EFF Urges Copyright Office to Fix Digital Music Mess, but Carefully

Legal Analysis by Fred von Lohmann

In comments filed today, EFF joined with other public interest and consumer groups in urging the Copyright Office to clarify the process for licensing digital music services, but to steer clear of larger digital copyright controversies. The comments were filed in a rulemaking involving the Section 115 compulsory license for "digital phonorecord deliveries" (DPDs) that has been dragging on since 2001 (read the July 16, 2008 "notice of proposed rulemaking" for a summary of the tortured history of the proceeding).

The issues are fantastically complex (even most copyright experts are perplexed by the morass surrounding digital music licensing), but the current logjam boils down to music publishers against everyone else. Every music recording involves two copyrights: one for the sound recording (i.e., the "master"), which is usually controlled by a record label, and one for the musical work (i.e., the "composition"), which is usually controlled by a music publisher. Different music services need different sorts of licenses (and those that simply host materials uploaded by users or simply distribute software may need no license at all), and it has been notoriously complicated to figure out who to contact for the relevant licenses.

The licensing of sound recordings has been getting easier, not least because the four major labels cover so much of the waterfront, and because licensing aggregators are consolidating the independent labels. It's the music publishers that represent the last great obstacle to streamlined licensing, in large part because there are so many of them. The good news here is that Congress in 1995 created a compulsory license in Section 115 of the Copyright Act, which means that so long as you pay a set rate, you can get a license to any and all musical works that you need. The bad news is that the interpretation of what the compulsory license covers, as well as the rate setting, has been trapped in regulatory limbo for years, creating uncertainty for everyone.

The Copyright Office has been trying to break the logjam with respect to digital music services by issuing regulations clarifying the scope of the DPD compulsory license. In particular, the Copyright Office is aiming to cut through some of the complexity by saying that the compulsory license is broad enough to cover any and all copies (whether server-side or client-side, whether on a hard drive or in a RAM buffer) made in the course of any kind of digital music service (whether downloading, streaming, or time-limited subscription).

So far, so good. The DPD compulsory license was created by Congress to prevent music services from having to find and negotiate one-by-one with every music publisher for every song. If some incidental copy is left hanging outside the 115 license, that goal would be frustrated.

But, as discussed in the EFF comments, the Copyright Office's proposal goes a bit too far by trying to resolve a number of other, unnecessary, copyright controversies that should be resolved by the courts or Congress. In particular, the proposed regulations took the position that temporary RAM buffer copies made in the course of streaming should qualify as copies under copyright law, precisely the issue that the Cablevision DVR opinion decided the other way just a few weeks ago. The proposed regulations also unnecessarily weigh in on the question of whether the distribution right reaches digital transmissions, an issue EFF has addressed in several court cases.

There is no need for the Copyright Office to get entangled in these continuing controversies in order to clarify the DPD compulsory license. It is enough for the regulations to clarify that all of the activities of digital music services can be licensed under the compulsory license, without coming to any conclusions about whether any particular activities must be licensed. Rather than issuing broad statements that will only spawn more litigation, the Copyright Office should stay out of these extraneous controversies and focus instead on clarifying the Section 115 compulsory license.

UPDATE: The Copyright Office is posting all of the comments received. Reply comments are due on Sept. 15, 2008, and a hearing will be held in Washington, D.C. on Sept. 19, 2008 (details here).

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Does Peace with UMG Mean Downgrade for XM Subscribers?

Deeplink by Fred von Lohmann

XM and Universal Music Group (UMG) have apparently settled their lawsuit over XM's Inno (we explained the details in a May 2006 post when the suit was filed), the little receiver/recorder that promised to be like a TiVo for your satellite radio subscription. Early reports only speculate about the terms of the settlement, suggesting that XM is probably paying a royalty to UMG for every Inno sold.

