference, it’s helpful to look at criminal law. Defenses to crimes tend to fall into two different categories: “I didn’t do it” or “I did it, but I had to.” One helpful analogy is to look at a self-defense argument in the case of murder. You are still admitting that you killed someone and that that is wrong, but you are also arguing that it should be excused for some other reason (generally that the person you killed was threatening you).

Similarly, Universal is arguing that each and every post that uses infringing content in any way, even those ways explicitly identified by the statute as fair uses, are infringements on copyright. They claim that fair use is an affirmative defense (the self-defense of copyright) which may excuse the infringement after the fact, but which does not change the legal status of the original use.

It is easy to see why Universal would seek such a ruling. If this were the case, Universal or any other copyright owner would not need to take any care when sending out takedown notices to ensure that the use was infringing. It could simply send out notices as it chooses and potentially rely even further upon automated processes to do so.

Fortunately, the judge pointed out, both in this decision and a prior one, that this seems to be clearly wrong. In the prior order, Judge Fogel states that “if copyright owners are immune from liability by virtue of ownership alone, then to a large extent Section 512(f) is superfluous.” This is clearly the correct decision. After all, fair use is even defined in the statute as non-infringing: “Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work…is not an infringement of copyright.”

No Requirement of Monetary Harm, But Must Prove Proximate Cause

This latest decision focused heavily on a discussion of what damages are available to a plaintiff in a case like this. Both parties put forward competing interpretations of the language of 512(f). The relevant language states that a party in violation of the section “shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer, by any copyright owner or copyright owner’s authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it.”

Lenz argued that the phrase “any damages” should be interpreted to mean “any harm whatsoever” and points out that this language is broader than the “actual damages” language used in other areas of Title 17. Universal contested this reading, stating that the “actual damages” languages was meant as a contrast to statutory damages, not as a form of limitation.  Universal instead argued that, by analogy to common law fraudulent misrepresentation, damages should be limited to economic harm. It also further argued that the misrepresentation must be the proximate cause of the harm, due to the “as the result of” language in the passage above.

Judge Fogel’s decision ultimately draws from arguments put forward by both sides.  He agrees with Lenz on the issue of what damages may be considered, stating that “requiring a plaintiff…to demonstrate in addition not only that she suffered damages but also that those damages were economic and substantial would vitiate the deterrent effect of the statute.” The impact of this decision may be enormous. It’s likely that most plaintiffs who might suit under this section would be just like Stephanie Lenz: individuals whose personal videos were removed. There’s not likely to be economic harm suffered by such a plaintiff, and Fogel’s decision opens the way for such a plaintiff to sue and still recover for other harm, such as the harm to their First Amendment rights. As one of Lenz’s lawyers stated, “what’s important here is that someone who’s had their speech chilled can move forward and bring a lawsuit under 512(f).”

However, Fogel’s decision did place a significant burden upon such plaintiffs when he subsequently found that such damages “must be proximately caused by the misrepresentation of the copyright owner to the service provider and the service provider’s reliance on the misrepresentation.”  He pointed out that were this not the case, plaintiffs could show they have suffered harm merely by filing a suit and thereby incurring costs and fees.

The biggest constraint this puts on plaintiffs is that Judge Fogel interpreted this proximate cause requirement (combined with the fee shifting provisions already in place in 17 U.S.C. § 505) to mean that plaintiffs cannot recover attorney’s fees from after the litigation commences, since those fees are not proximately caused by the misrepresentation. This may end up taking the teeth away from 512(f), as most plaintiffs will not want to bear the brunt of their attorney’s fees when bringing such claims, especially since without monetary harm, their recovery is likely to be relatively low.

Now What?

While it’s unclear what larger impact this decision will have, it has already raised ordinary people’s awareness about the ways in which the provisions of the DMCA could impact their lives and demonstrated first hand what you can do if you experience a takedown. Statistics on YouTube currently indicate that the video has received over a million views and over a thousand comments, which demonstrates the degree to which people have been interested in this controversy. Stephanie Lenz herself seems to have become an activist in this area. Her personal blog indicates that this case has caused her to become interested and explore other topics affecting free speech and fair use. Though Stephanie Lenz may have suffered few monetary damages, it’s easy to see from her writings that she feels the harm to her speech rights very keenly.