That's bad enough, as it sets a precedent that record labels can effectively tax innovators for building new technologies (UMG also pressured Microsoft into paying a royalty on every Zune). But the real question is whether XM will "downgrade" the features that the record labels object to -- like the Inno's ability to record only artists you specify and randomly access individual tracks (the record labels complain that this makes the Inno too much like an iPod, and that copyright law is somehow responsible for policing the boundaries between iPods and radios and computers and ... and...). Many will recall that the RIAA has been pushing for new laws like the PERFORM Act and FCC regulations that would prohibit these features, leaving us in a world where digital audio recorders are artificially left less capable than even the original TiVo video recorders.

So, any of you who own an XM Inno, please let us know if you get a mandatory "upgrade" that downgrades your device.

UPDATE: a helpful Inno owner tells us: "The firmware on the Inno apparently can only be changed via a USB cable using special software on your PC. They've gone through several versions including the famous 1.05 where the illegally high powered FM modulator could be enabled at any time. Later versions turned off this feature, but many people still cling to their 1.05 version Innos in spite of the bugs." So it appears that Inno owners may be protected from mandatory "downgrades," but at the expense of not getting other new features.

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Record Labels Sue XM Radio

Deeplink by Fred von Lohmann

As has been widely reported, the four major record labels have filed a copyright infringement suit against XM Radio, based on the recording capabilities included in certain recently-introduced XM receivers, such as the Pioneer Inno and Samsung Helix.

The complaint [200k PDF] makes it clear that the RIAA companies are gunning not just for XM, but for all innovators. Here's a summary of the claims, many of which reach well beyond the borders of established copyright jurisprudence:

• Count 1: Direct Infringement (Distribution) by "making available and automatically disseminating" sound recordings to subscribers who record them.
• Count 2: Direct Infringement (Unauthorized DPD delivery) by distributing digital phonorecord deliveries to the public.
• Count 3: Direct Infringement (Reproduction) by broadcasting to subscribers whose recorders automatically create buffer copies.
• Count 4: Direct Infringement (Reproduction) by creating ephemeral "transmitter-side" copies beyond the scope of the compulsory license provided by 17 U.S.C. 112(e), both because the ephemeral copies are used for purposes beyond solely enabling public performance and because they are not destroyed every 6 months.
• Count 5: Inducement by actively marketing and advertising the "librarying" function of Inno receivers and failing to "take readily available steps to prevent infringement."
• Count 6: Contributory Infringement by providing and activating XM receivers knowing they will be used to create infringing permanent libraries of sound recordings.
• Count 7: Vicarious Infringement by failing to prevent infringement despite having both legal and practical mechanisms whereby user infringement could be detected and prevented.
• Count 8: State Law Copyright Infringement (for Pre-1972 Works).
• Count 9: State Unfair Competition (for Pre-1972 Works).

Journalists covering the parade of copyright lawsuits arising out of new technologies (Napster, Aimster, ReplayTV, MGM v. Grokster, Elektra v. Barker, Perfect 10 v. Google, etc.) often make the mistake of examining only the facts surrounding the individual disputes, rather than recognizing that they represent a coordinated strategic effort by the entertainment industry to change the copyright law jurisprudence that applies to everyone. Court rulings, after all, continue to cast a legal shadow long after the technologies involved have disappeared (just consider the Supreme Court's 1984 Betamax ruling).

Here are a few of the larger issues touched on by this lawsuit:

• An attack on home taping: In the RIAA's view, home taping is illegal, at least when done with today's digital tools: "The XM+MP3 subscribers are creating unauthorized reproductions of Plaintiffs' copyrighted sound recordings,... and therefore are guilty of direct copyright infringement...." So much for fair use. So much for the AHRA. Sorry Pioneer, Samsung, and all the other innovators out there, but apparently home taping is only legal so long as the RIAA dictates the feature-set of the recorders.
• Forgetting the AHRA: As XM has made clear in its public statements [PDF], its new receivers have been designed to follow the rules set out in the AHRA, which was passed in 1992 in order to settle the a lawsuit brought by the music industry against Sony's then-new DAT recorders. The law expressly legalized digital audio recorders, and gave music fans the right to engage in home taping (for more on the AHRA as applied to digital radio recorders, see EFF's comments to the FCC on the "audio flag" for HD Radio). According to the RIAA's then-president, Jay Berman, the AHRA "will eliminate the legal uncertainty about home audio taping that has clouded the marketplace," and "will allow consumer electronics manufacturers to introduce new audio technology into the market without fear of infringement lawsuits." In the lawsuit against XM, however, the RIAA companies never mention the AHRA. It's as though it never happened. As though XM hadn't already paid millions in royalties to the RIAA as required by the AHRA (UPDATE: XM has not been specific about how much of the millions have gone to the transmission licenses, and how much for the AHRA device levies, both of which are required). As though music fans don't already enjoy the legal right to make digital recordings off the radio.
• Transmission + Recording = Distribution: As we've discussed previously, the RIAA has been trying to expand the scope of the "distribution" right on the backs of individual P2P file-sharing defendants in cases like Elektra v. Barker. The goal? To force broadcasters (and others who thought all they were doing was publicly performing music) to pay a second time for distribution licenses. If the RIAA wins on this score, then radio stations and webcasters are all in hot water, too.
• Inducement isn't just for pirates anymore: In the wake of the Supreme Court's ruling in MGM v. Grokster, EFF warned that the newly minted "inducement" weapon would not be reserved for "bad actors," but would also be leveled against legitimate innovators building the next generation of fair use technologies. Sure enough, the complaint accuses XM of inducement based on the following statements in promotional materials: "Hear It, Click It, Save It!," "[XM] delivers new music to you everyday and lets you choose tracks to create your own custom playlists," "record with the touch of a button," and "store up to 50 hours of XM." Not exactly a pirates "ahoy," is it?
• Holding design against innovators. The RIAA claims that XM should be held liable for both inducement and vicarious liability because it could have designed its technology differently, an argument familiar from the MGM v. Grokster battle. Of course, in that case even the Department of Justice (see fn.3) rejected the RIAA "you could have designed it differently" argument as baseless. If the RIAA succeeds this time, innovators could face liability whenever a court decides they didn't do "enough" to prevent infringement. The value of "enough," of course, will not be revealed to you until after you spend millions in legal fees and risk losing your company to ruinous statutory damages.
• Statutory damages as innovation's enemy: As I've pointed out before, a big part of the chilling effect on innovation created by copyright law stems from the thermonuclear effect that statutory damages has in cases involving recording devices. For example, the RIAA is seeking $150,000 in damages for each song recorded by any XM subscriber. The complaint further alleges that XM automatically infringes every song on every channel to which an Inno user is tuned (because the Inno records a live radio buffer, much like TiVo's 30 minute cache, and the RIAA argues that the buffer is an infringing copy). XM broadcasts 160,000 different songs each month. Assuming 20% of the songs each month are different from the last, that works out to roughly 500,000 different songs each year. Assuming Inno users are tuned in to at least half of those songs, that would mean statutory damages of $37.5 billion! This number obviously bears no relationship to the harm suffered by the recording industry (whose entire gross US revenues are less than $13 billion).

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The Season of Bad Laws, Part 3: Banning MP3 Streaming

Deeplink by Fred von Lohmann

The Washington Post reports that Senators Feinstein (D-Cal.) and Graham (R-S.C.) have introduced S. 2644, dubbed the PERFORM Act, that is aimed at punishing satellite radio for offering its subscribers devices capable of recording off the air.

Buried in the bill, however, is a provision that would effectively require music webcasters to use DRM-laden streaming formats, rather than the MP3 streaming format used by Live365, Shoutcast, and many smaller webcasters (like Santa Monica's KCRW and Seattle's KEXP). The streaming radio stations included in iTunes also rely on MP3 streams (since Apple isn't about to license the Real or Microsoft streaming codecs).

Today, webcasters that want to transmit major label music are entitled to do so under a statutory license (administered by SoundExchange) set out in section 114(d) of the Copyright Act. So long as they follow the rules and pay a royalty, webcasters can play whatever music they like, using whatever streaming format they like.