Authorizing infringement

In a nearly two hundred-page judgment, Justice Dennis Cowdroy found that the applicant companies had succeeded in proving that users of iiNet’s services had “made available online,” “electronically transmitted,” and “copied” certain films. However, the applicants had failed to show that iiNet had “authorized” those infringements. The case centered around the use by iiNet’s customers of the peer-to-peer BitTorrent protocol to share movie files, in breach of the studios’ copyrights. The critical issue in the case was whether iiNet, by failing to take any steps to stop infringing conduct, authorized the copyright infringement by its users. Under Australian copyright law, authorizing the infringement of copyright by another is itself treated as an infringement.

Three step reasoning

There were three main steps to Justice Cowdroy’s reasoning:

1. He found that, though iiNet had knowledge of the infringements and did not act to stop them, this did not lead to a finding of authorization. Under the Australian law of authorization, there is a distinction between providing the “means” of infringement, and providing a “precondition” for infringement. Justice Cowdroy distinguished the present facts from earlier cases, including a 2005 Federal Court ruling in a case brought against the licensors of the Kazaa file-sharing software. In the Kazaa case, the software provided the “means” for infringement, whereas in the case of internet services, there did “not appear to be any way to infringe the applicants’ copyright from the mere use of the internet.” Here, the means of infringements at issue was the BitTorrent system, which iiNet had no control over.
2. AFACT had pushed for iiNet to implement a system of notification, suspension, and termination of infringing customers, but the judge found that this would not have been a “reasonable step” for the purposes of Section 101(1A)(a) of the Copyright Act 1968. This section provides that, in determining whether a person has authorized infringement, a court must consider, among other things, (a) the extent of the person’s power to prevent the infringement; (b) the nature of any relationship existing between that person and the infringer; and (c) whether the person took “any other resonable to steps to prevent or avoid” the infringement. The judge noted that “[t]he applicants appear to premise their submissions on a somewhat binary view of the world whereby failure to do all that is requested and possible to co-operate with copyright owners to stop infringement occurring, constitutes approval of copyright infringement. Such view is not the law. It is possible to be neutral. It is possible to prefer one’s own interests to those of the copyright owners.” (para. 504). iiNet could therefore not be held to be authorizing the infringements on the basis that they had failed to adopt a system such as the one urged by the applicants.
3. iiNet could not be seen as sanctioning, approving or countenancing copyright infringement, as it had done no more than to provide an internet service to its customers. In the Kazaa case the respondents intended copyright infringements to occur, and the software was deliberately structured to achieve this result. By contrast, in this case there was no evidence that iiNet “favored” infringement in its provision of access to the internet.

A disappointing ruling

The judge noted that the applicants would be disappointed by the ruling, as it was clear that infringement of their copyrights was occuring on a large scale, worldwide (para. 19). Yet this fact did not compel him to find authorization of infringement merely because “something must be done.” Australian law recognizes no positive obligation to protect the copyright of others, and the judge found that iiNet provides a legitimate communication service which is neither intended nor designed to infringe copyright (para.20). Justice Cowdroy is also reported to have remarked that “[i]f the ISPs become responsible for the acts of their customers, essentially they become this giant and very cheap mechanism for anyone with any sort of legal claim.”

The battle may not be over, however, as reports from before the ruling was issued suggest that AFACT may appeal the decision to the High Court of Australia, which could take another two years.

ISP liability in the United States

In the United States, secondary liability for copyright is dealt with as a matter of vicarious or contributory infringement, rather than “authorization” (though the concepts involved are similar). However, ISPs are protected from copyright infringement claims by Section 512(a) of the Copyright Act, which provides that service providers will not be liable for “infringement of copyright by reason of the provider’s transmitting, routing, or providing connections for, material through a system or network controller or operated by or for the service provider.” This section provides strong protection for ISPs, and likely explains why a case such as the one brought against iiNet in Australia has not been brought against a U.S. ISP.

Timeline

The first trial took place in 2007. A jury found that Thomas-Rasset (then simply Thomas) had “willfully” infringed and held her liable for $222,000 in damages. That figure came from a penalty of $9,250 per song, out of the $150,000 per song maximum permitted by the Copyright Act .