Under the current law, webcasters are forbidden from helping their listeners record the webcasts, and are required to use DRM only if the format includes DRM. The statutory license applies so long as:

[114(d)(2)(C)(vi)] the transmitting entity takes no affirmative steps to cause or induce the making of a phonorecord by the transmission recipient, and if the technology used by the transmitting entity enables the transmitting entity to limit the making by the transmission recipient of phonorecords of the transmission directly in a digital format, the transmitting entity sets such technology to limit such making of phonorecords to the extent permitted by such technology.

The PERFORM Act would change that, requiring webcasters to use DRM that restricts the recording of webcasts. That means no more MP3 streams if you rely on the statutory license. Under the bill, the statutory license would only be available to a webcaster if:

[114(d)(2)(C)(vi)] the transmitting entity takes no affirmative steps to authorize, enable, cause or induce the making of a copy or phonorecord by or for the transmission recipient and uses technology that is reasonably available, technologically feasible, and economically reasonable to prevent the making of copies or phonorecords embodying the transmission in whole or in part, except for reasonable recording as defined in this subsection.

What constitutes "reasonable recording," you ask? Well, reasonable recording is basically the feature set offered by analog cassette decks in the 1970s:

A `reasonable recording' means the making of a phonorecord embodying all or part of a performance licensed under this section for private, noncommercial use where technological measures used by the transmitting entity, and which are incorporated into a recording device (i) permit automated recording or playback based on specific programs, time periods, or channels as selected by or for the user; (ii) do not permit automated recording or playback based on specific sound recordings, albums, or artists; (iii) do not permit the separation of component segments of the copyrighted material contained in the transmission program which results in the playback of a manipulated sequence; and (iv) do not permit the redistribution, retransmission or other exporting of a phonorecord embodying all or part of a performance licensed under this section from the device by digital outputs or removable media, unless the destination device is part of a secure in-home network that also complies with each of the requirements prescribed in this paragraph.

If the PERFORM Act becomes law, webcasters who use the statutory SoundExchange licenses to play music would have to give up MP3 streaming in favor of a DRM-restricted, proprietary formats that impose restrictions on any recordings made. So much for great time-shifting technologies like Streamripper and RadioLover.

[UPDATED to reflect bill number and language as introduced in the Congressional Record.]

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Copy Protection Coming to (Digital) Radio?

Deeplink by Fred von Lohmann

Today, Rep. Mike Ferguson (R-N.J.) introduced the "Audio Broadcast Flag Licensing Act of 2006," H.R. 4861, a House companion bill to the Senate's broadcast flag bill.

This bill would require that all future digital radios (both terrestrial, like HD Radio, and satellite, like XM and Sirius) "include prohibitions on unauthorized copying and redistribution of transmitted content." The FCC would be tasked with working out the details.

This is the culmination of months of lobbying by the RIAA to lock down the "record" button on your next radio. Despite the fact that, under existing copyright law, building and using digital radio recorders is clearly legal, thanks to the Audio Home Recording Act (a point we explained in detail before the FCC in 2004).

H.R. 4861 is chilling in at least three ways:

• If this becomes law, you would need a license from the FCC to build a radio receiver and be forced to incorporate DRM if your receiver has a record button. In other words, satisfying the Code of Federal Regulations would come before satisfying your customers.
• Notice that "unauthorized" copying and redistribution will be prohibited, rather than unlawful copying and redistribution. Translation: unless you get permission, it's forbidden, even if it would be a fair use or perfectly legal under the AHRA.
• The bill says that the restrictions "shall not be inconsistent with the customary use of broadcast content by consumers to the
  extent such use is consistent with the purposes of this act and other applicable law." As we've discussed before, this freezes fair use based on yesterday's "customary uses," rather than leaving room for tomorrow's innovators. Remember, time shifting with your VCR was not "customary" in 1976, nor was platform-shifting CDs to your iPod in 1997.

For a picture of what the RIAA considers permissible, take a look at the comments they filed with the FCC on this topic back in 2004. Here's the list of restrictions they asked for then:

• Receivers may only record or permit recording of covered content: (a) in direct and immediate response to a consumer pressing a record button; (b) based on a date and time preprogrammed by the consumer.
• Preprogrammed recordings shall be for a minimum period of 30 minutes in duration.
• A replay buffer may be used to initiate a recording of a previously broadcast transmission provided that the buffer does not exceed 30 minutes in duration.
• Each recording of covered content shall be stored and retrieved as a singe continuous session and may not be divided into recordings of individual songs on an automated or non-automated basis using ID information or audio characteristics.
• The application of these usage rules to covered content shall be stored and associated in a robust manner with any recordings of such covered content.
• ID information shall be recorded only in a manner that effectively limits its use to display during simultaneous audio playback.
• No recording device shall record covered content based on ID information.
• All recordings of covered content must employ robust encryption methods to bind and limit playback to the recording device.
• Playback of covered content shall be solely on a session basis and shall not be linked in any way to ID information.
• Playback of covered content shall be at normal speed (defined as within 10% of the speed at which the content was originally recorded). Playback may skip forward and backward at higher speeds within the recorded session without playing any sound provided that no skipping, either forward or backward, shall be permitted to the beginning or end of a song using ID information.

"RIAA believes that these rules appropriately balance the interests of users in recording material off-the-air while protecting the interests of the music industry...."

Neither I nor the Copyright Act agrees.

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New Senate Broadcast Flag Bill Would Freeze Fair Use

Deeplink by Fred von Lohmann

Draft legislation making the rounds in the U.S. Senate gives us a preview of the MPAA and RIAA's next target: your television and radio. (Please write your Senator about this!)

You say you want the power to time-shift and space-shift TV and radio? You say you want tomorrow's innovators to invent new TV and radio gizmos you haven't thought of yet, the same way the pioneers behind the VCR, TiVo, and the iPod did?

Well, that's not what the entertainment industry has in mind. According to them, here's all tomorrow's innovators should be allowed to offer you:

"customary historic use of broadcast content by consumers to the extent such use is consistent with applicable law."

Had that been the law in 1970, there would never have been a VCR. Had it been the law in 1990, no TiVo. In 2000, no iPod.

Fair use has always been a forward-looking doctrine. It was meant to leave room for new uses, not merely "customary historic uses." Sony was entitled to build the VCR first, and resolve the fair use questions in court later. This arrangement has worked well for all involved -- consumers, media moguls, and high technology companies.

Now the RIAA and MPAA want to betray that legacy by passing laws that will regulate new technologies in advance and freeze fair use forever. If it wasn't a "customary historic use," federal regulators will be empowered to ban the feature, prohibiting innovators from offering it. If the feature is banned, courts will never have an opportunity to pass on whether the activity is a fair use.

Voila, fair use is frozen in time. We'll continue to have devices that ape the VCRs and cassette decks of the past, but new gizmos will have to be submitted to the FCC for approval, where MPAA and RIAA lobbyists can kill it in the crib.

The new legislation, being circulated by Senator Gordon Smith (R-Ore.), is the first step down that path (and is eerily reminiscent of the infamous 2002 Hollings Bill). It would impose a broadcast flag mandate on all future digital TVs and radios, much like legislation discussed by the House last year.

We've covered the broadcast flag and radio flag extensively in the past. These measures would impose federal regulations on all devices capable of receiving digital television and digital radio signals. What's worse, the regulations won't do a thing to stop "piracy," since there are plenty of other ways to copy these broadcasts.

Sen. Smith's bill would retroactively ratify the FCC's broadcast flag regulations, rejected by the courts last year. This effort to impose content protection mechanisms in all future TVs is still just as terrible an idea now as ever.

The bill would also give the FCC authority to regulate the design of digital radios (both terrestrial HD Radio and XM and Sirius satellite). The bill envisions an "inter-industry" negotiation with a preordained outcome -- federal regulations mandating content protection mechanisms in all future HD Radio and satellite radio receivers.

The FCC regulations could make room for "customary historic uses of broadcast content by consumers to the extent such use is consistent with applicable law." Presumably, that means you could design a digital device just as good as an analog cassette deck, but no better.

Sorry, Sen. Smith, but American innovators and music fans deserve better.

UPDATE: For more on this, check out Public Knowledge's analysis, as well as Boing Boing's.

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