Thomas was granted a retrial because of a jury instruction that making a copyrighted file “available” was sufficient to show infringement. Federal Judge Michael Davis, who presided over the first trial, came to believe after appeal that his jury instructions were incompatible with Eighth Circuit precedent. Citing National Car Rental System, Inc. v. Computer Associates International, Inc. (8^th Cir. 1993), Judge Davis decided that the plaintiff had to show that defendant actually shared a file with a third party, rather than simply making the file available for sharing.

In the second trial in 2009, Judge Davis set aside a jury award of $1.92 million, calling it “monstrous” and pointing out that Thomas-Rasset did not make a monetary profit from her infringement. Davis reduced the damages to $54,000, allowing the parties to accept the award or proceed to a third trial.

The RIAA not only accepted the damages, but reduced them further in a settlement offer of $25,000. The RIAA’s terms allowed Thomas-Rasset to pay the award in installments to a fund for musicians. As a condition for the settlement, the RIAA said the judge would have to vacate his remittur (reduction) of the jury award.

Thomas-Rasset’s lawyers have announced her intention to reject this and any other settlement offer that requires her to pay damages. The RIAA’s deadline for accepting the offer was last Friday, January 29^th.

Issues

The major issue raised in this case is the constitutionality of the awards against Thomas-Rasset—and, by implication, future file-sharers like her. She intends to challenge the constitutionality of not only the $1.92 million jury award in the second trial, but also the judge’s reduced award. Even the reduced award, her lawyers contend, is unconstitutionally excessive: it is 2,250 times the usual $1 price of a downloaded song.

The RIAA is adamantly opposed to any finding that the judge’s awarded damages are unconstitutional. Moreover, the RIAA is trying to vacate the judge’s remittur because it is keen to prevent any precedent allowing judges to reduce jury awards in copyright infringement cases. That is why the vacature (making the original judgment legally void) of the remittur was the sole—and firm—condition of its settlement offer. For its absolute insistence on this point, the RIAA has been accused of bullying. Joe Sibley, one of Thomas-Rasset’s attorneys, recently described the situation as the RIAA trying to “scare” people into paying “exorbitant” damages. Nevertheless, the RIAA continues its attempt to vacate the remittur and thus keep the legal door open for million-dollar damages awards in file-sharing cases.

This trial raises another issue, namely what exactly it takes to prove infringement against a particular individual. Proving that songs were shared from a particular computer or IP address is often simple. However, proving that a particular user of that computer was the infringer is a different matter. Here, the files were shared from Thomas-Rasset’s password-protected computer at her IP address, using a username she had used for a number of years. The two juries evidently found this compelling evidence of Thomas-Rasset’s guilt, although Thomas-Rasset’s lawyers argued that anyone could have used the computer and username in question. Judge Davis was not convinced by and did not approve of Thomas-Rasset’s attempts to suggest that her children or ex-boyfriend infringed using her computer. The defense lawyers argued that alternative explanations were possible, and that MAC and IP addresses (identifiers for a particular computer that are transmitted during file-sharing) can be spoofed, though they offered no evidence that this had happened here.

Possible Future Developments

Wired recently described the RIAA as “winding down” its lawsuit campaign against file-sharers and shifting its efforts to getting internet access to infringers cut off. But there are still loose ends. Thomas-Rasset insists on going to a third trial rather than accepting a settlement. Therefore, it is still unclear whether there will be the precedent of a judge setting aside a jury award in a copyright infringement case will stand. That will depend on the outcome of the third trial.  Additionally, Thomas-Rasset’s challenge to the constitutionality of the judge’s award is still unresolved.

Furthermore, a second infringement case with a U.S. defendant also went to trial in July 2009: the recording industry’s suit against Joel Tenenbaum. The jury held Tenenbaum liable for $22,500 per song; since he was found to have infringed 30 songs, this amounted to $675,000 in damages. The judge finalized the jury award in December 2009. Like Thomas-Rasset, Tenenbaum is challenging the award’s constitutionality. Anyone who has ever shared a song using BitTorrent, Kazaa, or LimeWire should probably pay attention to what happens next.